<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1997
REGISTRATION NO. 333-37833
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BALANCED CARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 8361 25-1761898
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5021 LOUISE DRIVE, SUITE 200
MECHANICSBURG, PENNSYLVANIA 17055
(717) 796-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRAD E. HOLLINGER
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BALANCED CARE CORPORATION
5021 LOUISE DRIVE, SUITE 200
MECHANICSBURG, PENNSYLVANIA 17055
(717) 796-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
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<S> <C>
RONALD D. WEST MARK KESSEL
KIRKPATRICK & LOCKHART LLP SHEARMAN & STERLING
1500 OLIVER BUILDING 599 LEXINGTON AVENUE
PITTSBURGH, PENNSYLVANIA 15222-2312 NEW YORK, NEW YORK 10022-6069
(412) 355-6500 (212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1997
BALANCED CARE CORP LOGO
LOGO
6,961,000 SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby (the "Offering") will be
issued and are being sold by Balanced Care Corporation (the "Company"). Prior to
the Offering, there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between $9.00
and $11.00 per share. See "Underwriting" for the method of determining the
initial public offering price.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
- --------------------------------------------------------------------------------------------------------
Total (2)............................. $ $ $
========================================================================================================
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
1,044,000 additional shares of Common Stock solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
---------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1997.
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
SALOMON SMITH BARNEY
The date of this Prospectus is , 1997.
<PAGE> 3
TEXT
[logo of Company]
TEXT
[logo of Company]
[Map of eastern half of United States, separately identifying,
as of September 30, 1997, the headquarters of the Company,
current operations, pending acquisitions and facilities in
development or under construction]
[pictures of residents of Company facilities]
[pictures of residents of Company facilities]
TEXT
TEXT
[logo of Company]
[pictures of residents of Company facilities]
TEXT
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE ""UNDERWRITING.''
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
Summary............................................................................... 4
Risk Factors.......................................................................... 9
Use of Proceeds....................................................................... 17
Dividend Policy....................................................................... 17
Capitalization........................................................................ 18
Dilution.............................................................................. 19
Selected Consolidated Financial and Operating Data.................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Unaudited Pro Forma Financial Information............................................. 32
Business.............................................................................. 55
Management............................................................................ 78
Certain Transactions.................................................................. 88
Principal Stockholders................................................................ 90
Description of Capital Stock.......................................................... 93
Shares Eligible For Future Sale....................................................... 94
Underwriting.......................................................................... 96
Legal Matters......................................................................... 98
Experts............................................................................... 98
Additional Information................................................................ 100
Index to Financial Statements......................................................... F-1
</TABLE>
---------------------
The Company intends to furnish to its stockholders annual reports
containing audited financial statements and an opinion thereon expressed by
independent certified public accountants and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including that appearing in "Risk Factors" and the financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Except where otherwise indicated, all share and per share data in this
Prospectus have been adjusted to reflect: (i) a three-for-four reverse split of
the Common Stock effected on October 14, 1997 and (ii) the conversion of all
outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock of the Company (together, the "Outstanding Preferred
Stock") into an aggregate of 4,620,531 shares of Common Stock effective upon
completion of the Offering. See "Description of Capital Stock" and "Principal
Stockholders." In addition, unless otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
References herein to fiscal years are references to the fiscal year of the
Company ended June 30 of the year specified. References herein to "the Company"
are references to the Company and its consolidated subsidiaries.
THE COMPANY
The Company was formed in April 1995 to develop senior care continuums
which meet the needs of upper middle, middle and moderate income populations in
non-urban, secondary markets. The Company considers upper middle, middle and
moderate income populations to consist of those individuals whose income and
assets enable them to afford senior living and care services at average daily
rates of $85, $75 and $65, respectively. The Company intends to utilize assisted
living facilities in selected markets as the primary entry point and service
platform to develop a care continuum (the "Balanced Care Continuum") consisting
of various health care and hospitality services, including, where appropriate,
rehabilitation therapies, physical, occupational and speech therapy, home health
care services on an intermittent basis, dementia and Alzheimer's services and
skilled/subacute care delivered in a skilled nursing setting, enabling residents
to age in place. The Company believes that non-urban, secondary markets are
underserved, highly fragmented and less prone to intense competition from larger
providers. The Company believes that these factors will enable it to establish a
leading position as a provider of a market differentiated, consumer preferred
continuum of senior care services in such markets. To achieve its goals, the
Company intends to: (i) provide a range of high quality, individualized senior
care services and programs, (ii) develop the Balanced Care Continuum, (iii)
focus on non-urban, secondary markets, (iv) continue developing the Company's
signature assisted living facilities, (v) pursue growth through selective
acquisitions, (vi) achieve the benefits of regional density by clustering, and
(vii) expand referral networks and strategic alliances.
After its formation, the Company raised its initial $2 million private
equity funding in September 1995. The Company obtained a $91 million financing
commitment for acquisitions and assisted living facility development projects
from a health care real estate investment trust ("REIT") in March 1996. A $12
million private equity funding followed which occurred in two stages in
September 1996 and March 1997. The Company has a limited operating history and
has incurred operating losses since its inception. See "Risk Factors -- Limited
Operating History; Losses."
Since its inception, the Company has grown principally through
acquisitions. The Company completed acquisitions of Foster Health Care
Affiliates ("Foster") in August 1996, Keystone Affiliates ("Keystone") in
January 1997, Heavenly Health Care, Inc. d/b/a Joe Clark Residential Care Homes
("Clark") in May and August 1997, Feltrop's Personal Care Home ("Feltrop") and
Butler Senior Care ("Butler") in October 1997 and Triangle Retirement Services,
Inc. d/b/a Northridge Retirement Center ("Northridge") in December 1997
(collectively, the "Recent Acquisitions"). The Company has also executed a
definitive agreement with respect to the pending acquisition of the operations
of Gethsemane Affiliates ("Gethsemane") (the "Pending Acquisition"). The Company
completed the divestiture of Long-Term Care Pharmaceutical, Inc. (the "Pharmacy
Divestiture") in October 1997. The Company has also leased two facilities and
has designed, developed and opened seven of its signature assisted living
facilities. As of December 1, 1997, the Company operated a total of 30 assisted
living facilities, 12 skilled nursing facilities and four independent living
facilities in Pennsylvania,
4
<PAGE> 6
Missouri, Arkansas and Wisconsin, as well as a home health care agency in
Missouri and a rehabilitation therapy operation in Pennsylvania. After giving
effect to the Pending Acquisition, and assuming completion of the planned
divestiture of the Company's assisted living facilities in Wisconsin, and
including the additional assisted living facilities opened since December 1,
1997, the Company will own nine and lease 32 senior living and health care
facilities in Pennsylvania, Missouri, Arkansas and North Carolina with a
capacity for 1,341 assisted living residents, 1,294 skilled nursing patients and
154 independent living residents. See "Risk Factors--Assisted Living Facility
Development, Construction and Occupancy Risks," "Risk Factors--Acquisition
Risks; Difficulties of Integration," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Pending Acquisition and Planned
Divestiture," "Unaudited Pro Forma Financial Information" and
"Business--Operating Facilities." In addition to the seven signature assisted
living facilities opened to date, the Company anticipates opening three
additional signature assisted living facilities, which are currently under
construction, prior to February 1998.
The Company generates revenues from patient services, resident services and
other sources which consist primarily of development fees. Patient services
represent charges for room and board, therapies, pharmacy, medical supplies and
subacute services provided in its skilled nursing facilities as well as
rehabilitation services provided to assisted living facility residents. Resident
services represent revenues earned from assisted living residents for room and
board and ancillary charges. Development fees are earned for developing assisted
living facilities for REITs or other owners. The Company's pro forma revenues of
$71.6 million for the fiscal year ended June 30, 1997, consist of 73.4% patient
services, 24.6% resident services and 2.0% other revenue. For the quarter ended
September 30, 1997, pro forma revenues of $21.2 million included 69.1% from
patient services, 22.8% from resident services and 8.1% from other revenues.
The Balanced Care Continuum is being developed to deliver consumer-focused
health care and hospitality services that balance seniors' desire for
independence with their evolving health care needs. The Company's philosophy
includes the belief that wellness and preventative therapy will strengthen
residents, improve their health and forestall the deterioration that generally
accompanies aging, thus extending their lives and lengths of stay in assisted
living facilities. The Company's wellness-oriented program, Balanced Gold(SM),
has been developed to predict and proactively address resident care needs,
including stabilizing and improving residents' cognitive, emotional and physical
well being. The Balanced Gold(SM) program is included in the Company's core
services package at each of its newly-developed signature assisted living
facilities, and the Company intends to implement all or part of the program at
its other assisted living facilities as appropriate. Preventative, restorative
and rehabilitative services are also expected to be made available to residents
through outpatient medical rehabilitation, home health care, programs for
residents with Alzheimer's and other services provided by the Company or by an
alliance partner or other third-party. By offering services and programs that
are intended to enable residents to stay healthier longer and prolong their stay
at assisted living facilities, the Company believes that its services and
programs will address the preferences and needs of seniors, while at the same
time forestalling the need for residents to move to a more costly long-term care
setting, such as a skilled nursing facility. As resident needs mandate migration
into a skilled nursing or subacute program, the Company believes that its
skilled nursing facilities will provide a transition for the resident with a
focus on demonstrated outcomes and cost effective care. The Company believes
that its approach to senior care will enable it to be a leading provider of a
range of senior care services in targeted non-urban, secondary markets. See
"Risk Factors--Implementation of Strategies."
The senior care industry is characterized by a wide range of living
accommodations and health care services. For those who are able to live in a
home setting, home health care and other limited services can be provided.
Community housing or retirement centers, which are commonly referred to as
independent living facilities, are also available to persons who need limited
assistance, such as with meal preparation, housekeeping and laundry. Assisted
living facilities are typically for those persons whose physical or cognitive
frailties have reached a stage where other living accommodations can no
5
<PAGE> 7
longer provide the level of care required, but who do not yet need the
continuous medical attention provided in a skilled nursing facility. Generally,
assisted living facilities provide a combination of housing and 24-hour personal
support services designed to assist seniors with activities of daily living
("ADLs"), which include bathing, eating, personal hygiene, grooming, ambulating
and dressing. Certain assisted living facilities also offer higher levels of
personal assistance for residents with Alzheimer's disease or other forms of
dementia. Skilled nursing facilities provide care for those who need a minimum
of three hours of nursing per day.
The Company believes that the assisted living industry is evolving as the
preferred alternative to meet the growing demand for a cost effective setting
for those seniors who cannot live independently due to physical or cognitive
frailties but who do not require the more intensive medical attention provided
by a skilled nursing facility. According to the United States Bureau of the
Census, the portion of the United States population aged 75 and older is
expected to increase by approximately 29%, from approximately 13.0 million in
1990 to approximately 16.8 million by the year 2000, and the number of persons
aged 85 and older, as a segment of the United States population, is expected to
increase by approximately 43%, from approximately 3.0 million in 1990 to over
4.3 million by the year 2000. The United States Bureau of the Census data shows
that approximately 45% of persons aged 85 years and older, approximately 24% of
persons aged 80 to 84 and approximately 20% of persons aged 75 to 79 need
assistance with ADLs. In 1996, according to industry estimates, the assisted and
independent living industries generated approximately $12 to $14 billion in
revenues.
The Company believes that a number of factors will contribute to the
continued growth of the assisted living industry, including (i) consumer
preference, (ii) cost effectiveness, (iii) changing income and family dynamics,
(iv) demographics and (v) supply/demand imbalance.
6
<PAGE> 8
THE OFFERING
Common Stock Offered by the
Company............................. 6,961,000 shares
Common Stock to be Outstanding
after the Offering................ 15,606,343 shares(1)
Use of Proceeds..................... To repay outstanding long-term
indebtedness of $8,151,000,
indebtedness of $23,495,000 incurred to
fund the purchase of three completed
acquisitions and indebtedness of
$5,528,000 to be incurred to fund the
Pending Acquisition; the balance will
be used for general corporate purposes,
including working capital and possible
future acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
Symbol.............................. BCCX
- ------------
(1) Based on shares outstanding as of September 30, 1997. Excludes (i) 937,867
shares issuable upon the exercise of warrants to purchase Common Stock
outstanding as of such date at a weighted average exercise price of $0.62
per share, (ii) 1,013,425 shares issuable upon the exercise of outstanding
options to purchase shares of Common Stock granted under the Company's stock
option plan as of such date at a weighted average exercise price of $4.23
per share and (iii) 1,011,575 shares reserved for issuance upon the grant of
options under the Company's stock option plan as of such date. See
"Management -- Stock Incentive Plan."
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------- -----------------------------------------
PRO FORMA PRO FORMA
AS AS
PRO FORMA ADJUSTED PRO FORMA ADJUSTED
1995(1) 1996 1997(2) 1997(3) 1997(4) 1996(2) 1997 1997(3) 1997(4)
------- ------ ------- --------- --------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Patient services............. $ -- $ -- $41,616 $52,605 $52,605 $ 3,304 $14,496 $14,693 $14,693
Resident services............ -- 737 6,778 17,612 17,612 993 2,998 4,841 4,841
Other revenues............... -- 74 1,086 1,405 1,405 75 1,644 1,715 1,715
----- ----- ------- ------- ------- ------- ------- ------- -------
Total revenues......... -- 811 49,480 71,622 71,622 4,372 19,138 21,249 21,249
Loss from operations........... (10) (814) (3,787) (1,944) (1,944) (556) (526) (50) (50)
Net income (loss).............. $ (10) $ (909) $(4,492) $(3,426) $(1,077) $ (729) $ (657) $ (562) $ 25
Net income (loss) per
share(5)..................... $ -- $(0.29) $ (0.56) $ (0.43) $ (0.07) $ (0.09) $ (0.08) $ (0.07) $ --
Weighted average common and
common equivalent shares
outstanding(5)............... 2,939 3,088 7,954 7,954 15,778 7,954 7,980 7,980 15,804
Supplementary net loss per
share(5)..................... -- $(0.29) $ (0.42) N/A N/A $ (0.07) $ (0.05) N/A N/A
SELECTED OPERATING DATA:
Facilities operated at end of
period:
Assisted living.............. -- 8 18 24 24 8 20 26 26
Skilled nursing.............. -- -- 12 13 13 10 12 13 13
Independent living........... -- -- 4 4 4 3 4 4 4
Resident capacity at end of
period:
Assisted living.............. -- 213 707 1,119 1,119 225 782 1,194 1,194
Skilled nursing.............. -- -- 1,228 1,294 1,294 1,125 1,228 1,294 1,294
Independent living........... -- -- 120 140 140 92 127 147 147
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<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
PRO FORMA
JUNE 30, AS
------------------------- PRO FORMA ADJUSTED
1995 1996 1997 1997 1997(3) 1997(4)
------- ----- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 16 $ 727 $14,850 $12,516 $(15,161) $39,966
Total assets................................................. 17 7,292 33,017 31,624 61,993 88,056
Long-term debt, net of current portion....................... -- 5,043 8,177 8,354 8,354 244
Redeemable preferred stock................................... -- -- 13,249 13,875 13,875 --
Stockholders' equity......................................... 17 1,124 (1,444) (2,727) (1,381) 75,731
</TABLE>
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(1) From inception at April 17, 1995.
(2) Includes results of operations of Foster beginning September 1, 1996, the
results of operations of Keystone beginning February 1, 1997, and the
results of operations of Clark beginning May 16, 1997.
(3) Gives effect to the acquisitions of Foster, Keystone, Clark, Feltrop,
Butler, Northridge and the pending acquisition of Gethsemane and the
Pharmacy Divestiture as if such transactions had occurred on July 1, 1996
with respect to statement of operations data for the fiscal year ended June
30, 1997 and for the quarter ended September 30, 1997, and as of September
30, 1997 with respect to balance sheet data. Such data are not necessarily
indicative of the results of operations that would have been achieved had
such transactions occurred on the dates indicated or that may be expected to
occur in the future as a result of such transactions. There can be no
assurance that the pending acquisition of Gethsemane will be consummated.
(4) Gives effect to: (i) the sale by the Company of 6,961,000 shares of Common
Stock in the Offering (at an assumed initial public offering price of $10.00
per share and after deducting estimated underwriting discounts and
commissions and offering expenses) and the anticipated application of the
net proceeds therefrom and (ii) the conversion of all Outstanding Preferred
Stock into an aggregate of 4,620,531 shares of Common Stock, as if such
transactions had occurred on July 1, 1996 with respect to statement of
operations data for the fiscal year ended June 30, 1997 and for the quarter
ended September 30, 1997, and as of September 30, 1997 with respect to
balance sheet and selected operating data.
(5) See Note 1(q) to the Notes to Consolidated Financial Statements of the
Company. Supplementary loss per share data is not applicable to pro forma
presentations.
8
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby.
LIMITED OPERATING HISTORY; LOSSES
The Company was formed in April 1995 and has a limited operating history.
The Company incurred losses of $10,000, $909,000, $4,492,000 and $657,000 for
its fiscal years ended June 30, 1995 (from inception at April 17, 1995), 1996
and 1997 and the three-month period ended September 30, 1997, respectively, and
had an accumulated deficit of $5,411,000 and $6,068,000 as of June 30, 1997 and
September 30, 1997, respectively. The Company would have had a net loss for the
year ended June 30, 1997 of $1,077,000 and net income of $25,000 for the
three-month period ended September 30, 1997, on a pro forma basis after giving
effect to the Recent Acquisitions, the Pending Acquisition and the Pharmacy
Divestiture as if such transactions had occurred on July 1, 1996 and assuming
completion of the Offering. There can be no assurance that the Pending
Acquisition will be consummated. The Company's newly developed assisted living
facilities are expected to incur operating losses until they achieve targeted
occupancy levels of approximately 92%. The Company's signature assisted living
facility models range in size from 48 units to 106 units. The Company expects to
achieve the targeted occupancy level approximately 10 to 21 months after
opening, depending on the size of the facility. In addition, the Company's
acquired operations, even if profitable when acquired, may incur operating
losses pending their integration into the Company's business. Several of the
facilities that have been acquired by the Company experienced operating losses
in fiscal 1997. See "Selected Consolidated Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Financial Information." Accordingly, there
can be no assurance that the Company will not continue to incur losses. Failure
to achieve profitability could have a material adverse effect on the Company's
business, results of operations and financial condition.
IMPLEMENTATION OF STRATEGIES
To date, the Company's growth has been primarily attributable to
acquisitions of assisted living and skilled nursing facilities. The Company's
first signature assisted living facility opened in May 1997. The Company has
opened six additional signature assisted living facilities in September, October
and November 1997. The Company intends to develop a "Balanced Care Continuum"
through the development and selective acquisition of additional assisted living
facilities and, where appropriate, skilled nursing facilities, as well as the
provision of medical rehabilitation, home health care and skilled nursing
services. The Company expects that the number and types of facilities and
business operations that it owns, operates or manages will increase
substantially if the Company is successful in implementing its strategies.
Implementation of the Company's strategies will place a significant burden on
the Company's management resources and require the development, implementation
and continual enhancement of sufficient operational, resident care, financial
and management information systems. Successful implementation of the Company's
strategies will also depend on its ability to carry out its development plans
and to effect acquisitions and alliances and to attract, motivate and retain
management, professional, marketing and other key personnel. There can be no
assurance that its strategies can be implemented successfully or that sufficient
management resources and operational, resident or patient care, financial and
management information systems will be available. If the Company is unable to
effectively implement its strategies or to manage its growth, its business,
results of operations and financial condition could be materially and adversely
affected.
NEED FOR ADDITIONAL CAPITAL
The Company will need to obtain substantial additional capital resources to
fund its development and acquisition strategy as well as its working capital
needs to fund the growth in its operations. The estimated cost to complete
pending acquisitions and the facilities planned for development over the
9
<PAGE> 11
next three years is estimated to range from $500 to $600 million which
substantially exceeds the financial resources currently available to the Company
and the estimated net proceeds of the Offering. Accordingly, the Company's
future growth will depend on its ability to obtain additional development,
acquisition and working capital financing on acceptable terms. The Company may
seek additional financing through public or private financing sources, including
equity, debt or lease financing. Financings effected through the issuance of
securities could result in substantial dilution to holders of Common Stock.
There can be no assurance that adequate funding will be available as needed or
on terms acceptable to the Company. Insufficient development, acquisition and
working capital financial resources could result in the Company delaying or
eliminating all or some of its development projects and acquisition plans or
otherwise slowing the growth of its operations, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
ASSISTED LIVING FACILITY DEVELOPMENT, CONSTRUCTION AND OCCUPANCY RISKS
To date, the Company has developed, built and opened seven of its signature
assisted living facilities. The Company plans to develop approximately 75
Company-designed assisted living facilities with an aggregate capacity of
approximately 6,000 residents over the next three years. Achievement of these
development goals will depend upon a number of factors, including the Company's
ability to acquire suitable development sites at acceptable prices, to obtain
adequate financing on acceptable terms, to obtain zoning, land use, building,
occupancy, licensing and other required governmental permits on a timely basis,
and to control construction costs and project completion schedules. In addition,
numerous factors outside the Company's control will impact the successful
implementation of its development plans, including competition for site
acquisitions, shortages of, or the inability to obtain, labor or materials,
changes in applicable laws or regulations or in the method of applying such laws
and regulations, the failure of general contractors or subcontractors to perform
under their contracts, strikes and adverse weather. There can be no assurance
that the Company will not encounter delays in its development program or that it
will be successful in developing and constructing planned or additional assisted
living facilities or that completed facilities will achieve targeted occupancy
rates or otherwise be economically successful. The Company's inability to
achieve its development plans or the delay of those plans could have a material
adverse effect on its business, results of operations and financial condition.
ACQUISITION RISKS; DIFFICULTIES OF INTEGRATION
To date, the Company's growth has been primarily attributable to
acquisitions, and it is currently a party to an asset purchase agreement
relating to the Pending Acquisition. The Company plans to continue to expand its
business through acquisitions. Pursuit of an acquisition strategy entails the
risks inherent in assessing the value, strengths, weaknesses, contingent or
other liabilities and potential profitability of acquisition candidates and in
integrating the operations of acquired businesses. The Company's success in
effecting acquisitions will depend on numerous factors, including its ability to
identify suitable acquisition candidates and negotiate acceptable purchase
terms, the competition for acquisitions, the Company's ability to finance
acquisitions, and the availability of appropriate government licenses and
approvals. Successful integration of acquired businesses will depend on the
Company's ability to effect any required changes in operations or personnel, and
may require renovation or other capital expenditures or the funding of
unforeseen liabilities. There can be no assurance that the Company will
consummate the Pending Acquisition or future acquisitions, that operations of
acquired facilities can be successfully integrated or that acquired operations
will be profitable.
10
<PAGE> 12
SUBSTANTIAL FIXED CHARGES
The Company leases most of its facilities under long-term operating leases.
Lease and debt service obligations of the Company for fiscal 1997 aggregated
approximately $6,300,000. On a pro forma basis after giving effect to the Recent
Acquisitions and the Pending Acquisition as if such transactions had occurred on
July 1, 1996, the Company would have had aggregate lease and debt service
obligations for fiscal 1997 of approximately $8,800,000. Leases generally
provide for rent increases and require the Company to pay taxes, utilities and
insurance obligations. The Company intends to continue to finance the
development of its properties through a combination of operating leases and
mortgage financing and thus expects that the amount of its lease-related and
debt service obligations will increase as the Company pursues its growth
strategy. As a result, an increasing portion of the Company's cash flow will be
devoted to lease payments and debt service, which will reduce the amount of cash
flow otherwise available to support the Company's growth. Such leases and
mortgages also typically contain rent coverage and other financial covenants.
There can be no assurance that the Company will generate sufficient cash flow
from operations to cover required lease and debt service payments or that the
financial performance of the Company or of particular subsidiaries or facilities
will be adequate to meet applicable financial covenants. Any payment or other
default could cause a lender to foreclose upon any collateral securing the
indebtedness or, in the case of an operating lease, could terminate the lease,
resulting in a loss of revenue and asset value to the Company. In certain cases,
indebtedness secured by real estate of a facility is also secured by a pledge of
the Company's operating interest in the facility. Since most of the Company's
leases and financing 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
other obligations and properties. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
GOVERNMENT REGULATION
The health care industry is subject to extensive federal and state
regulation and frequent regulatory change. Federal, state and local laws
governing long-term care and other services provided to seniors address, among
other things, adequacy of medical care, distribution of pharmaceuticals,
operating policies, licensing and certificate of need requirements. Long-term
care facilities are also periodically inspected to assure continued compliance
with various standards and licensing requirements under state law. There are
currently no federal laws or regulations specifically defining or regulating
assisted living facilities. However, while many states have not yet enacted
specific assisted living laws or regulations, the Company's assisted living
facilities are subject to state regulation, licensing, approvals by state and
local health, welfare and social service agencies and other regulatory
authorities and compliance with building codes and environmental laws. In
addition, in several states, including Arkansas, Missouri, New Jersey and North
Carolina, certificate of need laws apply to assisted living facilities.
Certificate of need or similar laws require that a state agency approve certain
acquisitions and determine that a need exists for certain services, the addition
of beds and capital expenditure or other changes. North Carolina also recently
imposed a moratorium on the addition of adult care home beds, subject to certain
exceptions where binding commitments have been made to establish or expand an
adult care home facility. When the issuance or renewal of certificates of need
or other similar government approvals are required, changes in existing laws or
adoption of new laws could adversely affect the Company's development or
acquisition strategy and/or its operations if it is unable to obtain such
certificates of need approvals or renewals thereof. Also, health care providers
have been subjected to increasing scrutiny under anti-trust laws as the
integration and consolidation of the health care industry increases and affects
competition. Regulation of the assisted living industry is evolving. The Company
cannot predict the content of new regulations and their effect on its business.
There can be no assurance that regulatory or other legal developments will not
affect adversely the Company's business, results of operations and financial
condition.
11
<PAGE> 13
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, govern certain financial arrangements (including employment
or service contracts) between health care providers and others who may be in a
position to refer or recommend patients or services to such providers. These
laws prohibit, among other things, certain direct and indirect payments that are
intended to induce the referral of patients to, the arranging for services by,
or the recommending of a particular provider of health care items or services.
The Medicare/Medicaid anti-kickback law has been broadly interpreted to apply to
certain contractual relationships between health care providers and sources of
patient referral. A number of similar state laws exist which often have not been
interpreted by courts or regulatory agencies. The Department of Health and Human
Services periodically issues "special fraud alerts" which address specific areas
of concern, including a June 1995 alert that related to fraudulent practices in
the provision of home health care. The alert identified fraudulent home health
care practices such as cost report fraud, billing for excessive services or
services not rendered, use of unlicensed or untrained staff and kickbacks.
Additionally, federal "Stark" legislation prohibits, with limited exceptions,
the referral of patients for certain services, including home health care
services, physical therapy and occupational therapy, by a physician to entities
in which they have an ownership or financial interest. Violation of these laws
can result in loss of licensure, civil and criminal penalties, and exclusion of
health care providers or suppliers from participating in the Medicare and
Medicaid programs. Additionally, the Balanced Budget Act of 1997 (the "Budget
Act"), signed into law on August 5, 1997, contains a number of anti-fraud
provisions designed to further fight abuse and enhance program integrity.
Furthermore, some states restrict certain business or fee relationships between
physicians and other providers of health care services. The Company believes
that its operations are in substantial compliance with the laws applicable to
Medicare and Medicaid providers, including anti-fraud and abuse provisions;
however, there can be no assurance that the administrative or judicial
interpretation of such laws or the regulations promulgated thereunder will not
in the future have a material adverse impact on the Company's operations or that
the Company will not be subject to an investigation which would require a
significant investment of time and manpower by the Company. Assisted living
facilities may be eligible to participate as Medicaid providers and receive
reimbursement through Medicaid waiver programs and managed care plans. If the
Company elects to become a Medicaid provider with respect to its assisted living
facilities, such entities would become subject to all of the requirements
applicable to Medicaid providers, including the anti-fraud and abuse
legislation. Although the Company believes that it complies with federal and
state anti-remuneration statutes at all times, there can be no assurance that
such laws will be interpreted in a manner consistent with the practices of the
Company.
The Americans with Disabilities Act of 1990 requires all places of public
accommodation 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 comply with present requirements or are exempt therefrom, if
required changes involve a greater expenditure than anticipated or must be made
more quickly than anticipated, additional costs will be incurred by the Company.
Further legislation may impose additional burdens or restrictions relating to
access by disabled persons. The costs of complying with any new legislation
could be substantial.
HEALTH CARE REFORM
In addition to extensive existing government health care regulation, there
are many initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. It is not
clear what proposals, if any, will be adopted, or what effect such proposals
would have on the Company's business. Various aspects of these health care
proposals, such as reductions in funding of the Medicare and Medicaid programs,
potential changes in reimbursement regulations by the Health Care Financing
Administration ("HCFA"), enhanced pressure to contain health care costs by
Medicare, Medicaid and other payors and permitting greater state flexibility in
the administration of Medicaid, could adversely affect the Company's business,
results of operations and
12
<PAGE> 14
financial condition. The Company's skilled nursing facilities that participate
in applicable state Medicaid programs are subject to the risk of changes in
Medicaid reimbursement and payment delays resulting from budgetary shortfalls of
state Medicaid programs. The Company's current concentration of skilled nursing
facilities in Missouri and Pennsylvania exposes it to the risk of changes in
Medicaid reimbursement programs in those states. Medicare and Medicaid
certification is a critical factor contributing to the revenues and
profitability of long-term care facilities. Changes in certification and
participation requirements of the Medicare and Medicaid programs have
restricted, and are likely to further restrict, eligibility for reimbursement
under those programs. Failure to obtain and maintain Medicare and Medicaid
certification at the Company's long-term care facilities could result in a
significant loss of revenue. In addition, private payors, including managed care
payors, increasingly are demanding that providers accept discounted fees or
assume all or a portion of the financial risk for delivery of health care
services, including capitated payments where the provider is responsible, for a
fixed fee, for providing all services needed by certain patients. Capitated
payments can result in significant losses when patients require expensive
treatments not adequately covered by the capitated rate. Efforts to impose
reduced payments, greater discounts and more stringent cost controls by
government and other payors are expected to continue. The Company cannot predict
what reform proposals or reimbursement limitations will be adopted in the future
or the effect any such changes will have on its operations. There can be no
assurance that currently proposed legislation, future health care legislation,
reforms or changes in the administration or interpretation of governmental
health care programs or regulations will not have a material adverse effect on
the Company's business, results of operations and financial condition. Concern
about the potential effect of various proposed health care reforms has
contributed to volatility of prices of securities of health care companies and
could similarly affect the price of the Common Stock in the future.
GEOGRAPHIC CONCENTRATION OF BUSINESS
Currently, a substantial portion of the Company's facilities, including
facilities under construction and development and those comprising the Recent
Acquisitions and the Pending Acquisition are located in Pennsylvania and
Missouri. Operating revenues attributable to the Company's business in those
states accounted for approximately 95% and 97% of the Company's total operating
revenues for the year ended June 30, 1997 and the three month period ended
September 30, 1997, respectively, and, on a pro forma basis, after giving effect
to the Recent Acquisitions, the Pending Acquisition and the Pharmacy
Divestiture, would have accounted for 94% and 93% of total operating revenues
for the fiscal year ended June 30, 1997 and the three month period ended
September 30, 1997, respectively. As part of its strategy, the Company intends
to continue to develop and acquire facilities in Pennsylvania and Missouri, as
well as other states. Until the Company's operations become more geographically
dispersed, the Company will be more susceptible to downturns in local and
regional economies and changes in state or local regulation because such
conditions and events could affect a relatively high percentage of the total
number of facilities currently in operation and under development. As a result
of such factors, there can be no assurance that such geographic concentration
will not have a material adverse effect on the Company's business, results of
operations or financial condition.
LIABILITY AND INSURANCE
Providing health care services involves an inherent risk of liability.
Participants in the senior living and health care industry are subject to
lawsuits alleging negligence or related legal theories, many of which may
involve large claims and significant legal costs. The Company currently
maintains liability insurance intended to cover medical malpractice, wrongful
death and other claims which it believes is adequate and in keeping with
industry practice. However, claims in excess of the Company's insurance coverage
or claims not covered by the Company's insurance (e.g., claims for punitive
damages) may arise. A successful claim against the Company not covered by or in
excess of the Company's insurance coverage could have a material adverse effect
on the Company's business, results of operations and financial condition. Claims
against the Company, regardless of their merit or eventual outcome, may also
have a material adverse effect upon the Company's reputation and its ability to
attract residents or
13
<PAGE> 15
expand its business. The Company's insurance policies generally must be renewed
annually, and there can be no assurance that the Company will be able to obtain
liability insurance coverage in the future on acceptable terms, if at all. See
"Business -- Liability and Insurance."
COMPETITION
The senior living and health care industry is highly competitive and the
Company believes that competition in its current and targeted markets will
continue to increase. The Company faces current and prospective competition for
residents and patients and for employees from numerous local, regional and
national providers of facility-based assisted living and long-term care, as well
as rehabilitation therapy and home-based health care providers. Many of the
Company's current and potential competitors are significantly larger and have
greater financial and marketing resources than the Company. There are currently
few regulatory and other barriers to entry into the assisted living industry. If
the development of new assisted living facilities surpasses the demand for such
facilities in particular markets, such markets could become saturated. The
Company also expects to compete for acquisitions of additional assisted living
and long-term care facilities and other senior health care operations.
Competition could limit the Company's ability to attract residents and patients
and expand its business and could have a material adverse effect on the
Company's business, results of operations and financial condition.
ENVIRONMENTAL RISKS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the cost of removal or remediation of certain hazardous or toxic
substances that may be located on, in or under the property. These laws and
regulations may impose liability regardless of whether the owner or operator was
responsible for, or knew of, the presence of the hazardous or toxic substances.
The liability of the owner or operator and the cost of any required remediation
or removal of hazardous or toxic substances could be substantial and is
generally not limited. The presence of hazardous or toxic substances in or under
such properties could also subject the Company to lawsuits by or liability to
adjacent property owners, residents of the facilities or employees who are
injured by contamination. The presence of hazardous or toxic substances at any
property held or operated by the Company in the future could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, if contamination is found, it could adversely affect the
Company's ability to continue to operate, to lease or to sell the contaminated
property or to use that property as collateral for future loans.
CONTROL BY CURRENT STOCKHOLDERS
Upon completion of the Offering, current stockholders and holders of
options or warrants to acquire Common Stock, including the Company's executive
officers and directors and their affiliates, will own beneficially approximately
55.4% of the outstanding shares of Common Stock and the rights to purchase an
additional 6.8% of the outstanding shares of Common Stock through the exercise
of currently exercisable options and warrants (51.9% and 6.4%, respectively, if
the Underwriter's over-allotment option is exercised in full). As a result,
these stockholders, acting together, would be able to exert substantial
influence over the Company and matters requiring approval by the Company's
stockholders, including the election of the directors. The voting power of these
stockholders under certain circumstances could have the effect of delaying or
preventing a change in control of the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success to date has been significantly dependent on the
contributions of Brad E. Hollinger, the Company's Chairman of the Board,
President and Chief Executive Officer and one of its founders, and the loss of
his services could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management" for a discussion
of a Securities and
14
<PAGE> 16
Exchange Commission (the "Commission") proceeding with respect to Mr. Hollinger.
The Company's success also depends to a significant extent upon a number of
other key employees of the Company. The Company is party to employment
agreements with Mr. Hollinger and several other key employees. See
"Management -- Employment Agreements." The loss of the services of one or more
other key employees also could have a material adverse effect on the Company. In
addition, the Company believes that its future success will depend in part upon
its ability to attract and retain additional highly-skilled professional,
managerial, sales and marketing personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining the personnel that it requires for its business and
planned growth.
LABOR COSTS
The Company competes with various health care providers and other employers
for limited qualified and skilled personnel in the markets that it serves. The
Company expects that its labor costs will increase over time. Currently, none of
the Company's employees is represented by a labor union. If employees of the
Company were to unionize, the Company could incur labor costs higher than those
of competitors with non-union employees. The Company's business, results of
operations and financial condition could be adversely affected if the Company is
unable to control its labor costs.
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or, if one does develop, that it will be maintained.
The initial public offering price, which will be established by negotiations
between the Company and the representatives of the Underwriters, does not
reflect book value per share and may not be indicative of prices that will
prevail in the trading market for the Common Stock. The stock market has
experienced extreme price and volume fluctuations which have particularly
affected the market price for many health care companies and which have often
been unrelated to the operating performance of these companies. The trading
price of the Common Stock could also be subject to significant fluctuations in
response to variations in periodic operating results, changes in management,
future announcements concerning the Company, legislative or regulatory changes,
general trends in the industry and other events or factors. See
"Business -- Competition," "Business -- Government Regulation" and
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
15,606,343 shares of Common Stock (16,650,343 shares outstanding if the
Underwriters' over-allotment option is exercised in full) including 9,823,492
shares of Common Stock owned beneficially by existing stockholders. The
6,961,000 shares of Common Stock to be sold pursuant to the Offering will be
eligible for sale without restriction under the Securities Act in the public
market after the completion of the Offering. Pursuant to an agreement with the
Company, the Company and certain existing stockholders of the Company owning
shares of Common Stock have agreed with the Underwriters that they will not
offer, sell or otherwise dispose of any shares of Common Stock (other than, in
the case of the Company, pursuant to its existing employee stock option plan)
for a period of 180 days after the date of this Prospectus without the prior
written consent of the representatives of the Underwriters. To the extent not
subject to the restrictions set forth above, 50,906 shares of Common Stock owned
by existing stockholders and, following the expiration or waiver of the
restrictions set forth above, 9,772,586 additional shares of Common Stock will
be immediately available for sale into the open market pursuant to Rule 144
under the Securities Act (including the volume and other limitations set forth
therein) and could impair the Company's future ability to raise capital through
an offering of its equity securities. In addition, certain of the Company's
existing stockholders have rights to demand registration of their shares under
the Securities Act, which registration would permit such stockholders to sell
their shares without being
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<PAGE> 17
subject to the restrictions of Rule 144. See "Description of Capital Stock" and
"Shares Eligible for Future Sale."
DILUTION
The initial public offering price of the Common Stock is substantially more
than the net tangible book value per share of the Common Stock. Accordingly, the
purchasers of shares of Common Stock pursuant to the Offering will experience
immediate and substantial dilution in the net tangible book value per share of
Common Stock from the initial public offering price. The net tangible book value
dilution to new investors in the Offering will be $4.97 per share at an assumed
initial public offering price of $10.00 per share. See "Dilution."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-laws and Delaware law could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock. Certain of such provisions allow the Company to issue
preferred stock with rights senior to those of the Common Stock and impose
various procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions. See "Description of Capital
Stock."
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<PAGE> 18
USE OF PROCEEDS
Based on an assumed initial public offering price of $10.00 per share (the
midpoint of the estimated range of initial public offering prices), the Company
will receive approximately $63,737,300 from the sale of shares of Common Stock
in the Offering after deduction of estimated underwriting discounts and
commissions and estimated expenses (approximately $73,446,500 if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the net proceeds from the Offering to repay outstanding long-term
indebtedness of $8,151,000, indebtedness of $23,495,000 incurred to fund the
purchase of three completed acquisitions and indebtedness of $5,528,000 to be
incurred to fund the purchase of the Pending Acquisition; the balance will be
used for general corporate purposes, including working capital and possible
future acquisitions. The long-term indebtedness is secured by mortgages
amortized over 30 years, of which $5,038,000 is due in May 2006 and bears
interest at 10.6% per annum, and the remainder is due in September 2008 and
bears interest at 10.7% per annum. The acquisition indebtedness to be repaid is
due not later than March 31, 1998 and bears interest at prime rate plus 2.0%.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pending Acquisition and Planned Divestiture." If the Pending
Acquisition is not completed, the net proceeds to the Company of the Offering
not used for such acquisition will be available for the foregoing general
corporate purposes. Pending their application, the net proceeds of the Offering
will be invested in short-term, interest bearing securities.
DIVIDEND POLICY
The Company has not paid or declared any dividends on its capital stock
since its inception. The Company anticipates that, following the completion of
the Offering, earnings will be retained for development of its business and will
not be distributed to stockholders as dividends. The declaration and payment by
the Company of any future dividends and the amount thereof will depend upon the
Company's results of operations, financial condition, cash requirements, future
prospects, limitations imposed by credit agreements or senior securities and
other factors deemed relevant by the Board of Directors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 7 of the Notes to
Consolidated Financial Statements of the Company.
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<PAGE> 19
CAPITALIZATION
The following table sets forth as of September 30, 1997: (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
giving effect to the acquisitions of Feltrop, Butler and Northridge and the
Pharmacy Divestiture and the pending acquisition of Gethsemane and the borrowing
of $29,023,000 under a bridge financing arrangement with a health care REIT to
fund the aggregate purchase price of such acquisitions and estimated transaction
costs, and (iii) the pro forma capitalization of the Company as adjusted to
reflect (a) the sale by the Company of 6,961,000 shares of Common Stock in the
Offering at an assumed initial public offering price of $10.00 per share (the
midpoint of the estimated range of initial public offering prices) after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, and the application of the net proceeds therefrom, and (b)
the conversion of all Outstanding Preferred Stock into an aggregate of 4,620,531
shares of Common Stock.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term
debt................................................... $ 98 $29,121 $ 57
------- ------- ---
Long-term debt, net of current portion................... $ 8,354 $ 8,354 $ 244
------- ------- ---
Redeemable preferred stock:
Series B Convertible Preferred Stock, par value $.001
per share; 5,009,750 shares authorized and
outstanding;
none outstanding on a pro forma as adjusted basis... 13,875 13,875 --
------- ------- ---
Stockholders' equity:
Preferred Stock, par value $.001 per share;
5,000,000 authorized; none outstanding.............. -- -- --
Series A Convertible Preferred Stock, par value $.001
per share; 1,150,958 shares authorized and
outstanding;
none outstanding on a pro forma as adjusted basis... 1 1 --
Common Stock, par value $.001 per share; 50,000,000
shares authorized; 4,024,812 shares outstanding;
4,024,812 shares outstanding on a pro forma basis;
15,606,343 shares outstanding on a pro forma as
adjusted basis(1)................................... 5 5 16
Additional paid-in capital............................. 3,335 3,335 80,437
Accumulated deficit.................................... (6,068) (4,722) (4,722)
------- ------- ---
Total stockholders' equity.......................... (2,727) (1,381) 75,731
------- ------- ---
Total capitalization........................... $19,600 $49,969 $76,032
======= ======= ===
</TABLE>
- ------------
(1) Excludes as of September 30, 1997 (i) 937,867 shares issuable upon the
exercise of warrants to purchase Common Stock outstanding as of such date at
a weighted average exercise price of $0.62 per share, (ii) 1,013,425 shares
issuable upon the exercise of outstanding options to purchase shares of
Common Stock granted under the Company's stock option plan as of such date
at a weighted average exercise price of $4.23 per share and (iii) 1,011,575
shares reserved for issuance upon the grant of options under the Company's
stock option plan as of such date.
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<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company at September 30, 1997
was $8,858,000 or $1.02 per share of Common Stock. Pro forma net tangible book
value per share represents the amount of the Company's total net tangible assets
less total liabilities, divided by the pro forma number of shares of Common
Stock issued and outstanding at that date after giving effect to the conversion
of the Outstanding Preferred Stock upon the completion of the Offering. After
giving effect to the sale of the shares of Common Stock in the Offering (at an
assumed initial offering price of $10.00 per share) and before deducting
anticipated offering expenses and underwriting discounts and commissions, the
adjusted pro forma net tangible book value of the Company at September 30, 1997
would have been $78,468,000 or $5.03 per share, representing an immediate $4.97
per share dilution to new investors purchasing shares at the initial public
offering price. The following table illustrates such per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $10.00
Pro forma net tangible book value prior to the Offering (1)...... $ 1.02
Increase per share attributable to new investors................. 4.01
-------
Adjusted pro forma net tangible book value per share after the Offering.... 5.03
-------
Dilution per share to new investors (2).................................... $ 4.97
=======
</TABLE>
- ------------
(1) Gives pro forma effect to the increase per share attributable to the
conversion of the outstanding Preferred Stock.
(2) Dilution is determined by subtracting pro forma net tangible book value per
share after giving effect to the Offering from the initial public offering
price paid by a new investor for a share of Common Stock. The foregoing
calculation assumes no exercise of any outstanding warrants or options to
purchase shares of Common Stock. As of September 30, 1997, there were
outstanding warrants to purchase 937,867 shares of Common Stock at a
weighted average exercise price of $0.62 per share and options to purchase
1,013,425 shares of Common Stock at a weighted average exercise price of
$4.23 per share. See "Management -- Stock Incentive Plan." If all the
warrants and options outstanding as of such date were to be exercised
immediately, dilution per share to new investors would be $5.25.
The following table sets forth, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by new investors (assuming the sale by the Company of 6,961,000 shares in
the Offering at an assumed initial public offering price of $10.00 per share),
before deduction of underwriting discounts and commissions and offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- -----------------------------
PERCENT AFTER PERCENT AFTER AVERAGE PRICE
NUMBER OFFERING AMOUNT OFFERING PER SHARE
---------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 8,645,343 55.4% $14,668,000 17.4% $ 1.70
New investors........ 6,961,000 44.6 69,610,000 82.6 10.00
---------- ----- ----------- -----
Total.............. 15,606,343 100.0% $84,278,000 100.0%
========== ===== =========== =====
</TABLE>
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected consolidated "Statement of Operations Data" and "Balance Sheet
Data" presented below as of June 30, 1997 and 1996 and for the years then ended
and the period April 17, 1995 (date of inception) to June 30, 1995, have been
derived from the consolidated financial statements of the Company, which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants
and which are included elsewhere in the Prospectus. The "Balance Sheet Data" as
of June 30, 1995 are derived from audited financial statements not included in
this Prospectus. The selected consolidated financial data as of September 30,
1997 and for the three months ended September 30, 1996 and 1997 are derived from
unaudited consolidated financial statements of the Company which, in the opinion
of management of the Company, include all adjustments, consisting of normal,
recurring accruals, necessary for a fair presentation of the consolidated
results of operations and financial position of the Company for such periods.
Operating results for the three-month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for any other interim
period or for the full year. The selected financial data set forth below should
be read in conjunction with the Consolidated Financial Statements of the Company
and the unaudited pro forma financial information, together with the respective
notes thereto, included elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA
PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
1995(1) 1996 1997(2) 1997(3) 1997(4) 1996(2) 1997 1997(3) 1997(4)
------- ------ ------- --------- ----------- ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Patient services............ $ -- $ -- $41,616 $52,605 $52,605 $ 3,304 $14,496 $14,693 $14,693
Resident services........... -- 737 6,778 17,612 17,612 993 2,998 4,841 4,841
Other revenues.............. -- 74 1,086 1,405 1,405 75 1,644 1,715 1,715
----- ------ ------- ------- -------
Total revenues........ -- 811 49,480 71,622 71,622 4,372 19,138 21,249 21,249
----- ------ ------- ------- -------
Operating Expenses:
Facility operating expenses:
Salaries, wages and
benefits................ -- 320 19,186 28,825 28,825 1,851 7,305 8,412 8,412
Other operating
expenses................ -- 179 20,727 27,988 27,988 1,765 7,187 7,487 7,487
Development and pre-opening
expenses.................. -- -- 740 740 740 46 312 312 312
General and administrative
expense................... 10 1,000 4,913 4,913 4,913 701 2,367 2,367 2,367
Lease expense............... -- 77 5,417 7,810 7,810 475 2,212 2,212 2,212
Depreciation and
amortization expense...... -- 49 693 1,699 1,699 90 281 509 509
Write-down of long-lived
assets.................... -- -- 1,591 1,591 1,591 -- -- -- --
----- ------ ------- ------- -------
Total operating
expenses............ 10 1,625 53,267 73,566 73,566 4,928 19,664 21,299 21,299
----- ------ ------- ------- -------
Loss from operations.......... (10) (814) (3,787) (1,944) (1,944) (556) (526) (50) (50)
Other income (expense):
Interest income............. -- 13 265 265 265 13 113 113 113
Interest expense............ -- (102) (917) (4,032) (117) (183) (237) (999) (21)
----- ------ ------- ------- -------
Income (loss) before income
taxes....................... (10) (903) (4,439) (5,711) (1,796) (726) (650) (936) 42
Provision (benefit) for income
taxes....................... -- 6 53 (2,285) (719) 3 7 (374) 17
----- ------ ------- ------- -------
Net income (loss)............. $ (10) $ (909) $(4,492) $(3,426) $(1,077) $ (729) $ (657) $ (562) $ 25
===== ====== ======= ======= =======
Net income (loss) per
share(5).................... -- $(0.29) $ (0.56) $ (0.43) $ (0.07) $ (0.09) $ (0.08) $ (0.07) $ --
===== ====== ======= ======= =======
Weighted average common and
common equivalent shares
outstanding(5).............. 2,939 3,088 7,954 7,954 15,778 7,954 7,980 7,980 15,804
===== ====== ======= ======= =======
Supplementary net loss per
share(5).................... $ -- $(0.29) $ (0.42) $ N/A $ N/A $ (0.07) $ (0.05) $ N/A $ N/A
===== ====== ======= ======= =======
</TABLE>
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA -- CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
PRO FORMA PRO FORMA
PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
1995(1) 1996 1997(2) 1997(3) 1997(4) 1996(2) 1997 1997(3) 1997(4)
----- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Facilities operated at end of
period:
Assisted living............. -- 8 18 24 24 8 20 26 26
Skilled nursing............. -- -- 12 13 13 10 12 13 13
Independent living.......... -- -- 4 4 4 3 4 4 4
Resident capacity at end of
period:
Assisted living............. -- 213 707 1,119 1,119 225 782 1,194 1,194
Skilled nursing............. -- -- 1,228 1,294 1,294 1,125 1,228 1,294 1,294
Independent living.......... -- -- 120 140 140 92 127 147 147
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
JUNE 30, PRO FORMA
-------------------------- PRO FORMA AS ADJUSTED
1995 1996 1997 1997 1997(3) 1997(4)
------- ------ ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 16 $ 727 $14,850 $12,516 $(15,161) $39,966
Total assets................................................. 17 7,292 33,017 31,624 61,993 88,056
Long-term debt, net of current portion....................... -- 5,043 8,177 8,354 8,354 244
Redeemable preferred stock................................... -- -- 13,249 13,875 13,875 --
Stockholders' equity......................................... 17 1,124 (1,444) (2,727) (1,381) 75,731
</TABLE>
- ------------
(1) From inception at April 17, 1995.
(2) Includes results of operations of Foster beginning September 1, 1996, the
results of operations of Keystone beginning February 1, 1997, and the
results of operations of Clark beginning May 16, 1997.
(3) Gives effect to the acquisitions of Foster, Keystone, Clark, Feltrop,
Butler, Northridge and the pending acquisition of Gethsemane and the
Pharmacy Divestiture as if such transactions had occurred on July 1, 1996
with respect to statement of operations data for the fiscal year ended June
30, 1997 and for the quarter ended September 30, 1997, and as of September
30, 1997 with respect to balance sheet data. Such data is not necessarily
indicative of the results of operations that would have been achieved had
such transactions occurred on the dates indicated or that may be expected to
occur in the future as a result of such transactions. There can be no
assurance that the pending acquisition of Gethsemane will be consummated.
(4) Gives effect to (i) the sale by the Company of 6,961,000 shares of Common
Stock in the Offering (at an assumed initial public offering price of $10.00
per share and after deducting estimated underwriting discounts and
commissions and offering expenses) and the anticipated application of the
net proceeds therefrom and (ii) the conversion of all outstanding Preferred
Stock into an aggregate of 4,620,531 shares of Common Stock, as if such
transactions had occurred on July 1, 1996 with respect to statement of
operations data for the fiscal year ended June 30, 1997 and for the quarter
ended September 30, 1997, and as of September 30, 1997 with respect to
balance sheet and selected operating data.
(5) See Note 1(q) to the Notes to Consolidated Financial Statements of the
Company. Supplementary loss per share data is not applicable to pro forma
presentations.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
of the Company and related Notes thereto included elsewhere in the Prospectus.
This Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors"
as well as those discussed elsewhere in this Prospectus.
COMPANY OVERVIEW
The Company was formed in April 1995 to develop senior care continuums
which meet the needs of upper middle, middle and moderate income populations in
non-urban, secondary markets. The Company intends to utilize assisted living
facilities in selected markets as the primary entry point and service platform
to develop the Balanced Care Continuum consisting of various health care and
hospitality services, including, where appropriate, rehabilitation therapies,
physical, occupational and speech therapy, home health care services on an
intermittent basis, dementia and Alzheimer's services and skilled/subacute care
delivered in a skilled nursing setting, enabling residents to age in place.
Since its inception, the Company has grown primarily through acquisitions.
The Company completed the Recent Acquisitions of Foster in August 1996, Keystone
in January 1997, Clark in May and August 1997, Feltrop and Butler in October
1997 and Northridge in December 1997. The Company also executed a definitive
agreement with respect to the Pending Acquisition of Gethsemane. The Company
completed the Pharmacy Divestiture in October 1997. The Company has also leased
two facilities and has designed, developed and opened seven of its signature
assisted living facilities. As of December 1, 1997, the Company operated a total
of 30 assisted living facilities, 12 skilled nursing facilities and four
independent living facilities in Pennsylvania, Missouri, Arkansas and Wisconsin,
as well as a home health care agency in Missouri and a rehabilitation therapy
operation in Pennsylvania. After giving effect to the Pending Acquisition, and
assuming completion of, the planned divestiture of the Company's assisted living
facilities in Wisconsin, and including the additional assisted living facilities
opened since December 1, 1997, the Company will own nine and lease 32 senior
living and health care facilities in Pennsylvania, Missouri, Arkansas and North
Carolina with a capacity for 1,341 assisted living residents, 1,294 skilled
nursing patients and 154 independent living residents. See "-- Recent
Acquisitions" and "-- Pending Acquisition and Planned Divestiture" and
"Unaudited Pro Forma Financial Information." In addition to the seven signature
assisted living facilities opened to date by the Company, the Company
anticipates opening three additional assisted living facilities, which are
currently under construction, prior to February 1998.
Over the next three years, the Company plans to develop approximately 75 of
its signature assisted living facilities in targeted secondary markets creating
additional capacity of approximately 6,000 residents. The Company estimates that
the cost to complete these signature assisted living facilities will be between
$500 and $600 million. In addition, the Company expects that its need for
financing to fund future acquisitions will be significant, although the timing
and size of any future acquisitions cannot be predicted.
In order to achieve its growth plans, the Company will be required to
obtain substantial additional financing. The Company anticipates that it will
use a combination of the net proceeds to the Company from the Offering, existing
lease financing commitments and other arrangements with health care REITs, a
working capital line of credit, future equity and debt financing and cash
generated from operations to fund its development and acquisition activities.
The estimated costs over the next three years of the Company's planned
development and expansion are significantly in excess of estimated future cash
flows from operations, expected proceeds from the Offering and existing REIT and
other financing arrangements. The Company currently estimates that the net
proceeds from the Offering, together with its existing financing arrangements,
will be sufficient to fund its development and
22
<PAGE> 24
acquisition program for the next 12 to 18 months. There can be no assurance that
any additional financing needed to fund the Company's growth plans will be
available or that the Company will not require or seek additional financing
prior to 12 months after the completion of the Offering. See "-- Liquidity and
Capital Resources" and "Risk Factors -- Need for Additional Capital."
Historically, the Company has generated revenues from three primary
sources: patient services, resident services and other revenues. Patient
services revenues include charges for room and board, rehabilitation therapies,
pharmacy, medical supplies, subacute care and other programs provided to
patients in skilled nursing facilities as well as rehabilitation services
provided to assisted living facility residents. Revenues from Medicare, Medicaid
and private pay and other sources represented 38%, 38% and 24%, respectively, of
patient services revenues for the fiscal year ended June 30, 1997. Resident
services include all revenues earned from services provided to assisted living
facility residents except for therapies and home health care services provided
by the Company's licensed agencies which are included in patient services
revenues. Other revenues include development fees, management fees and
miscellaneous other revenues. Development fees are earned for developing
assisted living facilities for REITs. As the Company implements its business
plan, management believes that the mix of the Company's revenues may change and
that revenues from assisted living resident services and development activities
will increase as a percentage of total revenues.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses which include labor, food,
marketing, rehabilitation therapy costs, and other direct facility expenses;
(ii) facility development and pre-opening expenses, which include development
expenses and pre-opening advertising and marketing expenses; (iii) general and
administrative expenses, which primarily include corporate office expenses,
regional office expenses and other overhead costs; (iv) lease expense, which
includes rent for the facilities operated by the Company as well as corporate
office and other rent; and (v) depreciation and amortization. In anticipation of
its planned growth, the Company has made significant investments in its
infrastructure during fiscal 1997 and early fiscal 1998. These investments
include attracting management and regional personnel and installing information
systems to support and manage growth.
23
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain data as
a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------- --------------------
1996 1997 1996 1997
----- ----- ------ -----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue(1)................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Facility operating expenses...................... 82.7 75.7 61.5 80.8
Development and pre-opening expenses............. 1.1 1.6 -- 1.5
General and administrative expense............... 16.0 12.4 123.4 9.9
Lease expense.................................... 10.9 11.6 9.5 10.9
Depreciation and amortization expense............ 2.0 1.5 6.0 1.4
Write-down of long-lived assets.................. -- -- -- 3.2
------ -----
Loss from operations............................... (12.7) (2.8) (100.4) (7.7)
Other income (expense):
Interest income.................................. 0.3 0.6 1.6 0.5
Interest expense................................. (4.2) (1.2) (12.5) (1.8)
------ -----
Loss before income taxes........................... (16.6) (3.4) (111.3) (9.0)
Provision for income taxes......................... (0.1) -- (0.8) (0.1)
------ -----
Net loss........................................... (16.7) (3.4) (112.1) (9.1)
====== =====
</TABLE>
- ------------
(1) The Company had no revenues for the period from April 17, 1995 (date of
inception) through June 30, 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Total Revenue. Total revenue for the three months ended September 30, 1997
increased by $14,766,000 to $19,138,000 compared to $4,372,000 for the three
months ended September 30, 1996. This increase was due to the significant
acquisitions and new assisted living facility openings since the first quarter
of fiscal 1997. Patient service revenues increased to $14,496,000 for the 1997
period from $3,304,000 for the comparable 1996 period. The 1996 period contained
only one month of revenue from the Foster operation, which was acquired on
August 31, 1996, while the 1997 period contained a full three months of revenue
from both the Foster and Keystone operations. Resident services revenue
increased by $2,005,000 due to the increase in assisted and independent living
resident capacity from 317 at September 30, 1996 to 909 at September 30, 1997.
Other revenues grew from $75,000 for the 1996 period to $1,644,000 for the 1997
period due primarily to development fees of $1,626,000 earned on projects under
development for other entities.
Operating Expenses. Total operating expenses increased by $14,736,000 to
$19,664,000 for the three months ended September 30, 1997 from $4,928,000 for
the three months ended September 30, 1996. The increase in total operating
expenses in the 1997 period is attributable primarily to the growth in facility
operating expenses, the administrative expenditures related to building the
Company's infrastructure to support and manage its growth, lease expense and
depreciation.
Facility operating expenses for the 1997 period increased by $10,876,000 to
$14,492,000 from $3,616,000 for the 1996 period. As a percentage of total
revenue, facility operating expenses were 75.7% for the 1997 period and 82.7%
for the 1996 period. The 1996 period contained only one month of facility
operating expenses from the Foster operation, while the 1997 period contained a
full quarter of
24
<PAGE> 26
facility operating expenses of both the Foster and Keystone operations, as well
as facility operating expenses from the Company's developed assisted living
facilities.
Development and pre-opening expenses for the 1997 period increased to
$312,000 from $46,000 for the 1996 period due to the increase in staffing
related to the Company's expanded development efforts. These expenses amounted
to 1.6% of total revenue in the 1997 period and 1.1% for the 1996 period.
General and administrative expenses increased by $1,666,000 to $2,367,000
for the three months ended September 30, 1997 from $701,000 for the three months
ended September 30, 1996. As a percentage of total revenue, these expenses
decreased to 12.3% for the 1997 period from 16.0% for the 1996 period. Of the
$1,666,000 increase in general and administrative expenses in 1997,
approximately $1,238,000 resulted from labor costs relating to the addition of
new corporate and regional office staff to plan and manage the Company's actual
and anticipated growth. The remaining $428,000 increase was attributable to
increased marketing, consulting, accounting and rent due to expansion of
existing corporate office space and other general expenses related to the
Company's growth.
Lease expense increased to $2,212,000 for the three months ended September
30, 1997 from $475,000 for the three months ended September 30, 1996, an
increase of $1,737,000. This increase is the result of facility operating leases
related to the acquisitions made during and subsequent to the first quarter of
fiscal 1997. As a percentage of total revenue, these expenses totaled to 11.6%
for the 1997 period and 10.9% for the 1996 period.
Depreciation and amortization increased by $191,000 to $281,000 for the
three months ended September 30, 1997 from $90,000 for the three months ended
September 30, 1996. This increase resulted from the additional depreciation and
amortization on assets acquired and goodwill recorded as a result of
acquisitions.
Other Income (Expense). Interest income increased by $100,000 to $113,000
for the three months ended September 30, 1997 from $13,000 for the three months
ended September 30, 1996. The increase is attributable to the higher level of
invested funds due to receipt of proceeds from the sale of shares of Series B
Convertible Preferred Stock in September 1996 and April 1997. Interest expense
increased by $54,000 to $237,000 for the three months ended September 30, 1997
from $183,000 for the three months ended September 30, 1996. This was due to the
mortgage financing of $3,115,000 incurred in connection with the acquisition of
two skilled nursing facilities in Missouri on August 31, 1997.
Provision for Income Taxes. Income tax expense of $7,000 for the 1997
period and $3,000 for the 1996 period resulted from taxable income reported on
individual state corporate tax returns in states that do not permit consolidated
filings.
Net Loss. The Company's net loss decreased by $72,000 to $657,000 for the
three months ended September 30, 1997 from $729,000 for the three months ended
September 30, 1996, a decrease of $72,000 or 10%. This decrease results mainly
from the Company's growth, which allows the leveraging of fixed costs over a
larger revenue base.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Total Revenue. Total revenue for fiscal 1997 increased by $48,669,000 to
$49,480,000 from $811,000 in fiscal 1996 due mainly to the significant
acquisitions made during fiscal 1997. Patient service revenues were $41,616,000
in fiscal 1997 due to the increase in skilled nursing bed capacity from zero to
1,228 resulting from the Foster and Keystone acquisitions. Resident services
revenue increased by $6,041,000 due to the increase in assisted and independent
living resident capacity from 213 to 827 at June 30, 1996 and 1997,
respectively. Other revenues grew from $74,000 in fiscal 1996 to $1,086,000 in
fiscal 1997 due primarily to development fees of $1,015,000 earned on 14
facilities under construction for health care REITs.
Operating Expenses. Total operating expenses for fiscal 1997 increased by
$51,642,000 to $53,267,000 from $1,625,000 in fiscal 1996. As a percentage of
total revenue, total operating expenses
25
<PAGE> 27
decreased to 107.7% in fiscal 1997 from 200.4% in fiscal 1996. The increase in
total operating expenses in fiscal 1997 is attributable primarily to the growth
in facility operating expenses, the administrative expenditures related to
building the Company's infrastructure to support and manage its growth, lease
expense, depreciation and the write-down of long-lived assets.
Facility operating expenses for fiscal 1997 increased by $39,414,000 to
$39,913,000 (including $19,186,000 of salaries, wages and benefits) from
$499,000 in fiscal 1996. As a percentage of total revenue, facility operating
expenses increased to 80.8% in fiscal 1997 from 61.5% in fiscal 1996. Facility
operating expenses related to existing operations increased by $2,708,000 as
these operations were owned by the Company for a full year in fiscal 1997. The
remainder of the facility operating expense increase was attributable to the
operations acquired during fiscal 1997.
Development and pre-opening expenses for fiscal 1997 increased to $740,000
from zero in fiscal 1996 due to the increase in staffing related to the
Company's expanded development and acquisition efforts. These expenses increased
to 1.5% of total revenue in fiscal 1997 from 0% in fiscal 1996. Labor and travel
costs increased by $565,000 while other direct development and acquisition costs
and pre-opening expenses increased by $175,000.
General and administrative expenses for fiscal 1997 increased by $3,913,000
to $4,913,000 from $1,000,000 in fiscal 1996. As a percentage of total revenue,
these expenses decreased to 9.9% in fiscal 1997 from 123.4% in fiscal 1996 as a
result of the Company's minimal total revenues in fiscal 1996. Of the $3,913,000
increase in general and administrative expenses in fiscal 1997, approximately
$2,599,000 resulted from labor costs relating to the addition of new corporate
and regional office staff to plan and manage the Company's actual and
anticipated growth and $1,314,000 was attributable to marketing, consulting,
accounting and rent due to expansion of existing corporate office space and
other general expenses related to the Company's growth.
Lease expense for fiscal 1997 increased by $5,340,000 to $5,417,000 from
$77,000 in fiscal 1996. As a percentage of total revenue, these expenses
increased to 10.9% in fiscal 1997 from 9.5% in fiscal 1996 as a result of the
facility operating leases related to the acquisitions made during fiscal 1997.
Depreciation and amortization expense for fiscal 1997 increased by $644,000
to $693,000 from $49,000 in fiscal 1996. Of this increase, $428,000 resulted
from a full year of depreciation on the seven owned Wisconsin assisted living
facilities acquired in May 1996 and the two owned Missouri skilled nursing
facilities acquired in August 1996 while $216,000 was due to goodwill
amortization and deferred financing and leasing cost amortization relating
primarily to the Foster and Keystone acquisitions.
In June 1997, management determined that the Wisconsin market does not
provide adequate opportunity to achieve the operational efficiencies necessary
to operate profitably. As a result, the Company committed to a plan for the
disposal of its Wisconsin assisted living facilities. As a result, a non-cash
charge of $1,591,000 has been recorded to write these assets down to their
estimated fair value of approximately $3,150,000 based on the present value of
expected discounted future cash flows less estimated costs of disposal. For the
year ended June 30, 1997, the Wisconsin operations experienced a pretax loss of
$381,000 before the asset write-down. The Company plans to dispose of its
Wisconsin facilities as soon as practicable.
Other Income (Expense). Interest income for fiscal 1997 increased by
$252,000 to $265,000 from $13,000 in fiscal 1996. The increase is attributable
to the higher level of invested funds due to receipt of proceeds from the sale
of shares of Series B Convertible Preferred Stock in September 1996 and April
1997. Interest expense for fiscal 1997 increased by $815,000 to $917,000 from
$102,000 in fiscal 1996 due primarily to mortgage financing of $5,046,000
incurred in connection with the acquisition of assisted living facilities in
Wisconsin and $3,115,000 incurred in connection with the acquisition of two
skilled nursing facilities in Missouri.
26
<PAGE> 28
Provision for Income Taxes. Income tax expense in fiscal 1997 of $53,000
resulted from taxable income reported on individual state corporate tax returns
in states that do not permit consolidated filings.
Net Loss. Net loss for fiscal 1997 increased by $3,583,000 to $4,492,000
from $909,000 in fiscal 1996. This increase is primarily attributable to the
write-down of long-lived assets of $1,591,000 in respect of the Company's
Wisconsin assisted living facilities and the increased general and
administrative expenses incurred to plan and manage the Company's actual and
anticipated growth.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company completed the sale of the assets of the Pharmacy for net
proceeds of approximately $4,700,000 in October 1997. Due to the Company's NOL
carryforwards and other book/tax timing differences, no federal taxes are
expected to be paid on the gain realized.
The Company has recently entered into non-binding letters of intent
aggregating $365 million with the following health care REITs and others (the
"Owners"): (i) Meditrust for $150 million, (ii) Nationwide Health Properties,
Inc. ("NHP") for $100 million, (iii) Capstone Capital Corporation ("Capstone")
for $50 million, (iv) American Health Properties, Inc. ("AHP") for $35 million
and (v) Ocwen Financial Corporation ("Ocwen") for $30 million, pursuant to which
the Company would develop assisted living facilities for the Owners or the
Owners would acquire existing facilities and lease them to the Company. Initial
lease rates under these arrangements are expected to range from 3.2% to 3.4%
over the 10-year Treasury rate. Specific development projects and acquisitions
require approval of the REITs prior to the financing of a transaction. See
"Business--Development."
The Company's lease arrangements are generally for initial terms of 10 to
15 years with aggregate renewal option periods ranging from 15 to 25 years and
provide for contractually fixed rent plus additional rent, subject to certain
limits, contingent on gross revenues of the facility or the consumer price
index. The Company's lease arrangements generally contain a fair market value
purchase option at the end of the initial lease term and each renewal term.
Certain of the Company's lease arrangements limit the Company's right to operate
other senior care facilities within a limited geographic area adjacent to the
leased facility during the term of the lease and for a period of up to five
years thereafter.
The Company leases most of its facilities under long-term operating leases.
Lease obligations for fiscal 1998 are approximately $8,200,000. The Company's
financing documents contain financial covenants and other restrictions which:
(i) require the Company to meet certain financial tests and maintain certain
escrows of funds, (ii) limit, among other things, the ability of the Company and
certain of its subsidiaries to borrow additional funds, dispose of assets and
engage in mergers or other business combinations, (iii) prohibit the Company
from operating competing facilities within certain distances of the leased or
mortgaged facilities.
The Company has obtained a commitment from a bank for a $10,000,000 line of
credit to be secured by the accounts receivable of its skilled nursing
operations. The line of credit will be for a term of three years and outstanding
borrowings will bear interest at LIBOR plus 2.75% or prime rate plus 0.5%. The
Company will be able to draw on this line of credit to the extent of its
eligible receivables, which were approximately $3,500,000 at September 30, 1997.
Borrowings under the line of credit are expected to be available in January
1998.
The Company plans to use the net proceeds from the Offering to repay
$8,151,000 of outstanding long-term debt, indebtedness of $23,495,000 incurred
to fund the purchase of the assets and business of Feltrop, Butler and
Northridge and indebtedness of $5,528,000 to be incurred to fund the purchase of
the assets and business of Gethsemane. The remainder of the net proceeds will be
used for working capital and other general corporate purposes.
27
<PAGE> 29
The estimated cost to complete and achieve stabilized occupancy of the
approximately 75 new signature assisted living facilities targeted for
completion over the next three years, is between $500,000,000 and $600,000,000
which substantially exceeds the net proceeds of the Offering (after the
repayment of indebtedness and funding of the Pending Acquisition) and existing
working capital and financing arrangements. The Company currently estimates that
the net proceeds of the Offering, together with its existing financing
commitments, will be sufficient to fund its development and acquisition programs
for the next 12 to 18 months. There can be no assurance that any additional
financing needed to fund the Company's growth plans will be available or that
the Company will not require or seek additional financing prior to 12 months
after the completion of the Offering. See "Risk Factors -- Need for Additional
Capital."
Operating Activities
For the three months ended September 30, 1997, operating activities used
cash of $3,578,000. This resulted from the net loss of $657,000, the increase of
$1,095,000 in accounts receivable from patient services due to increased per
diem reimbursements and rehabilitation therapy volume, the increase in deferred
costs and other current assets of $1,351,000 resulting from the Company's
substantial development activities and a reduction in accounts payable and other
current liabilities of $814,000. Cash was provided primarily by the non-cash
lease expense, depreciation and amortization of $314,000 and the increase in
deferred revenues of $25,000.
In fiscal 1997, operating activities used cash of $36,000. Cash was used
primarily for the $4,492,000 net loss, the $3,066,000 increase in accounts
receivable from patient services due to increased per diem reimbursements and
rehabilitation therapy volume after the Foster acquisition, the $1,396,000
increase in deferred costs resulting from the Company's substantial development
operations and acquisition activities and the $739,000 increase in other current
assets. Cash was provided primarily from $693,000 of depreciation and
amortization, $1,454,000 of non-cash lease expense resulting from straight-line
recognition of certain facility rents, the $1,591,000 of non-cash write-down of
long-lived assets, $579,000 increase in deferred revenues, and $5,340,000
increase in current liabilities resulting from increased therapy volumes in
health care operations, increased corporate office staff and the Company's
significant growth in general.
In fiscal 1996, operating activities used cash of $564,000. Cash was used
primarily for the $909,000 in net losses and the $666,000 of deferred
development and acquisition costs. Cash was provided by the $1,052,000 increase
in current liabilities resulting from growth in corporate office staffing and
the related accounts payable and accrued expenses.
Financing Activities
The Company has historically financed its development program and
acquisitions through a combination of lease and mortgage financing with health
care REIT and private convertible equity funding.
In September 1995, the Company raised its initial private equity funding
through the sale of $2,000,000 of Series A Convertible Preferred Stock to an
individual private investor. The funding of this investment was staged over a
one year period through September 1996. In March 1996, the Company obtained a
$91,000,000 financing commitment from Meditrust for acquisitions ($60,000,000)
and development projects ($31,000,000). The Company also realized net proceeds
of $11,982,000 through a private sale of Series B Convertible Preferred Stock to
a group of venture capital investors. Half of this investment was funded in
September and October of 1996. Investment of the remainder of the funds was
contingent on the Company achieving certain performance milestones such as
meeting or exceeding the operating budget and the project development timetable.
In April 1997, the remaining funds were invested in the Company. Notes payable
of $1,476,000, issued in connection with the Foster acquisition, were repaid
during 1997.
28
<PAGE> 30
In connection with the lease or debt financing of the Company's
acquisitions, the REIT lease and debt financings included required lease
deposits or debt service reserves which range from three to six months' rent or
debt service. These lease deposits or debt service reserves are recorded as
restricted investments. For leasing transactions, the Company owns the
restricted investment, pays rent on funds advanced by the REIT and amortizes the
lease liability as a corresponding reduction of rent expense in the period when
the related rent is expensed.
Investing Activities
For the three months ended September 30, 1997, the Company's investing
activities used $1,789,000. Of this amount $734,000 was used for purchases of
property and equipment and $769,000 was used for lease deposits. The remaining
$286,000 relates to increases in goodwill and other assets.
In fiscal 1997, investing activities used $7,199,000. Of these funds,
$1,822,000 was used for purchases of property and equipment, $1,546,000 for debt
service reserves and lease deposits, $1,882,000 of goodwill related to the
Keystone and Foster acquisitions, $1,462,000 relating to increases in other
assets for deferred financing costs, project costs and pre-opening costs and
$487,000 relating to acquisitions. In fiscal 1996, investing activities used
$5,481,000 of which $4,701,000 was used for the acquisition of assisted living
facilities in Wisconsin.
COMPLETED ACQUISITIONS AND DIVESTITURE
In March 1996, the Company acquired the operations of a 68-bed assisted
living facility in Pennsylvania for cash of approximately $318,000 which has
been recorded as goodwill. HCPI, Inc., a health care REIT, acquired the facility
for $2,350,000 and leased it to the Company pursuant to a 15-year lease
agreement with three five-year renewal options. In May 1996, the Company
acquired seven assisted living facilities in Wisconsin with 158 licensed beds
for $5,046,000 including transaction costs, which was funded with mortgage
financing provided by Meditrust.
In August 1996, the Company completed the Foster acquisition of 10 skilled
nursing operations, a facility-based home health agency and the Pharmacy, all in
Missouri. In this transaction, the Company exchanged 1,200,000 shares of Common
Stock for all of the outstanding common stock of two of the skilled nursing
companies and incurred additional indebtedness of $3,115,000 which was funded
with mortgage financing from Meditrust. The Company also purchased the stock of
the Pharmacy, another skilled nursing company which leases its facility from a
third-party owner, and the non-real estate assets and operations of seven
skilled nursing facilities for short-term notes payable of approximately
$1,476,000. Goodwill of approximately $3,401,000 relating to the Pharmacy was
recorded for this acquisition. The Pharmacy has been reclassified as an asset
held for sale at June 30, 1997. The real estate assets of these seven skilled
nursing facilities were purchased by Hawthorn Health Properties, Inc. ("HHP")
for approximately $39,100,000. The Company has leased these seven facilities
from HHP pursuant to a 12-year lease agreement with four 6-year renewal options.
In February 1997, the Company leased two assisted living facilities in Missouri
from the same seller. The facilities have a capacity for 61 residents. The
initial lease term is for three years with two one-year renewal options. See
"Management -- Certain Relationships and Related Transactions."
In January 1997, the Company consummated the Keystone acquisition which
involved the operations of five assisted living facilities with 317 beds and two
skilled nursing facilities with 103 beds located in Pennsylvania. Capstone, a
health care REIT, acquired the facilities and certain other assets for
approximately $21,600,000 including transaction costs and leased them to the
Company pursuant to an 11-year lease agreement with three five-year renewal
options. The Company paid approximately $1,900,000 and issued 187,500 shares of
Common Stock for the operations and the rights to seven early stage development
projects. Goodwill of approximately $1,840,000 was recorded for this acquisition
and is being amortized over 25 years.
In May 1997, the Company completed the Clark acquisition of three assisted
living facilities with 77 operating beds in and around Nevada, Missouri. In
August 1997, the Company acquired a fourth
29
<PAGE> 31
assisted living operation with a capacity for 25 residents. The facilities were
acquired by Capstone for approximately $5,335,000 including transaction costs
and the Company entered into a 10-year lease of the facilities with three
five-year renewal options.
In October 1997, the Company purchased the assets and business of Feltrop,
a 92-bed assisted living facility in Pennsylvania for approximately $5,842,000
including transaction costs. This acquisition has been accounted for using the
purchase method and the estimated goodwill of approximately $1,550,000 will be
amortized over 40 years. This acquisition was financed through a bridge
financing arrangement with a health care REIT which will be repaid with proceeds
from the Offering.
The Company sold the inventory, furniture and equipment, certain prepaid
assets and the operations of the Pharmacy in October 1997 for approximately
$4,700,000, net of estimated transaction costs.
In October 1997, the Company purchased the assets and business of Butler
which is comprised of three assisted living facilities located in Pennsylvania
with a capacity of 172 residents. The purchase price was approximately
$9,104,000, including transaction costs. This acquisition has been accounted for
using the purchase method and the estimated goodwill of $2,643,000 will be
amortized over 40 years. The asset purchase agreement provides for additional
purchase price payments of up to $3,100,000 contingent upon achieving certain
future targeted operating results. This acquisition was financed through a
bridge financing arrangement with a health care REIT, which will be repaid with
proceeds from the Offering.
The Northridge acquisition, which occurred on December 1, 1997, involved
the purchase of the assets and business of a 117-bed assisted living facility
which is to be accounted for as a purchase. The purchase price of approximately
$8,549,000, including transaction costs, was paid in cash. The Company estimates
that goodwill of approximately $3,349,000 will be recorded for this acquisition
and amortized over 40 years. This acquisition was financed with bridge financing
with a health care REIT which will be repaid with proceeds from the Offering.
PENDING ACQUISITION AND PLANNED DIVESTITURE
The Company has entered into definitive agreements for the pending
acquisition of Gethsemane. The Gethsemane acquisition involves the purchase of
the assets of a 66-bed skilled nursing facility and a 51-bed assisted living
facility which are to be accounted for as purchases. The asset purchase
agreements were signed on November 26, 1997 and the acquisitions are scheduled
to close on January 2, 1998. Management believes it is probable these
acquisitions will be consummated. The purchase price of approximately $5,528,000
for the skilled nursing facility, including transaction costs, is to be paid in
cash. This acquisition will be financed with bridge financing with a health care
REIT which will be repaid with proceeds from the Offering. The agreement for the
assisted living facility provides for a cash purchase price of up to $1,200,000
based upon a multiple (5.80 times) of the Gethsemane assisted living facility's
annualized net operating income for the period from the closing date through
June 30, 1998. This payment is expected to be made during the quarter ending
September 30, 1998 and will be recorded as land, property and equipment up to
the appraised value of $1,062,000 and goodwill will be recorded for any purchase
price in excess of that amount. The Company estimates that goodwill of
approximately $1,597,000 (excluding any contingent payment) will be recorded for
the skilled nursing facility acquisition and amortized over 40 years.
In June 1997, the Company committed to a plan for the disposal of its seven
Wisconsin assisted living facilities. As a result, a non-cash charge of
$1,591,000 has been recorded to write these assets down to their estimated fair
value based on the present value of expected future cash flows less estimated
costs of disposal. For the year ended June 30, 1997 and the three months ended
September 30, 1997, the Wisconsin operations experienced a pretax loss of
$381,000 and $156,000, respectively, before the asset write-down. See
"Business -- Operating Facilities."
30
<PAGE> 32
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share ("SFAS No. 128"). The statement replaces the
presentation of primary earnings per share ("EPS") with a presentation of basic
EPS. Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. SFAS No. 128 also requires dual presentation of basic and
diluted EPS on the face of the income statement and other reconciliations and
disclosures. The Company is required to adopt SFAS No. 128 in its fiscal year
ending June 30, 1998. Accordingly, the EPS presentation herein does not reflect
the presentation requirements of SFAS No. 128. Basic EPS is expected to be
higher than primary EPS would be in future periods as primary EPS includes
common stock equivalents while basic EPS will not. There is no difference
between the loss per share calculated under SFAS No. 128 and the loss per share
presented in the Company's consolidated financial statements.
IMPACT OF INFLATION
The senior living and health care industry is labor intensive. Wages and
labor costs are especially sensitive to inflation and marketplace labor
shortages. To date, the Company has offset its increased operating costs by
increasing charges for its services and expanding its services. Inflation could,
however, affect the Company's future revenues and results of operations due to
the Company's dependence on its senior resident population, most of whom rely on
relatively fixed incomes to pay for the Company's services. As a result, the
Company may not be able to raise resident service fees to fully account for
increased operating expenses. In structuring its fees, the Company attempts to
anticipate inflation levels, but there can be no assurance that the Company will
be able to anticipate fully or otherwise respond to any future inflationary
pressures.
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<PAGE> 33
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information gives effect to
(i) the acquisition of Foster which was completed on August 31, 1996, (ii) the
acquisition of Keystone which was completed on January 31, 1997, (iii) the
acquisition of Clark which was completed on May 15, 1997 and August 18, 1997,
(iv) the acquisition of Feltrop which was completed on October 9, 1997, (v) the
acquisition of Butler which was completed on October 30, 1997, (vi) the
acquisition of Northridge which was completed on December 1, 1997, (vii) the
sale of the Pharmacy which was completed on October 16, 1997 and (viii) the
Pending Acquisition of Gethsemane as if such acquisitions and the Pharmacy
Divestiture had been consummated as of September 30, 1997 in the case of pro
forma balance sheet data and July 1, 1996 in the case of pro forma statement of
operations data. The pro forma balance sheet data combines the historical
balance sheet data of the Company, Feltrop, Butler, Northridge and Gethsemane as
of September 30, 1997 and excludes the Pharmacy balance sheet data as of
September 30, 1997. The pro forma statement of operations data for the fiscal
year ended June 30, 1997 and the three months ended September 30, 1997 combines
the actual statement of operations data of the Company, Feltrop, Butler,
Northridge and Gethsemane for the year ended June 30, 1997 and the three months
ended September 30, 1997, the actual statement of operations data for Foster,
Keystone and Clark for the period from July 1, 1996 through the respective
acquisition dates and excludes the statement of operations data of the Pharmacy
for the year ended June 30, 1997 and the three months ended September 30, 1997.
The column captioned "Pro Forma As Adjusted" reflects the aforementioned
completed and pending acquisitions and the Pharmacy Divestiture and gives effect
to (i) the sale by the Company of 6,961,000 shares of Common Stock in the
Offering at an assumed initial public offering price of $10.00 per share after
deducting estimated underwriting discounts and commissions and estimated
offering expenses and the anticipated application of the net proceeds therefrom
and (ii) the conversion of all Outstanding Preferred Stock into an aggregate of
4,620,531 shares of Common Stock. See "Use of Proceeds" and "Capitalization."
The pro forma data is based on the historical financial statements of the
Company, Foster, Keystone, Clark, Butler, Gethsemane, Feltrop, Northridge and
Pharmacy and gives effect to the acquisitions under the purchase method of
accounting, to the Pharmacy Divestiture and to the assumptions and adjustments
(which the Company believes to be reasonable) described in the accompanying
Notes to Unaudited Pro Forma Financial Information. Under the purchase method of
accounting, assets acquired and liabilities assumed are recorded at their
estimated fair values as of the date of acquisition. The pro forma adjustments
reflected in the following data (with regard to the Feltrop, Butler, Northridge
and Gethsemane acquisitions) are estimated and may differ from the actual
adjustments when they become known. In management's opinion, the estimated pro
forma adjustments are not expected to differ materially from the actual
adjustments when they become known. The unaudited pro forma financial
information should be read in conjunction with the audited financial statements
of the Company, Foster, Keystone, Clark, Feltrop, Butler, Northridge and
Gethsemane and the related notes thereto included elsewhere in this Prospectus.
See "Index to Financial Statements."
RECENT ACQUISITIONS
Foster
The Foster acquisition was consummated on August 31, 1996 and has been
accounted for as a purchase. This transaction involved the acquisition of two
skilled nursing facilities, a home health operation and a pharmacy company as
well as the non-real estate assets and operations of eight skilled nursing
facilities. The total purchase price of approximately $8,691,000 was comprised
of 1,200,000 shares of Common Stock valued at $1.33 per share, the issuance of
notes payable aggregating $1,476,000, mortgage financing of $3,115,000,
liabilities assumed of approximately $1,800,000 and transaction costs of
approximately $700,000. Goodwill of approximately $3,401,000 related to the
Pharmacy was recorded for this acquisition. The Pharmacy has been reclassified
as an asset held for
32
<PAGE> 34
sale at June 30, 1997. The real estate assets of seven skilled nursing
facilities were acquired by a third-party for approximately $39,100,000 and are
leased to the Company. The remaining skilled nursing facility is also leased
from another third party.
Keystone
The Keystone acquisition occurred on January 31, 1997 and involved the
operations of five assisted living facilities and two skilled nursing facilities
and the rights to seven early stage development projects. This acquisition has
been accounted for as a purchase. The total purchase price of approximately
$2,150,000 was comprised of approximately $1,900,000 in cash and 187,500 shares
of Common Stock valued at $1.33 per share. Goodwill of approximately $1,800,000
was recorded and is being amortized over 25 years. The real estate certain other
assets were acquired by a health care REIT for $21,600,000 and are leased to the
Company.
Clark
The Clark transaction occurred on May 15, 1997 with respect to three
assisted living operations and on August 18, 1997 with respect to a fourth
assisted living operation. These facilities have an aggregate capacity of 102
residents. The real estate assets were acquired by a health care REIT for
$5,335,000 and are leased to the Company. The transaction involved no payment by
the Company and no goodwill was recorded.
Feltrop
The Feltrop acquisition occurred on October 9, 1997 and involved the
purchase of a 92-bed assisted living facility which has been accounted for as a
purchase. The purchase price of approximately $5,842,000, including transaction
costs, was paid in cash. The Company has recorded goodwill of approximately
$1,550,000 for this acquisition which is being amortized over 40 years.
Butler
The Butler acquisition occurred on October 30, 1997 and involved the
purchase of three assisted living facilities with an aggregate capacity of 172
residents which has been accounted for as a purchase. The purchase price of
approximately $9,104,000, including transaction costs, was paid in cash. The
asset purchase agreement also provides for additional purchase price payments. A
29-bed addition (the "Addition") is under construction at one of the facilities
which is expected to open in January 1998. The agreement provides for additional
cash payments as follows: (i) a $450,000 payment when the Addition becomes
operational, (ii) payments during 1998 when the Addition becomes 80% occupied
and 90% occupied based on a multiple of Butler's net operating income, and (iii)
a final payment in January 1999 based on a multiple of Butler's annualized net
operating income for the six months ended December 31, 1998. Based on estimates
of Butler's 1998 net operating income, the Company estimates that additional
payments of approximately $3,100,000 will be made. These contingent payments
will be recorded as additional goodwill when the net operating income targets
have been achieved. The Company estimates that goodwill of approximately
$2,643,000 (excluding contingent payments) will be recorded for this acquisition
and amortized over 40 years.
Northridge
The Northridge acquisition, which occurred on December 1, 1997, involved
the purchase of a 117-bed assisted living facility which has been accounted for
as a purchase. The purchase price of approximately $8,549,000, including
transaction costs, was paid in cash. The Company estimates that goodwill of
approximately $3,349,000 will be recorded for this acquisition and amortized
over 40 years.
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<PAGE> 35
PENDING ACQUISITION
The Gethsemane acquisition involves the purchase of the assets of a 66-bed
skilled nursing facility and a 51-bed assisted living facility which are to be
accounted for as purchases. The asset purchase agreements were signed on
November 26, 1997 and the acquisitions are scheduled to close on January 2,
1998. Management believes it is probable these acquisitions will be consummated.
The purchase price of approximately $5,528,000 for the skilled nursing facility,
including transaction costs, is to be paid in cash. The agreement for the
assisted living facility provides for a cash purchase price of up to $1,200,000
based upon a multiple (5.80 times) of the Gethsemane assisted living facility's
annualized net operating income for the period from the closing date through
June 30, 1998. This payment is expected to be made during the quarter ending
September 30, 1998 and will be recorded as land, property and equipment up to
the appraised value of $1,062,000 and goodwill will be recorded for any purchase
price in excess of that amount. The Company estimates that goodwill of
approximately $1,597,000 (excluding any contingent payment) will be recorded for
the skilled nursing facility acquisition and amortized over 40 years.
PHARMACY DIVESTITURE
On October 16, 1997, the Company sold the inventory, furniture and
equipment, certain prepaid assets and the operations of the Pharmacy for
approximately $4,700,000, net of estimated transaction costs.
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<PAGE> 36
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PHARMACY PRO FORMA
RECENT DIVESTITURE BEFORE PENDING
THE COMPANY ACQUISITIONS PRO FORMA PENDING ACQUISITION
ACTUAL PRO FORMA ADJUSTMENTS ACQUISITION PRO FORMA
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Patient services............................... $14,496 $ 0 $(656)(a) $ 13,840 $ 853
Resident services.............................. 2,998 1,843 0 4,841 0
Other revenues................................. 1,644 71 0 1,715 0
------- ------ ----- -------- -----
Total revenues........................... 19,138 1,914 (656) 20,396 853
------- ------ ----- -------- -----
Expenses:
Facility operating expenses:
Salaries, wages and benefits................. 7,305 833 (80)(a) 8,058 354
Other operating expenses..................... 7,187 471 (471)(a) 7,187 300
Development and pre-opening expenses........... 312 0 0 312 0
General and administrative..................... 2,367 0 0 2,367 0
Lease expense.................................. 2,212 0 0 2,212 0
Depreciation and amortization expense.......... 281 178 1(a) 460 49
Write-down of long-lived assets................ 0 0 0 0 0
------- ------ ----- -------- -----
Total expenses............................... 19,664 1,482 (550) 20,596 703
------- ------ ----- -------- -----
Income (loss) from operations.................... (526) 432 (106) (200) 150
Other income (expense):
Interest income................................ 113 0 0 113 0
Interest expense............................... (237) (617) 0 (854) (145)
------- ------ ----- -------- -----
Income (loss) before taxes....................... (650) (185) (106) (941) 5
Provision (benefit) for income taxes............. 7 (75) (42)(a) (376)(b) 2
------- ------ ----- -------- -----
Net income (loss)................................ $ (657) $ (110) $ (64) $ (565) $ 3
======= ====== ===== ======== =====
Pro forma net income (loss) per share............ $ (0.08)
=======
Shares used in computing pro forma loss per
share.......................................... 7,980
=======
<CAPTION>
CONSOLIDATED
CONSOLIDATED OFFERING PRO FORMA
PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Patient services............................... $ 14,693 $ 0 $ 14,693
Resident services.............................. 4,841 0 4,841
Other revenues................................. 1,715 0 1,715
-------- ------- --------
Total revenues........................... 21,249 0 21,249
-------- ------- --------
Expenses:
Facility operating expenses:
Salaries, wages and benefits................. 8,412 0 8,412
Other operating expenses..................... 7,487 0 7,487
Development and pre-opening expenses........... 312 0 312
General and administrative..................... 2,367 0 2,367
Lease expense.................................. 2,212 0 2,212
Depreciation and amortization expense.......... 509 0 509
Write-down of long-lived assets................ 0 0 0
-------- ------- --------
Total expenses............................... 21,299 0 21,299
-------- ------- --------
Income (loss) from operations.................... (50) 0 (50)
Other income (expense):
Interest income................................ 113 0 113
Interest expense............................... (999) 978(c) (21)
-------- ------- --------
Income (loss) before taxes....................... (936) 978 42
Provision (benefit) for income taxes............. (374) 391(d) 17
-------- ------- --------
Net income (loss)................................ $ (562) $ 587 $ 25
======== ======= ========
Pro forma net income (loss) per share............ $ (0.07) $ --(d-1)
======== ========
Shares used in computing pro forma loss per
share.......................................... 7,980 7,824 15,804
======== ======= ========
</TABLE>
35
<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
RECENT ACQUISITIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FELTROP BUTLER NORTHRIDGE
---------------------------------- ---------------------------------- ------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL
------ ----------- --------- ------ ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Patient services..................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Resident services.................... 472 0 472 673 0 673 698
Other revenues....................... 0 0 0 64 0 64 7
---- ----- ----- ---- ----- ----- ----
Total revenues..................... 472 0 472 737 0 737 705
---- ----- ----- ---- ----- ----- ----
Expenses:
Facility operating expenses:
Salaries, wages and benefits....... 237 0 237 267 0 267 329
Other operating expenses........... 180 0 180 174 0 174 117
Development and pre-opening
expenses........................... 0 0 0 0 0 0 0
General and administrative........... 0 0 0 0 0 0 0
Lease expense........................ 0 0 0 0 0 0 0
Depreciation and amortization
expense............................ 14 32(e) 46 35 34(h) 69 35
Write-down of long-lived assets...... 0 0 0 0 0 0 0
---- ----- ----- ---- ----- ----- ----
Total expenses..................... 431 32 463 476 34 510 481
---- ----- ----- ---- ----- ----- ----
Income (loss) from operations.......... 41 (32) 9 261 (34) 227 224
Other income (expense):
Interest income...................... 0 0 0 7 (7)(i) 0 4
Interest expense..................... (29) (124)(f) (153) (51) (188)(i) (239) (68)
---- ----- ----- ---- ----- ----- ----
Income (loss) before taxes............. 12 (156) (144) 217 (229) (12) 160
Provision (benefit) for income taxes... 0 (58)(g) (58) 0 (5)(j) (5) 0
---- ----- ----- ---- ----- ----- ----
Net income (loss)...................... $ 12 $ (98) $ (86) $217 $(224) $ (7) $160
---- ----- ----- ---- ----- ----- ----
<CAPTION>
RECENT
PRO FORMA PRO FORMA ACQUISITIONS
ADJUSTMENTS SUBTOTAL PRO FORMA
----------- --------- ------------
<S> <C> <C> <C>
Revenues:
Patient services..................... $ 0 $ 0 $ 0
Resident services.................... 0 698 1,843
Other revenues....................... 0 7 71
----- ----- -----
Total revenues..................... 0 705 1,914
----- ----- -----
Expenses:
Facility operating expenses:
Salaries, wages and benefits....... 0 329 833
Other operating expenses........... 0 117 471
Development and pre-opening
expenses........................... 0 0 0
General and administrative........... 0 0 0
Lease expense........................ 0 0 0
Depreciation and amortization
expense............................ 28(k) 63 178
Write-down of long-lived assets...... 0 0 0
----- ----- -----
Total expenses..................... 28 509 1,482
----- ----- -----
Income (loss) from operations.......... (28) 196 432
Other income (expense):
Interest income...................... (4)(l) 0 0
Interest expense..................... (157)(l) (225) (617)
----- ----- -----
Income (loss) before taxes............. (189) (29) (185)
Provision (benefit) for income taxes... (12)(m) (12) (75)
----- ----- -----
Net income (loss)...................... $(177) $ (17) $ (110)
----- ----- -----
</TABLE>
36
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
PENDING ACQUISITION
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GETHSEMANE
-----------------------------------
PENDING
PRO FORMA PRO FORMA ACQUISITION
ACTUAL ADJUSTMENTS SUBTOTAL PRO FORMA
------ ---------- --------- -----------
<S> <C> <C> <C> <C>
Revenues:
Patient services.......................................................... $853 $ 0 $ 853 $ 853
Resident services......................................................... 0 0 0 0
Other revenues............................................................ 0 0 0 0
---- ------ ----- -----
Total revenues.................................................... 853 0 853 853
---- ------ ----- -----
Expenses:
Facility operating expenses:
Salaries, wages and benefits........................................... 354 0 354 354
Other operating expenses............................................... 300 0 300 300
Development and pre-opening expenses...................................... 0 0 0 0
General and administrative................................................ 0 0 0 0
Lease expense............................................................. 0 0 0 0
Depreciation and amortization expense..................................... 36 13(n) 49 49
Write-down of long-lived assets........................................... 0 0 0 0
---- ------ ----- -----
Total expenses.................................................... 690 13 703 703
---- ------ ----- -----
Income (loss) from operations............................................... 163 (13) 150 150
Other income (expense):
Interest income........................................................... 0 0 0 0
Interest expense.......................................................... (60) (85)(o) (145) (145)
---- ------ ----- -----
Income (loss) before taxes.................................................. 103 (98) 5 5
Provision (benefit) for income taxes........................................ 0 2(p) 2 2
---- ------ ----- -----
Net income (loss)........................................................... $103 $ (100) $ 3 $ 3
==== ====== ===== =====
</TABLE>
37
<PAGE> 39
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
PHARMACY DIVESTITURE
The Pharmacy Divestiture column represents the income statement of the Pharmacy
operations for the three months ended September 30, 1997.
a) Represents the elimination of the results of the Pharmacy from the pro
forma statement of operations.
CONSOLIDATED TAX PROVISION ADJUSTMENT
b) Represents the tax provision on the income before taxes at the Company's
estimated consolidated statutory tax rate of 40%.
OFFERING ADJUSTMENTS
The increase in shares used in computing pro forma loss per share represents (i)
the 6,961,000 shares to be issued in the Offering and (ii) the 863,218 shares
issued upon conversion of the Series A Preferred Stock.
c) Represents the elimination of interest expense on the Company's
outstanding mortgage loans from assumed debt repayment with Offering
proceeds and the repayment of short-term debt incurred for the Feltrop,
Butler, Northridge and Gethsemane acquisitions, detailed as follows
(dollars in thousands):
<TABLE>
<CAPTION>
OUTSTANDING INTEREST INTEREST
BALANCE RATE ADJUSTMENT
----------- -------- ----------
<S> <C> <C> <C>
Foster Mortgage........................... $ 3,115 10.7% $ 83
Wisconsin Mortgage........................ 5,044 10.6% 133
Feltrop Bridge Financing.................. 5,842 10.5% 153
Butler Bridge Financing................... 9,104 10.5% 239
Northridge Bridge Financing............... 8,549 10.5% 225
Gethsemane Bridge Financing............... 5,528 10.5% 145
----
Total pro forma adjustment........... $978
====
</TABLE>
d) Represents the tax effect of the interest expense savings from the
assumed repayment of debt at an estimated consolidated statutory tax
rate of 40%.
PRO FORMA NET LOSS PER SHARE
(d-1) The pro forma net loss per share is computed as follows:
<TABLE>
<S> <C>
Weighted average common and common equivalent shares............... 7,980
Shares issued in offering.......................................... 6,961
Shares issued upon conversion of Series A Preferred Stock.......... 863
------
15,804
Pro forma net income............................................... $ 25
Pro forma net income per share..................................... $ --
</TABLE>
FELTROP
The Feltrop actual column represents the income statement of Feltrop for the
three months ended September 30, 1997.
38
<PAGE> 40
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
e) Represents the net adjustment of (i) depreciation expense to equal the
Company's estimated depreciation and (ii) the amortization of the excess
of the purchase price over the fair value of the net assets acquired.
Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Three months depreciation.................................................... $ 36
Seller's depreciation........................................................ (14)
---
22
Goodwill amortization for three months ($1,550/40 years/4 quarters) 10
---
Net adjustment............................................................... $ 32
===
</TABLE>
f) Represents the elimination of interest expense on the debt of the seller
not assumed by the Company and interest expense on the Company's
$5,842,000 bridge financing at 10.5%.
g) Represents the tax provision on the adjusted pro forma income at an
estimated statutory tax rate of 40%.
BUTLER
The Butler actual column represents the income statement of Butler for the three
months ended September 30, 1997.
h) Represents the net adjustment of (i) depreciation expense to equal the
Company's estimated depreciation and (ii) the amortization of the excess
of the purchase price over the fair value of the net assets acquired.
Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Three months depreciation........................................... $ 53
Seller's depreciation............................................... (35)
----
18
Goodwill amortization for three months ($2,643/40 years/4
quarters)......................................................... 16
----
Net adjustment...................................................... $ 34
====
</TABLE>
i) Represents the elimination of (i) seller's historical interest income
since the Company did not acquire the financial instruments which
generated this interest income, (ii) interest expense on debt of the
seller not assumed by the Company, and (iii) interest expense on the
Company's $9,104,000 bridge financing at 10.5%.
j) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
NORTHRIDGE
The Northridge actual column represents the income statement of Northridge for
the three months ended September 30, 1997.
k) Represents the adjustment of (i) depreciation expense to equal the
Company's estimated depreciation and the (ii) amortization of the excess
of the purchase price over the fair value of the net assets acquired.
Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Three months depreciation........................................... $ 42
Seller's depreciation............................................... (35)
----
7
Goodwill amortization for three months ($3,349/40 years/4
quarters)......................................................... 21
----
Net adjustment...................................................... $ 28
====
</TABLE>
39
<PAGE> 41
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
l) Represents the elimination of (i) seller's historical interest income
since the Company did not acquire the financial instruments which
generated this interest income, (ii) interest income on investments and
interest expense on the debt of the seller not assumed by the Company,
and (iii) interest expense on the Company's $8,549,000 bridge financing
at 10.5%.
m) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
GETHSEMANE
The actual Gethsemane column represents the combined income statement of
Gethsemane for the three months ended September 30, 1997.
n)Represents the adjustments of (i) depreciation expense to equal the
Company's estimated depreciation and (ii) the amortization of the excess
of the purchase price over the fair value of the net assets acquired.
Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Three months depreciation.......................................... $ 39
Seller's depreciation.............................................. (36)
3
Annual goodwill amortization ($1,597)/40 years/4 quarters)......... 10
----
Net adjustment..................................................... $ 13
====
</TABLE>
o)Represents the elimination of (i) interest expense on debt of the seller
not assumed by the Company, and (ii) interest expense on the Company's
$5,528,000 bridge financing at 10.5%
p)Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
40
<PAGE> 42
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PHARMACY PRO FORMA
DIVESTITURE BEFORE
THE COMPANY RECENT PRO FORMA PENDING PENDING
ACTUAL ACQUISITIONS ADJUSTMENTS ACQUISITION ACQUISITION
----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Patient services........................... $41,616 $ 10,418 $(2,305)(a) $ 49,729 $ 2,876
Resident services.......................... 6,778 10,834 0 17,612 0
Other revenues............................. 1,086 469 (151)(a) 1,404 1
------- ------- ------- ------- -------
Total revenues....................... 49,480 21,721 (2,456) 68,745 2,877
------- ------- ------- ------- -------
Operating Expenses:
Facility operating expenses:
Salaries, wages and benefits............. 19,186 8,707 (295)(a) 27,598 1,227
Other operating expenses................. 20,727 7,874 (1,667)(a) 26,934 1,054
Development and pre-opening expenses....... 740 0 0 740 0
General and administrative expense......... 4,913 0 0 4,913 0
Lease expense.............................. 5,417 2,481 (88)(a) 7,810 0
Depreciation and amortization expense...... 693 805 5(a) 1,503 196
Write-down of long-lived assets............ 1,591 0 0 1,591 0
------- ------- ------- ------- -------
Total expenses....................... 53,267 19,867 (2,045) 71,089 2,477
------- ------- ------- ------- -------
Income (loss) from operations................ (3,787) 1,854 (411) (2,344) 400
Other income (expense):
Interest income............................ 265 0 0 265 0
Interest expense........................... (917) (2,535) 0 (3,452) (580)
------- ------- ------- ------- -------
Income (loss) before taxes................... (4,439) (681) (411) (5,531) (180)
Provision (benefit) for income taxes......... 53 (276) (164)(a) (2,213)(b) (72)
------- ------- ------- ------- -------
Net income (loss)............................ $(4,492) $ (405) $ (247) $ (3,318) $ (108)
======= ======= ======= ======= =======
Pro forma net loss per share................. $ (0.56)
=======
Shares used in computing pro forma loss per
share...................................... 7,954
=======
<CAPTION>
CONSOLIDATED
CONSOLIDATED OFFERING PRO FORMA AS
PRO FORMA ADJUSTMENTS ADJUSTED
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Patient services........................... $ 52,605 $ 0 $ 52,605
Resident services.......................... 17,612 0 17,612
Other revenues............................. 1,405 0 1,405
------- ---- -------
Total revenues....................... 71,622 0 71,622
------- ---- -------
Operating Expenses:
Facility operating expenses:
Salaries, wages and benefits............. 28,825 0 28,825
Other operating expenses................. 27,988 0 27,988
Development and pre-opening expenses....... 740 0 740
General and administrative expense......... 4,913 0 4,913
Lease expense.............................. 7,810 0 7,810
Depreciation and amortization expense...... 1,699 0 1,699
Write-down of long-lived assets............ 1,591 0 1,591
------- ---- -------
Total expenses....................... 73,566 0 73,566
------- ---- -------
Income (loss) from operations................ (1,944) 0 (1,944)
Other income (expense):
Interest income............................ 265 0 265
Interest expense........................... (4,032) 3,915(c) (117)
------- ---- -------
Income (loss) before taxes................... (5,711) 3,915 (1,796)
Provision (benefit) for income taxes......... (2,285) 1,566(d) (719)
------- ---- -------
Net income (loss)............................ $ (3,426) $ 2,349 $ (1,077)
======= ==== =======
Pro forma net loss per share................. $ (0.43) $ (0.07)(d-1)
=======
Shares used in computing pro forma loss per
share...................................... 7,954 7,824 15,778
======= ==== =======
</TABLE>
41
<PAGE> 43
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
RECENT ACQUISITIONS
FOR THE YEAR ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOSTER KEYSTONE CLARK
------------------------------ ------------------------------ -------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL
------ ----------- --------- ------ ----------- --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Patient services............. $6,707 $ 0 $ 6,707 $3,711 $ 0 $ 3,711 $ 0 $ 0 $ 0
Resident services............ 211 0 211 2,331 0 2,331 1,172 0 1,172
Other revenues............... 270 0 270 0 0 0 0 0 0
------ ----- ------ ------ ------ ------ ------ ----- ------
Total revenues.......... 7,188 0 7,188 6,042 0 6,042 1,172 0 1,172
------ ----- ------ ------ ------ ------ ------ ----- ------
Operating Expenses:
Facility operating expenses:
Salaries, wages and
benefits.................. 2,872 0 2,872 2,203 0 2,203 365 0 365
Other operating expenses... 3,027 167(e) 3,194 2,731 0 2,731 211 0 211
Development and pre-opening
expenses................... 0 0 0 0 0 0 0 0 0
General and administrative
expense.................... 0 0 0 0 0 0 0 0 0
Lease expense................ 68 747(f) 815 0 1,195(k) 1,195 153 318(o) 471
Depreciation and amortization
expense.................... 181 (130)(g) 51 381 (338)(l) 43 0 0 0
Write-down of long-lived
assets..................... 0 0 0 0 0 0 0 0 0
------ ----- ------ ------ ------ ------ ------ ----- ------
Total expenses.......... 6,148 784 6,932 5,315 857 6,172 729 318 1,047
------ ----- ------ ------ ------ ------ ------ ----- ------
Income (loss) from
operations................... 1,040 (784) 256 727 (857) (130) 443 (318) 125
Other income (expense):
Interest income.............. 46 (46)(h) 0 0 0 0 0 0 0
Interest expense............. (255) 187(i) (68) (490) 490(m) 0 0 0..... 0
------ ----- ------ ------ ------ ------ ------ ----- ------
Income (loss) before taxes.... 831 (643) 188 237 (367) (130) 443 (318) 125
Provision (benefit) for income
taxes........................ 26 48(j) 74 0 (53)(n) (53) 0 50(p) 50
------ ----- ------ ------ ------ ------ ------ ----- ------
Net income (loss)............. $ 805 $(691) $ 114 $ 237 $ (314) $ (77) $ 443 $(368) $ 75
====== ===== ====== ====== ====== ====== ====== ===== ======
<CAPTION>
NORTHRIDGE
FELTROP BUTLER -----------------------------
--------------------------------- ------------------------------ PRO
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA FORMA
ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL
------- ----------- --------- ------ ----------- --------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Patient services.............$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Resident services............ 1,980 0 1,980 2,617 0 2,617 2,523 0 2,523
Other revenues............... 0 0 0 182 0 182 17 0 17
------ ----- ------ ------ ------ ------ ------
Total revenues.......... 1,980 0 1,980 2,799 0 2,799 2,540 0 2,540
------ ----- ------ ------ ------ ------ ------
Operating Expenses:
Facility operating expenses:
Salaries, wages and
benefits.................. 1,041 0 1,041 1,017 0 1,017 1,209 0 1,209
Other operating expenses... 491 0 491 774 0 774 473 0 473
Development and pre-opening
expenses................... 0 0 0 0 0 0 0 0 0
General and administrative
expense.................... 0 0 0 0 0 0 0 0 0
Lease expense................ 0 0 0 0 0 0 0 0 0
Depreciation and amortization
expense.................... 73 111(q) 184 135 141(t) 276 142 109(w) 251
Write-down of long-lived
assets..................... 0 0 0 0 0 0 0 0 0
------ ----- ------ ------ ------ ------ ------
Total expenses.......... 1,605 111 1,716 1,926 141 2,067 1,824 109 1,933
------ ----- ------ ------ ------ ------ ------
Income (loss) from
operations................... 375 (111) 264 873 (141) 732 716 (109) 607
Other income (expense):
Interest income.............. 1 (1)(r) 0 17 (17)(u) 0 17 (17)(x) 0
Interest expense............. (119) (494)(r) (613) (183) (773)(u) (956) (265) (633)(x) (898)
------ ----- ------ ------ ------ ------ ------
Income (loss) before taxes.... 257 (606) (349) 707 (931) (224) 468 (759) (291)
Provision (benefit) for income
taxes........................ 0 (140)(s) (140) 0 (90)(v) (90) 0 (117)(y) (117)
------ ----- ------ ------ ------ ------ ------
Net income (loss).............$ 257 $(466) $ (209) $ 707 $(841) $ (134) $ 468 $(642) $ (174)
====== ===== ====== ====== ====== ====== ======
<CAPTION>
RECENT
ACQUISITIONS
PRO FORMA
------------
<S> <C>
Revenues:
Patient services............. $ 10,418
Resident services............ 10,834
Other revenues............... 469
Total revenues.......... 21,721
Operating Expenses:
Facility operating expenses:
Salaries, wages and
benefits.................. 8,707
Other operating expenses... 7,874
Development and pre-opening
expenses................... 0
General and administrative
expense.................... 0
Lease expense................ 2,481
Depreciation and amortization
expense.................... 805
Write-down of long-lived
assets..................... 0
Total expenses.......... 19,867
Income (loss) from
operations................... 1,854
Other income (expense):
Interest income.............. 0
Interest expense............. (2,535)
Income (loss) before taxes.... (681)
Provision (benefit) for income
taxes........................ (276)
Net income (loss)............. $ (405)
</TABLE>
42
<PAGE> 44
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
PENDING ACQUISITION
FOR THE YEAR ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GETHSEMANE
-----------------------------------
PRO PENDING
FORMA PRO FORMA ACQUISITION
ACTUAL ADJUSTMENTS SUBTOTAL PRO FORMA
------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Patient services......................$ 2,876 $ 0 $ 2,876 $2,876
Resident services..................... 0 0 0 0
Other revenues........................ 1 0 1 1
----- ----- ----- ------
Total revenues................ 2,877 0 2,877 2,877
----- ----- ----- ------
Operating Expenses:
Facility operating expenses:
Salaries, wages and benefits....... 1,227 0 1,227 1,227
Other operating expenses........... 1,054 0 1,054 1,054
Development and pre-opening
expenses........................... 0 0 0 0
General and administrative expense.... 0 0 0 0
Lease expense......................... 0 0 0 0
Depreciation and amortization
expense............................ 120 76 (z) 196 196
Write-down of long-lived assets....... 0 0 0 0
----- ----- ----- ------
Total expenses................ 2,401 76 2,477 2,477
----- ----- ----- ------
Income (loss) from operations........... 476 (76) 400 400
Other income (expense):
Interest income....................... 0 0 0 0
Interest expense...................... (191) (389) (aa) (580) (580)
----- ----- ----- ------
Income (loss) before taxes.............. 285 (465) (180) (180)
Provision (benefit) for income taxes.... 0 (72) (bb) (72) (72)
----- ----- ----- ------
Net income (loss).......................$ 285 $ (393) $ (108) $ (108)
===== ===== ===== ======
</TABLE>
43
<PAGE> 45
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
PHARMACY DIVESTITURE
The Pharmacy Divestiture column represents the income statement of the Pharmacy
operations for the year ended June 30, 1997.
(a) Represents the elimination of the results of the Pharmacy from the pro
forma statement of operations.
CONSOLIDATED TAX PROVISION ADJUSTMENT
(b) Represents the tax provision on the adjusted pro forma consolidated
income before taxes at the Company's estimated consolidated statutory
tax rate of 40%.
OFFERING ADJUSTMENTS
The increase in shares used in computing pro forma loss per share represents (i)
the 6,961,000 shares to be issued in the Offering and (ii) the 863,218 shares to
be issued upon conversion of the Series A Preferred Stock.
(c) Represents the elimination of interest expense on the Company's
outstanding mortgage loans from assumed debt repayment with Offering
proceeds and the repayment of short-term debt incurred for the Feltrop,
Butler, Northridge and Gethsemane acquisitions detailed as follows
(dollars in thousands):
<TABLE>
<CAPTION>
OUTSTANDING INTEREST INTEREST
BALANCE RATE ADJUSTMENT
----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Foster Mortgage............................... $ 3,115 10.7% $ 333
Wisconsin Mortgage............................ 5,044 10.6% 535
Feltrop Bridge Financing...................... 5,842 10.5% 613
Butler Bridge Financing....................... 9,104 10.5% 956
Northridge Bridge Financing................... 8,549 10.5% 898
Gethsemane Bridge Financing................... 5,528 10.5% 580
-----
Total pro forma adjustment.......... $3,915
=====
</TABLE>
(d) Represents the tax effect of the interest expense savings from the
assumed repayment of debt at an estimated consolidated statutory tax
rate of 40%.
PRO FORMA NET LOSS PER SHARE
(d-1) The pro forma net loss per share is computed as follows (dollars in
thousands, except per share amounts):
<TABLE>
<S> <C>
Weighted average common and common equivalent shares (see Note 1(q)
to the Consolidated Financial Statements of the Company)......... 7,954
Shares issued in offering.......................................... 6,961
Shares issued upon conversion of Series A Preferred Stock.......... 863
-------
15,778
Pro forma net loss................................................. $(1,077)
Pro forma net loss per share....................................... $ (0.07)
</TABLE>
44
<PAGE> 46
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1997
FOSTER
The Foster actual column represents the combined income statement of the Foster
companies for the period from July 1, 1996 through August 31, 1996, the date of
acquisition.
(e) Represents the addition of a $167,000 management fee paid by the
Company to the seller.
(f) Represents the Company's lease expense on the seven skilled nursing
facilities based on the lessor's cost of $41,385,000 at a 10.71% lease
rate (based on a 360-day year) for the period from July 1, 1996 through
August 31, 1996, the date of acquisition.
(g) Represents the net of (i) elimination of historical depreciation and
amortization of the seller; (ii) the addition of the Company's
depreciation; (iii) the amortization of the excess of the purchase
price over the fair value of the assets acquired of $3,401,000 over 25
years and (iv) the amortization of deferred financing costs of $598,000
over 12 years, calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Depreciation and amortization of seller.............................. $(181)
Depreciation on facilities acquired.................................. 20
Goodwill amortization................................................ 23
Amortization of deferred financing costs............................. 8
-----
$(130)
=====
</TABLE>
(h) Represents the elimination of interest income of the seller since the
Company did not acquire the interest bearing financial instruments
which generated this interest income.
(i) Represents the net effect of eliminating interest expense on
capital-related financing of the seller not assumed by the Company of
$244,000 and the addition of interest expense on the Company's
$3,115,000 financing at 10.7%.
(j) Represents the net tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
KEYSTONE
The Keystone actual column represents the combined income statement of the
Keystone companies for the period from July 1, 1996 through January 31, 1997,
the date of acquisition.
(k) Represents adjustments to reflect the Company's rent expense based on
the REIT's costs of $21,600,000 at 10% lease rate net of a $65,000
reduction of lease expense representing amortization of lease deposit
funding from a REIT. (See note 1(m) to the Consolidated Financial
Statements of the Company).
(l) Represents the net effect of (i) eliminating the prior owners'
depreciation and (ii) the amortization of the excess of the purchase
price over the fair value of the assets acquired of $1,840,000 over 25
years (dollars in thousands):
<TABLE>
<S> <C>
Seller's depreciation................................................ $(381)
Goodwill amortization................................................ 43
-----
$(338)
=====
</TABLE>
Approximately $308,000 was allocated to the cost of land acquired in
this transaction which represented the estimated fair value of the
improved land.
45
<PAGE> 47
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1997
(m) Represents elimination of seller's interest expense on long-term debt
which was not assumed by the Company.
(n) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
CLARK
The Clark actual column represents the income statements for three of the Clark
operations for the period from July 1, 1996 through May 15, 1997 (the date of
acquisition) combined with the income statement for the fourth Clark operation
for the period from July 1, 1996 through June 30, 1997. This facility was
acquired on August 18, 1997 and was immaterial to the consolidated financial
statements of the Company.
(o) Represents adjustments to reflect: (i) the elimination of the seller's
lease costs of $153,000; (ii) the Company's lease expense based on the
lessor's cost of $4,001,000 at a 10% lease rate for the three
facilities purchased May 15, 1997 for the period July 1, 1996 through
May 15, 1997, the date of acquisition; and (iii) the Company's lease
expense based on the lessor's cost of $1,334,000 at a 10% lease rate
for the facility purchased August 18, 1997 for the period July 1, 1996
through June 30, 1997 and (iv) a $13,000 reduction of lease expense
representing amortization of lease deposit funding from the REIT. (See
note 1(m) to the Consolidated Financial Statements of the Company).
(p) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
FELTROP
The Feltrop actual column represents the income statement of Feltrop for the
year ended June 30, 1997.
(q) Represents the net adjustment of (i) depreciation expense to equal the
Company's estimated depreciation and (ii) the amortization of the
excess of the purchase price over the fair value of the net assets
acquired. Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Annual depreciation................................................. $144
Seller's depreciation............................................... (73)
-----
71
Annual goodwill amortization ($1,550/40 years)...................... 40
-----
Net adjustment...................................................... $111
=====
</TABLE>
(r) Represents the elimination of (i) seller's interest income, (ii)
interest expense on the debt of the seller not assumed by the Company,
and (iii) interest expense on the Company's $5,842,000 bridge
financing at 10.5%.
(s) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
46
<PAGE> 48
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1997
BUTLER
(t) Represents the net adjustment of (i) depreciation expense to equal the
Company's estimated depreciation and (ii) the amortization of the
excess of the purchase price over the fair value of the net assets
acquired. Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Annual depreciation................................................. $210
Seller's depreciation............................................... (135)
-----
75
Annual goodwill amortization ($2,643/40 years)...................... 66
-----
Net adjustment...................................................... $141
=====
</TABLE>
(u) Represents the elimination of (i) seller's historical interest income
since the Company did not acquire the financial instruments which
generated this interest income, (ii) interest expense on debt of the
seller not assumed by the Company, and (iii) interest expense on the
Company's $9,104,000 bridge financing at 10.5%.
(v) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
NORTHRIDGE
The Northridge actual column represents the income statement of Northridge for
the year ended June 30, 1997.
(w) Represents the net adjustment of (i) depreciation expense to equal the
Company's estimated depreciation and (ii) the amortization of the
excess of the purchase price over the fair value of the net assets
acquired. Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Annual depreciation................................................. $167
Seller's depreciation............................................... (142)
-----
25
Annual goodwill depreciation ($3,349/40 years)...................... 84
-----
Net adjustment...................................................... $109
=====
</TABLE>
(x) Represents the elimination of (i) seller's historical interest income,
(ii) interest expense on the debt of the seller not assumed by the
Company, and (iii) interest expense on the Company's $8,549,000 bridge
financing at 10.5%.
(y) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
47
<PAGE> 49
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1997
GETHSEMANE
The actual Gethsemane column represents the combined income statement of
Gethsemane for the year ended June 30, 1997.
(z) Represents the net adjustment of (i) depreciation expense to equal the
Company's estimated depreciation and (ii) the amortization of the
excess of the purchase price over the fair value of the net assets
acquired. Adjustment is calculated as follows (dollars in thousands):
<TABLE>
<S> <C>
Annual depreciation................................................. $156
Seller's depreciation............................................... (120)
-----
36
Annual goodwill amortization ($1,597/40 years)...................... 40
-----
Net adjustment...................................................... $ 76
=====
</TABLE>
(aa) Represents the elimination of (i) interest expense on debt of the
seller not assumed by the Company, and (ii) interest expense on the
Company's $5,528,000 bridge financing at 10.5%.
(bb) Represents the tax provision on the adjusted pro forma income at an
estimated consolidated statutory tax rate of 40%.
48
<PAGE> 50
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PHARMACY PRO FORMA
RECENT DIVESTITURE BEFORE PENDING
THE COMPANY ACQUISITIONS PRO FORMA PENDING ACQUISITION CONSOLIDATED
ACTUAL PRO FORMA ADJUSTMENTS ACQUISITION PRO FORMA PRO FORMA
----------- ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 2,362 $ 0 $ 4,700(a) $ 7,062 $ 0 $ 7,062
Accounts receivable................ 7,774 0 0 7,774 0 7,774
Deferred costs..................... 2,373 0 0 2,373 0 2,373
Prepaid expenses and other current
assets........................... 1,938 0 (2)(a) 1,936 0 1,936
Assets held for sale............... 6,351 0 (3,352)(a) 2,999 0 2,999
------- ------ ------- ------ ------- --------
Total current assets........... 20,798 0 1,346 22,144 0 22,144
Due to/from affiliates............... 0 0 0 0 0 0
Investments in subsidiaries.......... 0 0 0 0 0 0
Restricted investments............... 2,594 0 0 2,594 0 2,594
Property and equipment, net.......... 3,291 15,953 0 19,244 3,931 23,175
Goodwill, net........................ 2,290 7,542 0 9,832 1,597 11,429
Other assets......................... 2,651 0 0 2,651 0 2,651
------- ------ ------- ------ ------- --------
Total assets $31,624 $ 23,495 $ 1,346 $ 56,465 $ 5,528 $ 61,993
======= ====== ======= ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and short-term borrowings........ $ 98 $ 23,495 $ 0 $ 23,593 $ 5,528 29,121
Accounts payable................... 4,858 0 0 4,858 0 4,858
Accrued payroll.................... 1,154 0 0 1,154 0 1,154
Accrued expenses................... 2,172 0 0 2,172 0 2,172
------- ------ ------- ------ ------- --------
Total current liabilities...... 8,282 23,495 0 31,777 5,528 37,305
Long-term debt....................... 8,354 0 0 8,354 0 8,354
Straight-line lease liability........ 3,166 0 0 3,166 0 3,166
Deferred revenues.................... 604 0 0 604 0 604
Other liabilities.................... 70 0 0 70 0 70
------- ------ ------- ------ ------- --------
Total liabilities.............. 20,476 23,495 0 43,971 5,528 49,499
------- ------ ------- ------ ------- --------
REDEEMABLE STOCK
Series B............................. 13,875 0 0 13,875 0 13,875
------- ------ ------- ------ ------- --------
STOCKHOLDERS' EQUITY
Preferred A stock.................... 1 0 0 1 0 1
Common stock......................... 5 0 0 5 0 5
Additional paid-in capital........... 3,335 0 0 3,335 0 3,335
Accumulated earnings (deficit)....... (6,068) 0 1,346(a) (4,722) 0 (4,722)
------- ------ ------- ------ ------- --------
Total stockholders' equity......... (2,727) 0 1,346 (1,381) 0 (1,381)
------- ------ ------- ------ ------- --------
Total liabilities and
stockholders' equity......... $31,624 $ 23,495 $ 1,346 $ 56,465 $ 5,528 61,993
======= ====== ======= ====== ======= ========
<CAPTION>
CONSOLIDATED
OFFERING PRO FORMA
ADJUSTMENTS ELIMINATIONS AS ADJUSTED
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 26,063(b) $ 0 $ 33,125
Accounts receivable................ 0 0 7,774
Deferred costs..................... 0 0 2,373
Prepaid expenses and other current
assets........................... 0 0 1,936
Assets held for sale............... 0 0 2,999
-------- -------
Total current assets........... 26,063 0 48,207
Due to/from affiliates............... 0 0 0
Investments in subsidiaries.......... 29,023(b) (29,023) 0
Restricted investments............... 0 0 2,594
Property and equipment, net.......... 0 0 23,175
Goodwill, net........................ 0 0 11,429
Other assets......................... 0 0 2,651
-------- -------
Total assets $ 55,086 $(29,023) $ 88,056
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and short-term borrowings........ $ (29,064) $ 0 $ 57
Accounts payable................... 0 0 4,858
Accrued payroll.................... 0 0 1,154
Accrued expenses................... 0 0 2,172
-------- -------
Total current liabilities...... (29,064) 0 8,241
Long-term debt....................... (8,110)(b) 0 244
Straight-line lease liability........ 0 0 3,166
Deferred revenues.................... 0 0 604
Other liabilities.................... 0 0 70
-------- -------
Total liabilities.............. (37,174) 0 12,325
-------- -------
REDEEMABLE STOCK
Series B............................. (13,875) 0 0
-------- -------
STOCKHOLDERS' EQUITY
Preferred A stock.................... (1)(b) 0 0
Common stock......................... 11(b) 0 16
Additional paid-in capital........... 106,125(b) (29,023) 80,437
Accumulated earnings (deficit)....... 0 0 (4,722)
-------- -------
Total stockholders' equity......... 106,135 (29,023) 75,731
-------- -------
Total liabilities and
stockholders' equity......... $ 55,086 $(29,023) $ 88,056
======== =======
</TABLE>
49
<PAGE> 51
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
RECENT ACQUISITIONS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FELTROP BUTLER NORTHRIDGE
-------------------------------- -------------------------------- --------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS
------ ----------- --------- ------ ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............. $ 6 $ (6)(c) $ 0 $ 100 $ (100)(e) $ 0 $ 210 $ (210)(g)
Accounts receivable....... 28 (28)(c) 0 9 (9)(e) 0 1 (1)(g)
Deferred costs............ 0 0 0 0 0 0 0 0
Prepaid expenses and other
current assets.......... 17 (17)(c) 0 20 (20)(e) 0 323 (323)(g)
Assets held for sale...... 0 0 0 0 0 0 0 0
------ ------ ------ ------ ------- ------ -------
Total current
assets.............. 51 (51) 0 129 (129) 0 534 (534)
<CAPTION>
RECENT
PRO FORMA ACQUISITIONS
SUBTOTAL PRO FORMA
--------- -----------
<S> <<C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............. $ 0 $ 0
Accounts receivable....... 0 0
Deferred costs............ 0 0
Prepaid expenses and other
current assets.......... 0 0
Assets held for sale...... 0 0
Total current
assets.............. 0 0
Due to/from affiliates...... 0 0 0 0 0 0 0 0
Investments in
subsidiaries.............. 0 0 0 0 0 0 0 0
Restricted investments...... 0 0 0 0 0 0 0 0
Property and equipment,
net....................... 1,232 3,060(d) 4,292 3,704 2,757(f) 6,461 3,044 2,156(h)
Goodwill, net............... 0 1,550(d) 1,550 0 2,643(f) 2,643 0 3,349(h)
Other assets................ 0 0 0 6 (6)(e) 0 186 (186)(g)
------ ------ ------ ------ ------- ------ -------
Total assets.......... $1,283 $ 4,559 $ 5,842 $3,839 $ 5,265 $ 9,104 $3,764 $ 4,785
====== ====== ====== ====== ======= ====== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of
long-term debt and
short-term borrowings... $ 117 $ 5,725(c) $ 5,842 $ 266 $ 8,838(e) $ 9,104 $ 193 $ 8,356(g)
Accounts payable.......... 40 (40)(c) 0 77 (77)(e) 0 28 (28)(g)
Accrued payroll........... 0 0 0 52 (52)(e) 0 47 (47)(g)
Accrued expenses.......... 83 (83)(c) 0 13 (13)(e) 0 40 (40)(g)
------ ------ ------ ------ ------- ------ -------
Total current
liabilities......... 240 5,602 5,842 408 8,696 9,104 308 8,241
Long-term debt.............. 944 (944)(c) 0 2,284 (2,284)(e) 0 2,819 (2,819)(g)
Straight-line lease
liability................. 0 0 0 0 0 0 0 0
Deferred revenues........... 0 0 0 0 0 0 0 0
Other liabilities........... 0 0 0 0 0 0 0 0
------ ------ ------ ------ ------- ------ -------
Total liabilities..... 1,184 4,658 5,842 2,692 6,412 9,104 3,127 5,422
------ ------ ------ ------ ------- ------ -------
REDEEMABLE STOCK
Series B.................... 0 0 0 0 0 0 0 0
------ ------ ------ ------ ------- ------ -------
STOCKHOLDERS' EQUITY
Preferred A stock........... 0 0 0 0 0 0 0 0
Common stock................ 0 0 0 22 (22)(f) 0 3 (3)(h)
Additional paid-in
capital................... 0 0 0 844 (844)(f) 0 50 (50)(h)
Accumulated earnings
(deficit)................. 99 (99)(d) 0 281 (281)(f) 0 584 (584)(h)
------ ------ ------ ------ ------- ------ -------
Total stockholders'
equity.................. 99 (99) 0 1,147 (1,147) 0 637 (637)
------ ------ ------ ------ ------- ------ -------
Total liabilities and
stockholders'
equity.............. $1,283 $ 4,559 $ 5,842 $3,839 $ 5,265 $ 9,104 $3,764 $ 4,785
====== ====== ====== ====== ======= ====== =======
<CAPTION>
Due to/from affiliates...... 0 0
<S> <<C> <C>
Investments in
subsidiaries.............. 0 0
Restricted investments...... 0 0
Property and equipment,
net....................... 5,200 15,953
Goodwill, net............... 3,349 7,542
Other assets................ 0 0
Total assets.......... $ 8,549 $23,495
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of
long-term debt and
short-term borrowings... $ 8,549 $23,495
Accounts payable.......... 0 0
Accrued payroll........... 0 0
Accrued expenses.......... 0 0
Total current
liabilities......... 8,549 23,495
Long-term debt.............. 0 0
Straight-line lease
liability................. 0
Deferred revenues........... 0 0
Other liabilities........... 0 0
Total liabilities..... 8,549 23,495
REDEEMABLE STOCK
Series B.................... 0 0
STOCKHOLDERS' EQUITY
Preferred A stock........... 0 0
Common stock................ 0 0
Additional paid-in
capital................... 0 0
Accumulated earnings
(deficit)................. 0 0
Total stockholders'
equity.................. 0 0
Total liabilities and
stockholders'
equity.............. $ 8,549 $23,495
</TABLE>
50
<PAGE> 52
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
PENDING ACQUISITION
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GETHSEMANE
---------------------------------- PENDING
PRO FORMA PRO FORMA ACQUISITION
ACTUAL ADJUSTMENTS SUBTOTAL PRO FORMA
------ ----------- --------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents............. $ 25 $ (25)(i) $ 0 $ 0
Accounts receivable....... 205 (205)(i) 0 0
Deferred costs............ 0 0 0 0
Prepaid expenses and other
current assets.......... 107 (107)(i) 0 0
Assets held for sale...... 0 0 0 0
------ ------- ------ ------
Total current
assets.............. 337 (337) 0 0
Due to/from affiliates...... 0 0 0 0
Investments in
subsidiaries.............. 0 0 0 0
Restricted investments...... 0 0 0 0
Property and equipment,
net....................... 3,902 29(j) 3,931 3,931
Goodwill, net............... 0 1,597(j) 1,597 1,597
Other assets................ 11 (11)(i) 0 0
------ ------- ------ ------
Total assets.......... $4,250 $ 1,278 $ 5,528 $ 5,528
====== ======= ====== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of
long-term debt and
short-term borrowings... $ 456 $ 5,072(i) $ 5,528 $ 5,528
Accounts payable.......... 269 (269)(i) 0 0
Accrued payroll........... 121 (121)(i) 0 0
Accrued expenses.......... 18 (18)(i) 0 0
------ ------- ------ ------
Total current
liabilities......... 864 4,664 5,528 5,528
Long-term debt.............. 2,356 (2,356)(i) 0 0
Straight-line lease
liability................. 0 0 0 0
Deferred revenues........... 0 0 0 0
Other liabilities........... 343 (343)(i) 0 0
------ ------- ------ ------
Total liabilities..... 3,563 1,965 5,528 5,528
------ ------- ------ ------
Redeemable stock
Series B.................... 0 0 0 0
------ ------- ------ ------
Stockholders' Equity
Preferred A stock........... 0 0 0 0
Common stock................ 10 (10)(j) 0 0
Additional paid-in
capital................... 240 (240)(j) 0 0
Accumulated earnings
(deficit)................. 437 (437)(j) 0 0
------ ------- ------ ------
Total stockholders'
equity.................. 687 (687) 0 0
------ ------- ------ ------
Total liabilities and
stockholders'
equity.............. $4,250 $ 1,278 $ 5,528 $ 5,528
====== ======= ====== ======
</TABLE>
51
<PAGE> 53
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
PHARMACY DIVESTITURE
(a) Represents the sale of the Pharmacy's operations, furniture and
equipment and certain prepaid expenses for net proceeds of $4,700,000.
The goodwill allocation of $3,401,000 to the Pharmacy was determined
using the estimated fair value of the pharmacy business based on
discounted cash flows.
OFFERING ADJUSTMENTS
(b) Assumes net proceeds from the Offering of $63,237,000 from the sale of
6,961,000 shares of common stock at $10 per share less assumed offering
expenses of $6,373,000. The assumed use of proceeds is to repay
long-term debt of $8,151,000, to repay indebtedness of $23,495,000
incurred to fund the purchase price of three completed acquisitions and
to fund the purchase price of $5,528,000 for a pending acquisition with
the balance of the proceeds retained for working capital and other
general corporate purposes. Simultaneous with the offering, the Series
A and Series B Preferred Stock will be converted into Common Stock.
FELTROP
(c) To eliminate certain assets and liabilities of the seller which were
not purchased or assumed by the Company. The current portion of
long-term debt and short-term borrowings represents the net of (i)
elimination of seller's debt of $117,000 and (ii) short-term debt of
$5,842,000 incurred to finance the acquisition.
(d) Purchase accounting adjustments to: (i) record property and equipment
at estimated fair value, (ii) record goodwill for the excess of the
purchase price over the fair value of the net assets acquired, (iii)
eliminate seller's accumulated deficit (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
ASSET USEFUL LIFE OF ASSET
-------------------------------------------------------- ----------- ----------
<S> <C> <C>
Land.................................................... -- $ 430
Building and improvements............................... 40 years 3,586
Furniture and equipment................................. 5 years 276
Estimated fair value of assets at acquisition date...... 4,292
Net fixed assets of seller at September 30, 1997........ (1,232)
Property and equipment.................................. $ 3,060
======
Goodwill................................................ $ 1,550
======
Stockholders' equity.................................... $ (99)
======
</TABLE>
The estimated fair value was based on a valuation prepared by an
independent appraiser.
BUTLER
(e) To eliminate certain assets and liabilities of the seller which will
not be purchased or assumed by the Company. The current portion of
long-term debt and short-term borrowings represents the net of (i)
elimination of seller's debt of $266,000 and (ii) short-term debt of
$9,104,000 incurred to finance the acquisition.
(f) Purchase accounting adjustments to: (i) record property and equipment
at estimated fair value, (ii) record goodwill for the excess of the
purchase price over the fair value of the net
52
<PAGE> 54
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
SEPTEMBER 30, 1997
assets acquired and (iii) eliminate the seller's historical
stockholders' equity (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
ASSET USEFUL LIFE OF ASSET
-------------------------------------------------------- ----------- ----------
<S> <C> <C>
Land.................................................... -- $ 980
Building and improvements............................... 40 years 4,863
Furniture and equipment................................. 7 years 618
Estimated fair value of assets at acquisition date...... 6,461
Net fixed assets of seller at September 30, 1997........ (3,704)
Property and equipment.................................. $ 2,757
======
Goodwill................................................ $ 2,643
======
Stockholders' equity.................................... $ (1,147)
======
</TABLE>
The estimated fair value was based on a valuation prepared by an
independent appraiser.
NORTHRIDGE
(g) To eliminate certain assets and liabilities of the seller which will
not be purchased or assumed by the Company.
(h) Purchase accounting adjustments (i) record property and equipment at
estimated fair value, (ii) record goodwill for the excess of the
purchase price over the fair value of the net assets acquired and (iii)
eliminate the seller's historical stockholders' equity (dollars in
thousands):
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
ASSET USEFUL LIFE OF ASSET
------------------------------------------------------ ----------- ----------
<S> <C> <C>
Land.................................................. -- $ 390
Building and improvements............................. 40 years 4,410
Furniture and equipment............................... 7 years 400
Estimated fair value of assets at acquisition date.... 5,200
Net fixed assets of seller at September 30, 1997...... (3,044)
Property and equipment................................ $ 2,156
=======
Goodwill.............................................. $ 3,349
=======
Stockholders' equity.................................. $ (637)
=======
</TABLE>
The estimated fair value was based on a valuation prepared by an
independent appraiser.
GETHSEMANE
(i) To eliminate certain assets and liabilities of the seller which will
not be purchased or assumed by the Company.
53
<PAGE> 55
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
SEPTEMBER 30, 1997
(j) Purchase accounting adjustments (i) record property and equipment at
estimated fair value, (ii) record goodwill for the excess of the
purchase price over the fair value of the net assets acquired and
(iii) eliminate the seller's historical stockholders' equity (dollars
in thousands):
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE
ASSET USEFUL LIFE OF ASSET
------------------------------------------------------ ----------- ----------
<S> <C> <C>
Land.................................................. -- $ 172
Building and improvements............................. 40 years 3,403
Furniture and equipment............................... 5 years 356
Estimated fair value of assets at acquisition date.... 3,931
Net fixed assets of seller at September 30, 1997...... $ (3,902)
Property and equipment................................ $ 29
=======
Goodwill.............................................. $ 1,597
=======
Stockholders' equity.................................. $ (687)
=======
</TABLE>
The estimated fair value was based on a valuation prepared by an
independent appraiser.
54
<PAGE> 56
BUSINESS
OVERVIEW
The Company was formed in April 1995 to develop senior care continuums
which meet the needs of upper middle, middle and moderate income populations in
non-urban, secondary markets. The Company considers upper middle, middle and
moderate income populations to consist of those individuals whose income and
assets enable them to afford senior living and care services at average daily
rates of $85, $75 and $65, respectively. The Company intends to utilize assisted
living facilities in selected markets as the primary entry point and service
platform to develop the Balanced Care Continuum consisting of various health
care and hospitality services, including, where appropriate, rehabilitation
therapies, physical, occupational and speech therapy, home health care services
on an intermittent basis, dementia and Alzheimer's services and skilled/subacute
care delivered in a skilled nursing setting, enabling residents to age in place.
The Company believes that non-urban, secondary markets are underserved, highly
fragmented and less prone to intense competition from larger providers. The
Company believes that these factors will enable it to establish a leading
position as a provider of a market differentiated, consumer preferred continuum
of senior care services in such markets. To achieve its goals, the Company
intends to: (i) provide a range of high quality, individualized senior care
services and programs, (ii) develop the Balanced Care Continuum, (iii) focus on
non-urban, secondary markets, (iv) continue developing the Company's signature
assisted living facilities, (v) pursue growth through selective acquisitions,
(vi) achieve the benefits of regional density by clustering, and (vii) expand
referral networks and strategic alliances.
After its formation, the Company raised its initial $2 million private
equity funding in September 1995. The Company obtained a $91 million financing
commitment for acquisitions and assisted living facility development projects
from a health care REIT in March 1996. A $12 million private equity funding
followed which occurred in two stages in September 1996 and March 1997. The
Company has a limited operating history and has incurred operating losses since
its inception. See "Risk Factors -- Limited Operating History; Losses."
Since its inception, the Company has grown primarily through acquisitions.
The Company completed the Recent Acquisitions of Foster in August 1996, Keystone
in January 1997, Clark in May and August 1997, Feltrop and Butler in October
1997 and Northridge in December 1997. The Company has also executed a definitive
agreement with respect to the Pending Acquisition of Gethsemane. The Company
completed the Pharmacy Divestiture in October 1997. The Company has also leased
two facilities and has designed, developed and opened five of its signature
assisted living facilities. As of December 1, 1997, the Company operated a total
of 30 assisted living facilities, 12 skilled nursing facilities and four
independent living facilities in Pennsylvania, Missouri, Arkansas and Wisconsin,
as well as a home health care agency in Missouri and a rehabilitation therapy
operation in Pennsylvania. After giving effect to the Pending Acquisition, and
assuming completion of the planned divestiture of the Company's assisted living
facilities in Wisconsin, and including the additional assisted living facilities
opened since December 1, 1997, the Company will own nine and lease 32 senior
living and health care facilities in Pennsylvania, Missouri, Arkansas and North
Carolina with a capacity for 1,341 assisted living residents, 1,294 skilled
nursing patients and 154 independent living residents. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Pending Acquisition and Planned Divestiture" and "Unaudited Pro
Forma Financial Information." In addition to the seven signature assisted living
facilities opened to date by the Company, the Company anticipates opening an
additional three signature assisted living facilities, all of which are
currently under construction, prior to February 1998.
The Balanced Care Continuum is being developed to deliver consumer-focused
health care and hospitality services that balance seniors' desire for
independence with their evolving health care needs. The Company's philosophy
includes the belief that wellness and preventative therapy will strengthen
residents, improve their health and forestall the deterioration that generally
accompanies aging, thus extending their lives and lengths of stay in assisted
living facilities. The Company's
55
<PAGE> 57
wellness-oriented program, Balanced Gold(SM), has been developed to predict and
proactively address resident care needs, including stabilizing and improving
residents' cognitive, emotional and physical well being. The Balanced Gold(SM)
program is included in the Company's core services package at each of its
newly-developed signature assisted living facilities, and the Company intends to
implement all or part of the program at its other assisted living facilities as
appropriate. Preventative, restorative and rehabilitative services are also
expected to be made available to residents through outpatient medical
rehabilitation, home health care, programs for residents with Alzheimer's and
other services provided by the Company or by an alliance partner or other third
party. By offering services and programs that are intended to enable residents
to stay healthier longer and prolong their stay at assisted living facilities,
the Company believes that its services and programs will address the preferences
and needs of seniors, while at the same time forestalling the need for residents
to move to a more costly long-term care setting, such as a skilled nursing
facility. As resident needs mandate migration into a skilled nursing or subacute
program, the Company believes that its skilled nursing facilities will provide a
transition for the resident with a focus on demonstrated outcomes and cost
effective care. The Company believes that its approach to senior care will
enable it to be a leading provider of a continuum of senior care services in
targeted non-urban, secondary markets.
THE SENIOR CARE INDUSTRY
The senior care industry is characterized by a wide range of living
accommodations and health care services. For those who are able to live in a
home setting, home health care and other limited services can be provided.
Community housing or retirement centers, which are commonly referred to as
independent living facilities, are also available to persons who need limited
assistance, such as with meal preparation, housekeeping and laundry. Assisted
living facilities are typically for those persons whose physical or cognitive
frailties have reached a stage where other living accommodations can no longer
provide the level of care required but who do not yet need the continuous
medical attention provided in a skilled nursing facility. Generally, assisted
living facilities provide a combination of housing and 24-hour personal support
services designed to assist seniors with activities of daily living ("ADLs"),
which include bathing, eating, personal hygiene, grooming, ambulating and
dressing. Certain assisted living facilities also offer higher levels of
personal assistance for residents with Alzheimer's disease or other forms of
dementia. Skilled nursing facilities provide care for those who need a minimum
of three hours of nursing per day.
The senior care industry, including assisted living, is highly fragmented
and characterized by numerous providers whose services, experience and capital
resources vary widely. The Company believes that few operators of assisted
living facilities, particularly those in secondary markets, focus on providing a
range of senior living and health care services that have been designed to
enable residents to stay in a preferred setting longer. Most of the markets
targeted by the Company for development have existing assisted living and/or
skilled nursing providers.
The Company believes that the assisted living industry is evolving as the
preferred alternative to meet the growing demand for a cost effective setting
for those seniors who cannot live independently due to physical or cognitive
frailties, but who do not require the more intensive medical attention provided
by a skilled nursing facility. According to the United States Bureau of the
Census, approximately 45% of persons aged 85 years and older, approximately 24%
of persons aged 80 to 84 and approximately 20% of persons aged 75 to 79 need
assistance with ADLs. In 1996, according to industry estimates, the assisted and
independent living industries generated approximately $12 to $14 billion in
revenues.
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The Company believes that a number of factors will contribute to the
continued growth of the assisted living industry, including:
Consumer Preference
The Company believes that assisted living is increasingly becoming the
setting preferred by prospective residents as well as their families, who are
often the decision makers for seniors. Assisted living is generally a more
attractive, service oriented and lower cost alternative to other types of senior
care facilities, offering seniors greater independence and allowing them to age
in place in a residential setting.
Cost Effectiveness
Assisted living facilities provide a cost effective alternative to other
types of facilities that may provide more care than a senior needs. The average
annual cost for a patient in a skilled nursing facility approaches $40,000 and,
in the case of a private pay patient, can exceed $75,000 per year in certain
markets. In contrast, the average annual cost for a resident of an assisted
living facility is generally 30% to 50% lower than skilled nursing facilities
located in the same region. Additionally, the Company also believes that the
cost of assisted living services compares favorably with home health care,
particularly when costs associated with housing, meals and personal care
assistance are taken into account.
Changing Income and Family Dynamics
The Company believes that the increasing income of seniors, as well as
changing family dynamics, will increase the demand for assisted living and
health care services. According to the United States Bureau of the Census, the
median income of the elderly population has been increasing. Accordingly, the
Company believes that the number of seniors who are able to afford high-quality
senior residential services such as those offered by the Company will also
increase. Additionally, the number of two-income households has increased over
the last decade and the geographical separation of senior family members from
their adult children has risen. As a result, many families that traditionally
would have provided the care and services offered by the Company to senior
family members are less able to do so. The Company believes that assisted living
facilities represent an attractive and independent environment for senior family
members.
Demographics
The target market for the Company's services are persons generally 75 years
and older, one of the fastest growing segments of the United States population.
According to the United States Bureau of the Census, the portion of the United
States population aged 75 and older is expected to increase by approximately
29%, from approximately 13.0 million in 1990 to approximately 16.8 million by
the year 2000, and the number of persons aged 85 and older, as a segment of the
United States population, is expected to increase by approximately 43%, from
approximately 3.0 million in 1990 to over 4.3 million by the year 2000.
Furthermore, the number of persons afflicted with Alzheimer's disease is also
expected to increase in the coming years. According to data published by the
American Psychiatric Association, Alzheimer's disease affects approximately 5%
to 8% of individuals over the age 65, 15% to 20% of individuals over the age of
75 and 25% to 50% of individuals over the age of 85.
Supply/Demand Imbalance
The Company believes that non-urban secondary markets are often underserved
with respect to assisted living facilities. Based on bed need analyses performed
by the Company in connection with the prospective development of its assisted
living facilities, the need for the Company's services in its target markets is
typically three times the number of beds sought to be developed. When combined
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with its market differentiated services package, the Company believes that it is
well positioned to be the preferred provider of senior care services in its
targeted markets.
While the senior population is growing significantly, the supply of skilled
nursing beds per thousand persons aged 85 years and older is declining. This
imbalance may be attributed to a number of factors in addition to the aging of
the population. Many states, in an effort to maintain controls of Medicaid
expenditures on long-term care, have implemented more restrictive
certificate-of-need regulations or similar legislation that restricts the supply
of licensed skilled nursing facility beds. Additionally, acuity-based
reimbursement systems have encouraged skilled nursing facilities to focus on
higher acuity patients. The Company also believes that high construction costs
and limits on government reimbursement for the full cost of construction and
start-up expenses will also contain the growth and supply of traditional skilled
nursing beds. These factors, taken in combination, result in relatively fewer
skilled nursing beds available for the increasing number of seniors who require
assistance with ADLs but do not require 24-hour medical attention.
THE BALANCED CARE PHILOSOPHY
The Company's philosophy for addressing seniors' living and care needs
includes the belief that wellness and preventative therapy will strengthen
residents, improve their health and forestall the deterioration that generally
accompanies aging, thus extending their lives and lengths of stay in assisted
living facilities. As a result, elements of the Balanced Care Continuum include
the Company's Balanced Gold(SM) program and the provision of medical
rehabilitation, home health, skilled nursing and subacute care services.
BALANCED CARE STRATEGY
The Company's objective is to be a leading provider of continuums of senior
living and health care services in selected non-urban, secondary markets. In
order to achieve this goal, the Company intends to:
Provide a Range of High Quality, Individualized Senior Care Services and
Programs
The Company's individualized care and living programs are designed to
enable the Company to provide a range of services and programs that maximize
resident satisfaction, strengthen residents, improve their overall health and
forestall the deterioration that generally accompanies aging. The Company's
admission process is designed to identify the unique needs of each resident and
to work with the resident, the resident's family, physicians and Company staff
in developing an individualized living program which meets the care needs,
living preferences and income level of the resident. The individualized care
program is periodically reviewed and updated to ensure that the residents' needs
are being met as they evolve.
Develop the Balanced Care Continuum
The Balanced Care Continuum is being developed to provide consumer-focused
health care and hospitality services delivered in an attractive and appropriate
setting that balances seniors' desire for independence with their evolving
health care needs, thus enabling the Company to retain residents longer as they
age in place. The Company intends to develop the Balanced Care Continuum
utilizing assisted living facilities in selected markets as the primary entry
point into, and service platform from which to build, comprehensive senior care
and living services, including medical rehabilitation, home health care, skilled
nursing and subacute care. Depending on the characteristics of a particular
market, the Company may offer all or a portion of the Balanced Care Continuum to
seniors in that market. Elements of the Balanced Care Continuum include the
following programs and services (See "-- Care and Services Programs"):
Balanced Gold(SM) Program. The key factors leading to the discharge of a
resident from an assisted living facility into a more costly, less home-like
setting include falls, incontinence and cognitive
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impairment. The Company has developed its Balanced Gold(SM) wellness-oriented
program to specifically address a variety of factors that can affect adversely
the health of assisted living residents, including balance and gait
difficulties, incontinence, cognitive impairment, stress due to pain and chronic
conditions and grieving due to multiple losses in the residents' life. The
Balanced Gold(SM) program includes tai chi exercise to improve balance and gait
problems; individually designed exercise programs, including incontinence and
pelvic exercises and diet guidelines; "Wisdom Keeper" programs to challenge and
stimulate mental capabilities; "Relaxation and Vitality" programs of deep
breathing, stretching exercises and sitting and walking meditation; "Golden
Living" programs to assist with grief and loss; gardening to encourage nurturing
and independence; and walking programs to promote health and fitness. Company
staff, in consultation with the resident as well as his or her family and
medical consultants, determine which of the Balanced Gold(SM) activities are
appropriate and best suited to the resident's needs, interests and capabilities.
The Balanced Gold(SM) program is included as an integral and differentiating
element of the Company's core services package at each of its newly-developed
signature assisted living facilities, and the Company intends to implement all
or part of the program at its other assisted living facilities as appropriate.
See "-- Care and Services Programs -- Balanced Gold(SM)."
Medical Rehabilitation. The Company believes that rehabilitation and
strengthening significantly improve the health of residents and prevent
injuries. Rehabilitation services include preventative therapies designed to
forestall the development of further frailties, and restorative therapies for
residents who have a specific illness, injury, condition or disease but do not
require many of the services provided in a skilled nursing facility or an acute
care hospital. These services may be provided through a Company-owned skilled
nursing facility or medical rehabilitation operation or through alliances with
other providers. The Company's signature assisted living facilities have been
specifically designed to accommodate medical rehabilitation services and to
include fully-equipped therapy gyms. See "-- Care and Services
Programs -- Medical Rehabilitation."
Home Health Care. The Balanced Care Continuum includes home health care
services offered to seniors in their homes as well as to residents of the
Company's assisted living or independent living facilities. Home health care
services include specialty nursing to individuals with long-term chronic health
conditions, disabilities or post-procedural needs, as well as respiratory,
monitoring and other medical equipment and supplies. In addition to expanding
the range of services offered, the provision of home care to at-home residents
is also expected to enable the Company to identify and establish relationships
with potential new residents for its assisted living facilities. See "-- Care
and Services Programs -- Home Health Care."
Skilled Nursing and Subacute Care. When the condition of an assisted
living resident has deteriorated such that it is no longer appropriate for the
resident to remain in an assisted living facility, the Company will discharge
the resident to a skilled nursing or subacute care facility. To ensure that
residents receive cost effective care in the appropriate care setting, the
Company has identified specific discharge criteria which indicate that a
resident requires the continuous attention of a skilled nurse or physician. As
assisted living industry regulations become more restrictive, discharge criteria
such as those that the Company has identified will become increasingly important
in determining which residents are appropriate for the Company's assisted living
facilities. The Balanced Care Continuum encompasses owned and operated or
strategically aligned relationships with skilled nursing and subacute care
facilities in the Company's markets. See "-- Care and Services
Programs -- Skilled Nursing and Subacute Services."
Focus on Non-Urban, Secondary Markets
The Company intends to continue to focus on providing a continuum of senior
living and health care services to upper middle, middle and moderate income
populations in non-urban, secondary markets. The Company considers upper middle,
middle and moderate income populations to consist of those individuals whose
income and assets enable them to afford senior living and care services at
average daily rates of $85, $75 and $65, respectively. These markets are
believed to be underserved,
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highly fragmented, less prone to intense competition from larger providers, and
otherwise have characteristics that the Company believes will enable it to
establish a leading position within a targeted market. The Company generally
considers a non-urban market with a population of between 10,000 and 200,000 to
be a "secondary market."
Management believes that the Company's competitive position in its targeted
markets is enhanced by the disciplined practices applied to market selection.
The Company utilizes an in-house developed model for market analysis to
determine the net bed need expected for each community. This analysis considers
such factors as population, income and age demographics and the number of
competitor beds in the market to arrive at the demonstrated net bed need,
excluding the facility proposed by the Company. A net bed need of at least three
times the size proposed is necessary in order for the Company to proceed to
enter that market. Also considered are the opportunity for the Company to offer
a range of services comprising the senior living and health care continuum, the
sophistication of competitor facilities, and the ability to maximize management
resources in a specific market by clustering its development and operating
activities.
Continue Developing the Balanced Care Signature Assisted Living Facilities
The Company has designed three signature assisted living facility models to
attract the upper middle, middle and moderate upward income populations in its
target markets. The Company's signature assisted living facilities range in size
from 48 units to 106 units and are designed to accommodate the full range of
assisted living services offered by the Company, including the Company's core
services Balanced Gold(SM) program, as well as a special program for residents
with Alzheimer's and other forms of dementia. In addition, the Company's
signature facilities are each designed to include a fully-equipped medical
rehabilitation therapy gym and treatment rooms. Medical rehabilitation services
are provided by certified physical, occupational and speech therapists and
psychologists, with physician oversight. By providing a consistent level of high
quality services in an easily recognized signature facility, the Company
anticipates creating brand-name awareness within a market for a range of care
and income levels. In addition to the seven signature assisted living facilities
opened to date, the Company anticipates opening an additional three facilities,
currently under development, prior to February 1998. During the next three
years, the Company plans to develop approximately 75 of these signature
facilities in its targeted markets.
Pursue Growth Through Selective Acquisitions
Since its inception, the Company's growth has been primarily attributable
to acquisitions. The Company has acquired or leased 23 assisted living
facilities with a capacity for 1,076 residents, 12 skilled nursing facilities
with a capacity for 1,228 patients, and four independent living facilities with
a capacity for 140 residents, as well as a home health care agency (excluding
the Company's seven Wisconsin assisted living facilities and the Pharmacy). In
addition, the Company has one Pending Acquisition which consists of two
facilities with an aggregate capacity for 51 assisted living residents and 66
skilled nursing patients. The Company intends to pursue selective acquisitions
to enter new markets, to enable the Company to develop and provide one or more
components of the Balanced Care Continuum in its markets, to create clusters of
assisted living facilities in selected markets, to benefit from operating
efficiencies and to develop a leading market position. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Pending Acquisition and Planned Divestiture" and "Unaudited Pro
Forma Financial Information."
Achieve the Benefits of Regional Density by Clustering
The Company's development and acquisition strategies focus on clustering
facilities to achieve maximum regional density and to provide residents with a
seamless range of services, prices and settings along a continuum of care and
cost. The Company believes that this strategy will enable it to achieve
operational and management efficiencies while delivering high quality care and
services within its target markets. In addition, clustering will enable the
Company to coordinate the marketing of
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Balanced Care Continuum components including assisted living, medical
rehabilitation, home health care, skilled nursing and subacute care. Regional
density will also allow the Company to benefit from community familiarity with
assisted living generally, and with the Company's signature assisted living
models in particular.
Expand Referral Networks and Strategic Alliances
The Company believes that strategic alliances can be a cost effective means
of providing the Balanced Care Continuum and a means of easing an individual's
transition from one setting to another. Accordingly, the Company will consider
entering into joint ventures or other alliances with local and regional hospital
systems, skilled nursing facilities, medical rehabilitation providers, home
health care and other senior health care providers and physicians, as well as
managed care organizations. The Company believes that such arrangements or
alliances, which could range from joint marketing arrangements to joint venture
arrangements, will enable it to be strategically positioned within its targeted
markets.
CARE AND SERVICES PROGRAMS
The Company offers a continuum of services to seniors that include assisted
living, medical rehabilitation, home health care, skilled nursing, subacute care
and independent living services.
Assisted Living Services
Admission; Resident Care Plan. The Company intends that its assisted
living facilities be the principal entry point into the Balanced Care Continuum.
As a result, the assisted living admission process is crucial to the proper
placement of residents and in the development of tailored resident care plans.
Upon admission to one of the Company's assisted living facilities, a physician
assesses the resident's health status and determines his or her care needs. A
lifestyle assessment is also conducted in consultation with the resident, as
well as his or her family and medical consultants, to determine the resident's
care and services preferences. From this assessment, each resident's
individualized care plan is developed to ensure that all staff members rendering
services meet the resident's specific needs and preferences whenever possible.
Each resident's care plan is reviewed periodically to determine when a change in
services is needed. The Company seeks to provide assisted living services that
allow a resident to maintain a dignified, independent lifestyle. Residents and
their families are encouraged to be partners in their care and to take as much
responsibility as possible for their well being.
Care and Services. The Company offers a range of assisted living care and
services which are available 24 hours per day at each of its assisted living
facilities. The core services package offered by the Company includes personal
care, support and certain supplemental services. Personal care services include
assistance with ADLs, such as ambulating, bathing, dressing, eating, grooming,
personal hygiene, monitoring or assistance with medications and confusion
management. Support services include meal preparation, assistance with social
and recreational activities, laundry services, general housekeeping, maintenance
services and transportation services. Supplemental services, which are offered
at an extra charge, include extra transportation services, beauty and barber
services, extra laundry services and non-routine care services. The Balanced
Gold(SM) program is included in the Company's core services package at each of
its newly-developed signature assisted living facilities, and the Company
intends to implement all or part of the program at its other assisted living
facilities as appropriate. The Company's facilities have been designed to
accommodate special programs including those for residents with Alzheimer's and
other forms of dementia, as well as medical rehabilitation and home health care
services. Medical rehabilitation services are provided by certified physical,
occupational and speech therapists and psychologists, with physician oversight.
Home health care services are provided through the Company's licensed home
health agency in Missouri or by a third party.
Balanced Gold(SM). The Company's Balanced Gold(SM) program is a
wellness-oriented program which assists residents in remaining independent and
involved with their families, other residents and
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the local community. The Balanced Gold(SM) program is included in the Company's
core services package at each of its newly-developed signature assisted living
facilities, and the Company intends to implement all or part of the program at
its other assisted living facilities as appropriate. Balanced Gold(SM) is
designed to address a variety of factors that may affect adversely the health of
assisted living residents, including balance and gait difficulties,
incontinence, cognitive impairment, stress due to pain and chronic conditions
and grieving due to multiple losses in the resident's life. The Balanced
Gold(SM) program includes tai chi exercise to improve balance and gait problems;
individually designed exercise programs, including incontinence and pelvic
exercises and diet guidelines; "Wisdom Keeper" programs to challenge and
stimulate mental capabilities; "Relaxation and Vitality" programs of deep
breathing, stretching exercises and sitting and walking meditation; "Golden
Living" programs to assist with grief and loss; gardening to encourage nurturing
and independence; and walking programs to promote health and fitness. Company
staff, in consultation with the resident, as well as his or her family and
medical consultants, determine which of the Balanced Gold(SM) activities are
appropriate and best suited to the resident's needs, interests and capabilities.
Alzheimer's Program. The Company is developing, with the assistance of its
Health Care Advisory Board, an approach to Alzheimer's and other forms of
dementia that includes specialized assessments and clinical approaches for early
and accurate detection, placement and intervention. To meet the needs of
residents with Alzheimer's disease and other related forms of dementia, the
Company is developing specially designed programs to maintain familiarity,
reduce confusion, and still provide a pleasant and appropriate living
environment for these residents. The Company's approach to Alzheimer's also
calls for support groups to be organized in conjunction with the local chapter
of the Alzheimer's Association to provide a safe and supportive community
through which caregivers can share their thoughts and concerns. The Company's
signature assisted living facilities are designed to enable these specialized
services to be provided at all future locations.
The Company currently operates an Alzheimer's program at one of its
assisted living facilities and at three dedicated units in its skilled nursing
facilities. These units feature areas specifically designed to provide
attention, care and services needed to help residents with Alzheimer's maintain
a higher quality of life. The Alzheimer's team members are specially trained to
understand behavior, maximize function, promote safety and encourage resident
independence.
Medication Management. Each assisted living facility contracts with a
pharmacy to provide prescription drugs to those residents who desire to utilize
the pharmacy. Residents are free to use a pharmacy of their choice.
Additionally, subject to state regulatory requirements, at the resident's
request, and based on the facility's assessment of the resident's needs, the
assisted living facility may manage a resident's medications by storing
prescription drugs within the facility, delivering the drugs to the resident and
reminding the resident when the medications need to be taken.
Assisted Living Charges. Monthly assisted living resident charges are
based, in part, on the type of assisted living suite selected and are set at
rates designed to be within the means of seniors in the secondary markets served
by the Company. In addition to its core services package, the Company offers
three additional levels of services to residents whose frailties or medical
condition are more acute. These additional levels of services are currently
offered at prices equal to 4%, 8%, and 12% above the price of the Company's core
assisted living services package. As of June 30, 1997, approximately 25%, 20%
and 10% of the Company's assisted living residents received services at the
first, second and third levels of additional services, respectively.
Substantially all of the Company's current revenues from the provision of
assisted living services are attributable to private payors.
Medical Rehabilitation Services
The Company's philosophy for addressing seniors' living and care needs
includes the belief that preventative therapy will strengthen residents, improve
their overall health and forestall the deterioration that generally accompanies
aging, thus extending their lives and lengths of stay in assisted living
facilities. The Company has developed specialized medical rehabilitation
programs to address the
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needs of seniors, including programs to specifically address balance and gait
difficulties, incontinence, lymphodema, pain and osteoarthritis, as well as
specific preventative therapy programs for seniors. For residents in the
Company's signature assisted living facilities, each rehabilitation program is
followed up with specialized regimens offered as part of the Balanced Gold(SM)
program. Should a resident's condition warrant additional rehabilitation,
on-staff and contracted therapists are available.
The Company currently provides medical rehabilitation services, including
physical and occupational therapy, on an outpatient basis to residents at two of
its assisted living facilities as well as to patients in a surrounding
community. These outpatient services are provided through the Company's licensed
rehabilitation agency in Pennsylvania or certain of its skilled nursing
facilities. Rehabilitation services are provided at the Company's other
facilities through contract services, outpatient rehabilitation facilities or
home health agencies.
The Company intends to establish or acquire additional licensed
rehabilitation agencies in those states where it is developing assisted living
facilities. These agencies will enable the Company to provide medical
rehabilitation services to its assisted living residents and the surrounding
communities. Additionally, the Company may enter into strategic joint venture
relationships with rehabilitation providers to provide medical rehabilitation in
certain markets.
Substantially all of the Company's current revenues from provision of
medical rehabilitation services are attributable to federal government
reimbursement programs.
Home Health Care Services
The Company provides home health care services through its licensed home
health agency in Missouri to residents at five of its assisted and independent
living facilities and patients from the surrounding areas. The services the
Company provides include: (i) general and specialty nursing services to
individuals with acute illness, long-term chronic health conditions, permanent
disabilities, terminal illnesses or post-procedural needs; (ii) therapy services
consisting of, among other things, physical, occupational, speech, and medical
social services; (iii) personal care services and assistance with ADLs; (iv)
hospice care for persons in the final phases of incurable disease; (v)
respiratory, monitoring, medical equipment and supplies; and (vi) a
comprehensive range of home infusion and enteral therapies. The Company intends
to develop, acquire or manage home health care service businesses in order to
provide home health care services at other facilities and to seniors living in
surrounding areas. Assisted living residents receiving home health care services
may require skilled nursing services as their medical conditions warrant.
Substantially all of the Company's current revenues from provision of home
health care services are attributable to federal government reimbursement
programs.
Skilled Nursing and Subacute Services
The Company currently provides skilled nursing services at two facilities
in northeast Pennsylvania (103 licensed beds) and ten facilities (1,125 licensed
beds) in southwest Missouri. The Company's skilled nursing facilities provide
traditional long-term care through 24-hour per day skilled nursing care by
registered nurses, licensed practical nurses and certified nursing aides. The
Company also offers a range of subacute care services at its skilled nursing
facilities including specialized programs for pulmonary care, medical
rehabilitation, wound care and dialysis. Subacute care is generally short-term,
goal-oriented care intended for individuals who have a specific illness, injury
or disease, but who do not require many of the services provided in an acute
care hospital. Board certified physicians direct the subacute programs offered
at these facilities.
For fiscal 1997, approximately 76% of the Company's skilled nursing
revenues were attributable to federal and state government reimbursement
programs.
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Independent Living Services
The Company operates four independent living facilities in Missouri located
adjacent to skilled nursing facilities operated by the Company. Services
provided at such facilities include: meal preparation, housekeeping, laundry and
transportation. These facilities are licensed as assisted living facilities and
may be converted from independent living facilities at the option of the
Company.
All of the Company's current revenues from the provision of independent
living services are attributable to private payors.
THE BALANCED CARE SIGNATURE ASSISTED LIVING FACILITY MODEL
The architectural and interior design concept of the Company's signature
assisted living facility models incorporates the Company's operating philosophy
of protecting resident privacy, enabling freedom of choice, encouraging
independence and fostering individuality in a home-like setting. The buildings
are residential in appearance, designed as "neighborhoods" within a "community,"
and offer a home-like environment, while being constructed to institutional
health care facility standards. The building designs incorporate the Company's
mission and dedication to providing a new outlook for seniors, encouraging
choice, wellness, and vitality. The Company believes that its signature
facilities achieve its mission and goals to meet the needs and expectations of
its residents and their families, providing a secure environment and care in a
home-like setting where the Company is responsive to each individual's special
needs and the universal desire for independence, dignity and purpose. The
Company believes that its residential environment also accomplishes several
other objectives, including: (i) lessening the trauma of change for residents
and their families; (ii) achieving operational efficiencies; (iii) facilitating
resident mobility and ease of access by caregivers; and (iv) differentiating the
Company from other assisted living and long-term care operators.
The models are freestanding buildings that range in size from 48 units to
106 units and are designed to accommodate the full range of assisted living
services offered by the Company, including the Company's Balanced Gold(SM) and
Alzheimer's programs. The buildings are usually single story and of
incombustible construction, and are designed to accommodate future expansion.
The interior layout is designed to promote efficient delivery of resident care
as well as resident independence. The design of the facilities allows
specialized grouping of residents and a central core for resident interaction.
In addition, the buildings are designed with a fully-equipped therapy gym and
treatment rooms for provision of medical rehabilitation services. The buildings
range in size from 27,000 square feet to 68,000 square feet and are adaptable to
construction on sites ranging from two to five acres. Approximately 38% of a
building is devoted to common areas and contains resident amenities including a
parlor, living room, dining room, club room, library, activity room,
beauty/barber shop, spa, laundry, wellness (therapy) center and neighborhood
lounges with pantries. The support areas include administrative offices,
resident services offices, a kitchen, common laundry and housekeeping/
maintenance areas. Resident units, including studio, privacy, companion and one
bedroom suites, are functionally grouped as "neighborhoods" within a "community"
and are configured internally to provide private bath, living area and sleeping
area with emergency call systems and cable television service. Porches,
terraces, gardens and activity areas are designed to fulfill outdoor interests
of residents.
The Company has three basic building plan design prototypes which provide
it with flexibility in adapting the model to a particular site and to
accommodate the various income and care levels demanded in a particular market.
Daily rates at the Prototype A facilities are currently expected to range from
$78.00 to $105.00 and Prototype B from $68.00 to $82.00. Daily rates for a
Prototype C facility, the design of which has not been finalized, are currently
expected to range from $58.00 to $68.00.
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OPERATING FACILITIES
The following table sets forth certain information with respect to the
senior living and care facilities (other than its Wisconsin assisted living
facilities which the Company plans to sell) currently operated by the Company
and those comprising the Pending Acquisition.
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<TABLE>
<CAPTION>
RESIDENT CAPACITY
BY CARE LEVEL(1) OCCUPANCY
OWNED (O)/ --------------------- RATE AS OF
FACILITY LOCATION LEASED (L) ALF SNF ILF SEPTEMBER 30, 1997
- --------------------------------------------------------- ---------- ----- ----- --- ------------------
<S> <C> <C> <C> <C> <C>
CURRENTLY OPERATED:
MISSOURI
Dixon
Balanced Care, Dixon(2).............................. L -- 60 -- 92%
Hermitage
Balanced Care, Hermitage(2).......................... L -- 120 -- 87%
Lebanon
Balanced Care, Lebanon North(2)...................... L -- 180 -- 84%
Balanced Care, Lebanon South(2)...................... L 12 106 -- 95%
The Terraces at Lebanon South(2)..................... L -- -- 31 70%
Nixa
Balanced Care, Nixa(2)............................... L -- 82 -- 94%
The Terraces at Nixa(2).............................. L -- -- 30 89%
Republic
Balanced Care, Republic(2)........................... O -- 127 -- 85%
Springfield
Balanced Care, Springfield East(2)................... L -- 120 -- 89%
The Terraces at Springfield East(2).................. L -- -- 31 90%
Balanced Care, Springfield West I(2)................. L -- 180 -- 89%
Balanced Care, Springfield West II(2)................ L -- 90 -- 80%
The Terraces at Springfield(2)....................... L 34 -- -- 71%
Nevada
Balanced Care, Nevada(2)............................. O -- 60 -- 91%
The Terraces at Nevada(2)............................ L -- -- 28 66%
The Terraces of Balanced Care(3)..................... L 27 -- -- 88%
The Terraces of Balanced Care(3)..................... L 25 -- -- 77%
Butler
The Terraces of Balanced Care(3)..................... L 25 -- -- 70%
Lamar
The Terraces of Balanced Care(4)..................... L 25 -- -- 85%
--- ----- ---
Subtotal:........................................ 148 1,125 120
--- ----- ---
PENNSYLVANIA
Allison Park
Outlook Pointe(TM) at Allison Park(5)................ L 85 -- -- 100%
State College
Outlook Pointe(TM) at State College(6)............... L 54 -- -- 40%
Altoona
Outlook Pointe(TM) at Altoona(7)(11)(15)............. L 54 -- -- --
Bloomsburg
Bloomsburg Manor(8).................................. L 69 -- -- 96%
Darlington
Feltrop's Personal Care Home(9)...................... O 92 -- -- 96%
Kingston
Kingston Manor(8).................................... L 78 -- -- 94%
Kingston Health Care Center(8)....................... L -- 65 -- 98%
Peckville
Mid Valley Manor(8).................................. L 71 -- -- 98%
Blakely Pine Health Care Center(8)................... L -- 38 -- 100%
Old Forge
Old Forge Manor(8)................................... L 49 -- -- 97%
Wyoming
West View Manor(8)................................... L 50 -- -- 97%
Butler
Silver Haven Summit(10).............................. O 36 -- -- 94%
Sarver
Sterling Care of Sarver(10).......................... O 37 -- 4 93%
Saxonburg
Sterling Care of Saxonburg(10)....................... O 79 -- 16 99%
--- ----- ---
Subtotal:........................................ 754 103 20
--- ----- ---
</TABLE>
66
<PAGE> 68
<TABLE>
<CAPTION>
RESIDENT CAPACITY
OCCUPANCY
OWNED (O)/ BY CARE LEVEL(1) RATE AS OF
FACILITY LOCATION LEASED (L) ALF SNF ILF SEPTEMBER 30, 1997
- --------------------------------------------------------- --- ----- ---
<S> <C> <C> <C> <C> <C>
ARKANSAS
Sherwood
Outlook Pointe(TM) at Sherwood(11)(15)............... L 50 -- 7 --
Mountain Home
Outlook Pointe(TM) at Mountain Home(11)(15).......... L 57 -- -- --
Maumelle
Outlook Pointe(TM) at Maumelle(11)(15)............... L 50 -- 7 --
Pocohontas
Outlook Pointe(TM) at Pocohontas(11)(15)............. L 57 -- -- --
Blytheville
Outlook Pointe(TM) at Blytheville(12)(15)............ L 57 -- -- --
--- ----- ---
Subtotal:........................................ 271 0 14
--- ----- ---
NORTH CAROLINA
Raleigh
Northridge Retirement Center(13)..................... O 117 -- -- 100%
--- ----- ---
PENDING ACQUISITION:
Gethsemane:
Gethsemane Retirement Community and Rehabilitation
Center,
Bloomsburg, PA....................................... O -- 66 -- 99%
Gethsemane Assisted Living Community,
Millville, PA(14).................................... O 51 -- -- 49%
--- ----- ---
Subtotal:........................................ 51 66 0
--- ----- ---
Total.......................................... 1,341 1,294 154
=== ===== ===
</TABLE>
- ---------------
(1) "ALF" means assisted living facility, "SNF" means skilled nursing facility
and "ILF" means independent living facility. The Company's ILFs in Missouri
are licensed as ALFs and may be converted to ALFs as the needs of its
residents so require.
(2) Acquired August 1996.
(3) Acquired May 1997.
(4) Acquired August 1997.
(5) Acquired March 1996, a 33-bed expansion was completed and opened in October
1997.
(6) Opened in May 1997.
(7) Opened in October 1997.
(8) Acquired January 1997.
(9) Acquired October 1997.
(10) Acquired in October 1997.
(11) The occupancy rate is not meaningful as the facilities opened in September
and October 1997.
(12) Opened in November 1997.
(13) Acquired in December 1997.
(14) Facility opened in March 1997. The occupancy rate reflects such recent
opening.
(15) In December 1997, the Company intends to sell the stock of its subsidiary
which leases this facility to an Operator/Lessee (as defined herein). The
Company will manage the facility for the Operator/Lessee and will have an
option to acquire the stock of the Operator/Lessee. See
"Business -- Development."
The above table excludes the Company's seven Wisconsin assisted living
facilities which the Company intends to sell. The Wisconsin facilities consist
of seven owned assisted living facilities located in Beloit (23 resident
capacity), Mauston (15 resident capacity), Monroe (23 resident capacity),
Pardeville (nine resident capacity), Portage (30 resident capacity), Tomah (30
resident capacity) and Waupun (15 resident capacity). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Pending Acquisition and Planned Divestiture." In June 1997,
management determined that the market in which its Wisconsin assisted living
facilities are located does not provide adequate opportunity to achieve the
operational efficiencies necessary for the
67
<PAGE> 69
Company to operate profitably. As a result, the Company committed to a plan for
the disposal of its Wisconsin assisted living facilities.
The Company also decided in June 1997 to approach national pharmacy
providers about acquiring the Pharmacy. Management decided to sell the Pharmacy
in order to focus on its assisted living and skilled nursing operations. In
addition, the Pharmacy sale will provide some of the working capital needed to
sustain the Company's continued growth.
DEVELOPMENT
An integral element of the Company's growth is the design, development and
opening of its signature assisted living facilities. The Company believes that
its signature assisted living facilities meet the needs of the upper middle,
middle and moderate income populations in its target markets and are designed to
provide the broad range of services contemplated by its Balanced Care Continuum
strategy over a range of pricing options. In addition to the seven signature
assisted living facilities opened to date by the Company, the Company
anticipates opening an additional three assisted living facilities, all of which
are currently under construction, prior to February 1998. The Company currently
plans to develop approximately 75 of its signature assisted living facilities
with a capacity of approximately 6,000 residents over the next three years.
In evaluating a potential market, the Company utilizes an in-house
developed model and a market analysis which considers such factors as bed need,
population, income and age demographics, target site visibility, probability of
obtaining zoning approvals, estimated level of market demand, the opportunity
for the Company to offer a range of services comprising the senior living and
health care continuum and the ability to maximize management resources in a
specific market by clustering its development and operating activities.
The primary milestones in the Company's development process are: (i) site
selection and signing of a land purchase option agreement, (ii) obtaining
permits and approvals necessary to commence construction, (iii) completion of
construction and (iv) operational set-up and training prior to opening. Once a
market has been identified, site selection and signing of a land purchase option
agreement typically take approximately 30 to 90 days and obtaining permits and
approvals takes approximately 60 to 90 days. Architectural design is done
in-house by a Company architect, while hands-on construction functions are
contracted to outside contractors. Construction of an assisted living facility
normally takes six to nine months, depending on geographic location and weather
conditions. Pre-opening operational activities begin approximately one month
after construction begins. After a facility receives a certificate of occupancy,
residents usually begin to move in immediately. The Company generally expects
occupancy of newly developed assisted living facilities to reach targeted
occupancy of 92% within 10 to 21 months after opening, depending on the size of
the facility.
The Company believes that it differentiates itself from many of its
competitors by its senior management's expertise in the development of
rehabilitation hospitals and other health care facilities and operations as well
as its in-house market research and development capabilities. The development
staff is currently comprised of eight professionals with over 100 years of
collective experience in real estate and health care facility development,
including analysts who target potential markets through the use of an in-house
developed bed need model and developers who conduct market analysis to identify
market bed needs, select appropriate building sites, and coordinate all local
and state governmental license and permit approvals. In addition, the design and
construction group is responsible for adapting prototypical facility design to
the selected site, making adjustments to the prototype plans to comply with
local building codes and awarding and monitoring contracts with third-party
architects and general contractors. The Company's design and construction group
also conducts field inspections and construction draw approvals during the
construction life of the project. Project managers and the in-house licensed
architect in the design and construction group collectively have 110 years of
construction management experience.
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<PAGE> 70
The Company's financial analysts generate five year projections for each
anticipated project. These projections are based on all costs associated with a
particular prototype facility chosen for that locale. All projects are subject
to predetermined hurdle rates for return on investment and minimum margins for
net operating income and pretax income. The senior management team and Board of
Directors approve all development projects. The capitalized costs to develop and
construct one of the Company's signature assisted living facilities is generally
projected to range between $44,000 and $85,000 per bed.
To date, the Company has developed assisted living facilities for health
care REITs. The Company has leased the facilities from the REITs when
construction has been completed. The Company's recent and future development
projects involve or are expected to involve entering into development agreements
with third-party owners, which are or are expected to be health care REITs. An
independent third-party company (the "Operator/Lessee") will lease the assisted
living facility from the REIT when construction has been completed. The Company
expects to manage the assisted living facility pursuant to a management
agreement with the Operator/Lessee. Each management agreement provides or is
generally expected to provide for a ten-year period with annual fees
approximating 6.0% of net revenues of the facility. It is anticipated that the
Company will have the option to purchase the stock of the Operator/Lessee for
fair market value at any time during the term of the management agreement. In
December 1997, the Company intends to sell the stock of ten of its operating
subsidiaries to Operator/Lessees for an aggregate price of approximately
$2,060,000, which does not represent a significant disposition of assets. The
Company will enter into management agreements with the Operator/Lessees and the
Company will have the option to purchase the stock of the Operator/Lessees for
fair market value at any time during the term of the management agreements.
The following table sets forth certain information regarding the Company's
signature assisted living facilities for which the zoning, permitting or
construction process has commenced and which the Company is developing. For each
of the locations, the Company or the prospective third-party owner has, at a
minimum, an option to purchase the real estate on which the facility is to be,
or is being, developed. In addition to facilities listed below, the Company is
also engaged in preliminary development activities with respect to other
possible sites for future facilities.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
CONSTRUCTION COMPLETION
ASSISTED LIVING FACILITY RESIDENT START DATE DATE
LOCATION CAPACITY OWNERSHIP (QUARTER END) (QUARTER END)
-------------------------- -------- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
NORTH CAROLINA
Greensboro.................................... 50 Lease(2) Commenced June 1998
-----
OHIO
Ravenna....................................... 60 Lease(2) Commenced Mar. 1998
Lima.......................................... 66 Manage(1) Commenced Sept. 1998
Xenia......................................... 106 Manage(1) Commenced Dec. 1998
Medina........................................ 80 Manage(1) Dec. 1998 Mar. 1999
Westerville................................... 106 Manage(1) June 1998 June 1999
Steubenville.................................. 80 Manage(1) June 1998 June 1999
Mansfield..................................... 66 Manage(1) Commenced Sept. 1998
Centerville................................... 106 Manage(1) Mar. 1998 June 1999
Akron......................................... 106 Manage(1) June 1998 Sept. 1999
Sagamore Hills................................ 80 Manage(1) Sept. 1998 Sept. 1999
-----
Subtotal: 856
-----
</TABLE>
69
<PAGE> 71
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
CONSTRUCTION COMPLETION
ASSISTED LIVING FACILITY RESIDENT START DATE DATE
LOCATION CAPACITY OWNERSHIP (QUARTER END) (QUARTER END)
-------------------------- -------- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
PENNSYLVANIA
Reading....................................... 64 Lease(2) Commenced Mar. 1998
Harrisburg.................................... 57 Lease(2) Commenced Dec. 1997
Dillsburg..................................... 66 Manage(1) Dec. 1997 Dec. 1998
Hampden....................................... 106 Manage(1) Dec. 1997 Dec. 1998
Scranton...................................... 72 Manage(1) Dec. 1997 Sept. 1998
Chippewa...................................... 66 Manage(1) Dec. 1997 Dec. 1998
Lewistown..................................... 72 Manage(1) Dec. 1997 June 1998
Mid-Valley.................................... 40 Manage(1) Dec. 1997 Sept. 1998
Lewisburg..................................... 72 Manage(1) Dec. 1997 Sept. 1998
Hazelton...................................... 72 Manage(1) June 1998 Mar. 1999
Bridgeville................................... 106 Manage(1) Mar. 1998 June 1999
Shippensburg.................................. 66 Manage(1) Mar. 1998 Dec. 1998
Berwick....................................... 72 Manage(1) Dec. 1997 Dec. 1998
York.......................................... 66 Manage(1) Mar. 1998 Mar. 1999
Bangor........................................ 72 Manage(1) June 1998 Mar. 1999
--------
Subtotal: 1,069
--------
TENNESSEE
Jackson....................................... 66 Manage(1) Mar. 1998 Dec. 1998
Bristol....................................... 66 Manage(1) June 1998 June 1999
Knoxville..................................... 106 Manage(1) Sept. 1998 Sept. 1999
Memphis....................................... 66 Manage(1) June 1998 June 1999
Murfreesboro.................................. 66 Manage(1) Sept. 1998 Sept. 1999
--------
Subtotal: 370
--------
VIRGINIA
Harrisonburg.................................. 60 Manage(1) Commenced Mar. 1998
Roanoke....................................... 60 Manage(1) Commenced Mar. 1998
Danville...................................... 66 Manage(1) Commenced June 1998
Chesterfield.................................. 80 Manage(1) June 1998 June 1999
--------
Subtotal: 266
--------
INDIANA
Anderson...................................... 80 Manage(1) Mar. 1998 June 1999
MARYLAND
Hagerstown.................................... 66 Manage(1) June 1998 June 1999
WEST VIRGINIA
Martinsburg................................. 66 Manage(1) Dec. 1998 Dec. 1998
--------
Total: 2,823
=========
</TABLE>
- ------------
(1) The Company is expected to manage the facility upon completion for the
Operator/Lessee and is expected to have the option to acquire the stock of
the Operator/Lessee.
(2) The Company intends to sell the stock of its subsidiary which leases this
facility in December 1997. The Company will manage the facility for the
Operator/Lessee and will have the option to acquire the stock of the
Operator/Lessee. See "Business--Development."
ACQUISITIONS AND STRATEGIC ALLIANCES
Since its inception, the Company's growth has been substantially
attributable to the acquisition of 12 assisted living facilities with a capacity
for 625 residents, 12 skilled nursing facilities with a capacity for 1,228
patients, and four independent living facilities with a capacity for 120
residents, as well as a
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<PAGE> 72
home health care agency (excluding the Company's seven Wisconsin assisted living
facilities and the Pharmacy). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Pending Acquisitions and
Planned Divestiture." The Company intends to continue to pursue selective
acquisitions to enter new markets, to enable the Company to develop and provide
one or more components of the Balanced Care Continuum in its markets, to create
clusters of assisted living facilities in selected markets, to benefit from
operating efficiencies and to develop a leading market position. The Company
believes that clustering facilities geographically will create opportunities for
operating efficiencies such as leveraging existing corporate office and regional
operations and marketing staff, lowering workers' compensation and other
employee benefit costs and lowering food and supplies costs. In addition, the
Company will consider entering into joint ventures or other alliances with
skilled nursing, medical rehabilitation, home health care and other senior
health care providers as a cost effective means of providing a full range of
care to residents of the Company's facilities and a senior care continuum that
eases an individual's transition from one setting to another.
In evaluating a potential acquisition, the Company considers, among other
factors: (i) location, construction quality, condition and design of the
facility, (ii) current and projected facility cash flow, (iii) the ability to
increase revenue, occupancy and cash flows by providing a full range of
services, (iv) cost of facility repositioning (including renovations, if any),
(v) the reputation of the facility in the local market, and (vi) the extent to
which the acquisition will complement the Company's development plans and
strategy. The Company's senior management and its acquisition team have
extensive experience in the acquisition of assisted living and other health care
facilities, including market assessment, identification of targets, due
diligence, negotiating, pricing, structuring, closing and integrating
acquisitions. Additionally, the Company's senior management team has extensive
acquisition experience as well as contacts with a large number of assisted
living, medical rehabilitation, home health care and skilled nursing and
subacute facility owners and operators.
The Company believes that the current fragmentation of the assisted living
industry will continue to create potential acquisition candidates for the
Company and that the competitive nature of the market will increase selling
activity as smaller, less well-capitalized providers face increasing competition
from larger competitors who can offer a broader range of services at more
attractive prices. The Company believes that through the reputation of its
management and the quality of the assisted living facilities it owns, operates
and is currently developing, it will become an attractive acquiror for assisted
living facilities. The Company intends to pursue both strategic and single
portfolio acquisitions that meet its quality standards and present the
opportunity to increase its profitability.
OPERATIONS
Centralized Corporate Management
The Company's corporate and other administrative functions are centralized
so that the facility-based management and staff can focus on resident care. The
Company's corporate office, located in Mechanicsburg, Pennsylvania, is generally
responsible for: (i) establishing Company-wide policies and procedures relating
to, among other things, resident care and operations, (ii) performing accounting
and finance functions, (iii) developing and implementing employee training
programs and materials, (iv) coordinating human resources and food services
functions, (v) coordinating marketing functions, and (vi) providing strategic
direction. In addition, financing, development, construction and acquisition
activities, including feasibility and market studies, facility design,
development and construction management are conducted by the Company's corporate
development and acquisition teams.
The Company manages the operations of each of its facilities through
standardized management reporting and centralized control of capital
expenditures and the purchase of larger and more frequently used supplies.
Facility expenditures are monitored by regional operations teams headed by one
of the Company's Regional Vice Presidents who are responsible for the financial
performance of the facilities in their region. The operational activities of the
Company's assisted living facilities are
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<PAGE> 73
directed by the Company's Vice President of Operations who is responsible, with
the regional Vice Presidents, for the opening and operation of these facilities.
Community-Based Management
An assisted living Community Director or skilled nursing Facility
Administrator manages the operations at each assisted living or skilled nursing
facility, including oversight of the quality of care, delivery of resident
services, and monitoring of financial performance, and is responsible for all
personnel, including assisted living, food service, maintenance, activities,
security, housekeeping, and, where applicable, nursing. Directors and
Administrators are compensated based on attaining certain quality service goals
and on the financial goals of the facility. In most cases, each facility also
has department managers that direct nursing or care services, dining services,
activities, transportation, environmental, housekeeping and marketing functions.
In its assisted living communities, the Company has adopted the concept of
a multi-task work environment whereby each employee's responsibilities span a
number of traditional job descriptions. For example, an employee may, during the
course of a day, provide housekeeping, food delivery service, activities, and
assistance with ADLs to residents. On-site care managers and residents'
assistants provide most of the actual resident care in conjunction with a small
support team consisting of a nurse, a housekeeper, a maintenance helper, an
administrative coordinator and a small dining service team.
The Company actively recruits personnel to maintain adequate staffing
levels at its existing facilities, as well as additional staff for new or
acquired facilities, prior to opening. The Company has adopted comprehensive
recruiting and screening programs for management for positions that utilize
personnel profiling and corporate office interviews, and background checks. The
Company offers system-wide training and orientation for its resident care
employees, department level managers, and executive staff at the facility level
through Company-sponsored programs.
Quality Assurance and Training
The Company's quality assurance program is designed to achieve and maintain
a high degree of resident and family satisfaction with the Company's care and
services. Corporate office staff coordinate the implementation of the quality
assurance program at each of the Company's facilities. The Company encourages
resident and family participation and seeks feedback from families and residents
through surveys, focus groups, resident councils and discussions with family
members. The Company provides training programs to ensure that its quality
standards are achieved by its employees at each assisted living facility. In
addition, inspections of each facility are conducted regularly by corporate
staff. These periodic inspections involve the review of all aspects of
operations, care, and services provided, as well as the overall appearance and
cleanliness of the facility.
Integration of Acquired Facilities
The Company has developed a plan and organization structure to begin a
complete integration of each acquired facility immediately following its
acquisition. An interdisciplinary integration team begins conversion of
financial and information systems at closing, with operations, marketing and
human resource policies and procedures converted during the first six months of
operation.
Marketing
The Company's marketing program has been developed by the corporate
marketing staff under the direction of the Company's Vice President of Sales and
Marketing and is modified in accordance with the needs of each region in which
the Company operates. Marketing focuses on creating awareness of the Company and
its services among prospective residents, their families, professional referral
sources and other key decision makers. Marketing efforts are implemented on a
regional and local level under the supervision of the corporate marketing staff.
Corporate office personnel develop
72
<PAGE> 74
the overall marketing strategies for each facility, produce all marketing
materials, maintain marketing databases, oversee direct mailings, place all
media advertising and assist facility personnel in the initial development and
continuing refinement of marketing plans. The Company conducts pre-construction
surveys of age- and income-qualified prospective residents and their families
living within a certain radius of the proposed assisted living construction site
to ensure that the Company understands the needs and demands of a particular
marketplace. Focus groups are organized during the pre-opening phase to collect
data from key community representatives about seniors' needs and to inform them
of the Company's approach to senior care.
Before opening a new assisted living facility, the Company contacts
referral sources and conducts marketing programs that generate public awareness
beginning with the start of construction and intensify several months prior to
opening of the facility. An on-site Marketing Coordinator and Community Director
are at the residence approximately eight months prior to the opening of the
facility and are supported by the Company's corporate marketing department. The
Company generally expects occupancy of newly developed assisted living
facilities to reach targeted occupancy of 92% within 10 to 21 months after
opening, depending on the size of the facility.
Once a facility opens, the Company believes that satisfied residents and
their families are its most important referral sources. The Company's emphasis
on high quality services and resident satisfaction create a strong referral base
in the surrounding community. In addition, the Company focuses on developing the
reputation of the facilities for quality care and its Balanced Gold(SM) program
among potential referral sources.
In markets where the Company offers multiple components of the Balanced
Care Continuum, such as assisted living, outpatient rehabilitation services,
skilled nursing, subacute care, home care and hospice services, a network
approach to sales and marketing is utilized. A community-based sales force that
understands the health care environment of each market, including competitor
positioning, referral patterns and the maturity of managed care, facilitates
cross selling of the Company's services. Direct sales efforts increase referrals
for all services through the account management of professional referral sources
such as physicians, hospitals, and managed care plans.
Management Information Systems
The Company's information systems department, under the direction of the
Company's Vice President of Corporate Services, develops, implements and
maintains management and financial systems which enable the Company to closely
monitor operating costs and quickly distribute financial and operating
information to appropriate levels of management in a cost efficient manner. The
Company uses flexible input methods and communications to allow for distributed
data collection and analysis. Management believes that its current data systems
are adequate for current operations and provide the flexibility to accommodate
the planned growth of its operations without disruption or significant
modification to existing systems through fiscal year 1999. The Company plans to
begin upgrading the existing financial system during fiscal year 1999 to
accommodate future growth. The system upgrade will involve expansion of the
Company's systems staff and a substantial financial commitment.
The Company uses high quality hardware and operating systems from current
and proven technologies to ensure reliability and optimum system performance.
All vendors of the Company's information systems have advised the Company that
such systems accommodate year 2000 calendar changes without modification. All
software systems are commercially licensed with appropriate support and upgrade
options. For its skilled nursing operations, the Company has established on-line
electronic billing with Medicare and state Medicaid programs. In addition, the
facility-based system generates computer-assisted medical records that allow for
the creation of individualized care plans, physician orders and administrative
and observation records. All of the Company's facilities use electronic systems
throughout the marketing, admission and patient management process. Acquired
properties are converted to the Company's information systems after acquisition.
73
<PAGE> 75
COMPETITION
The health care industry is highly competitive and the Company believes
that competition in its current and targeted markets will continue to increase.
There are currently few regulatory and other barriers to entry in the assisted
living industry. The Company faces competition for residents from numerous
local, regional and national providers of facility-based assisted living and
long-term care, including skilled nursing facilities, as well as medical
rehabilitation and home health care providers. Many of the Company's present and
potential competitors are significantly larger or have greater financial
resources than those of the Company. The Company believes the primary
competitive factors in the senior care industry are: (i) reputation for, and
commitment to, high quality care; (ii) quality of support services offered (such
as home health care and food services); (iii) price of services; (iv) physical
appearance and amenities associated with the facilities; and (v) location.
Because seniors tend to choose senior living facilities near their homes, the
Company's principal competitors are other senior living and long-term care
facilities in the same geographic areas as the Company's facilities. The Company
also competes with other health care businesses with respect to attracting and
retaining nurses, technicians, aides, and other high quality professional and
non-professional employees and managers. Additionally, in implementing its
growth strategy the Company will face competition for the development and
acquisition of assisted living, skilled nursing and related senior care
facilities.
Management believes that the Company's competitive position in its targeted
markets is enhanced by the disciplined practices applied to market selection.
The Company utilizes an in-house developed model for market analysis to
determine the net bed need expected for each community. This analysis considers
such factors as population, income and age demographics and the number of
competitor beds in the market to arrive at the demonstrated net bed need,
excluding the facility proposed by the Company. A net bed need of at least three
times the size proposed is necessary in order for the Company to proceed to
enter that market. Also considered are the opportunity for the Company to offer
a range of services comprising the senior living and health care continuum, the
sophistication of competitor facilities, and the ability to maximize management
resources in a specific market by clustering its development and operating
activities.
GOVERNMENT REGULATION
The health care industry is subject to extensive federal, state and local
regulation. The various layers of governmental regulation affect the Company's
business by controlling its growth, requiring licensure or certification of its
facilities, regulating the use of its facilities and controlling reimbursement
to the Company for services provided. Licensing, certification and other
applicable governmental regulations vary from jurisdiction to jurisdiction and
are revised periodically. It is not possible to predict the content or impact of
future legislation and regulations affecting the health care industry.
Laws and regulations governing skilled nursing facilities are particularly
extensive and establish minimum standards in a variety of areas, including
physical plant specifications; personnel training and education; the level of
nursing, physician, rehabilitation, social, dietary and recreational services to
be provided; and safety and evacuation plans. The Omnibus Reconciliation Act of
1987 ("OBRA") significantly redefined the scope and nature of federal
regulations governing skilled nursing facilities certified to participate in the
Medicare and Medicaid programs, with an emphasis on resident rights and quality
of care. Skilled nursing facilities are also generally subject to and must
comply with state and/or local building and fire codes. In addition, some
states, including Missouri, have certificate of need laws applicable to skilled
nursing facilities. Certificate of need laws require that a state agency
determine that a sufficient need exists for a facility before it may be opened.
These laws may also regulate permitted capital expenditures and expansion of
services and beds.
Skilled nursing facilities, like other health care providers, are
periodically inspected by governmental agencies with authority over licensing
and certification for participation in the Medicare and Medicaid programs. New
survey and certification requirements under OBRA for participation in the
Medicare and Medicaid programs became effective in 1995, significantly changing
the process of
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<PAGE> 76
surveying long term care facilities. These requirements established a graduated
system of penalties and remedies to match the severity of the deficiency.
Facility deficiencies may result in the imposition of fines and penalties, a
need to undertake corrective actions, a temporary moratorium on admissions
pending correction of deficiencies, and could result in decertification from the
Medicare and Medicaid programs or loss of licensure and closure of the facility.
To date, these regulations have not had a material adverse effect on the
Company's operations.
The federal government, through its Department of Health and Human
Services, has recently proposed revisions to the conditions for participation in
the Medicare program applicable to home health care providers. These revised
conditions, as proposed, focus on matters such as patient rights, outcomes of
care, patient assessment, care planning, and quality assessment. The Company is
not able to predict at this time what the content of the final revised
conditions will be or the impact the final conditions may have on the Company's
home health care services. In addition, on September 15, 1997, President Clinton
imposed a six-month moratorium, effective immediately, on the entry of new home
health care providers into the Medicare program. During the moratorium, the
Department of Health and Human Services is expected to implement changes to
Medicare conditions of participation that are applicable to home health care
providers, including re-certification as a Medicare provider every three years,
submission of an independent audit, demonstration of expertise and experience by
serving a minimum number of patients, posting of a $50,000 surety bond prior to
certification and providing information to HCFA concerning ownership of certain
related businesses.
The Company's assisted living facilities are subject to regulation by
various state and local agencies. There are currently no federal laws or
regulations specifically governing assisted living facilities. State
requirements relating to the licensing and operation of assisted living
facilities vary from state to state; however, most states regulate many aspects
of a facility's operations, including physical plant requirements; resident
rights; personnel training and education; requisite levels of resident
independence; administration of medications; safety and evacuation plans; and
the level and nature of services to be provided, including dietary and
housekeeping. In most states, assisted living facilities must also comply with
state and local building and fire codes and certain other licenses or
certifications, such as a food service license, may be required. In addition, in
several states, including Arkansas, Missouri and New Jersey, certificate of need
laws apply to assisted living facilities. North Carolina imposed a 12-month
moratorium, effective August 28, 1997, on the addition of adult care home beds
in the state, subject to certain exceptions. The exceptions include, among
others, an exception for certain development or expansion plans submitted to the
state prior to the date of the moratorium. The Company's development project in
Greensboro, North Carolina is not subject to the moratorium since it meets the
requirements of this exception. Assisted living facilities are subject to
periodic survey by governmental agencies with licensing authority. In certain
circumstances, failure to satisfy survey standards could result in a loss of
licensure and closure of a facility.
Because assisted living facilities historically have not been considered as
traditional health care entities, they have not been subject to the degree of
regulation which governs nursing homes and other health care providers. As
assisted living care emerges as a cost-effective alternative to nursing facility
care, it is anticipated that assisted living facilities could become subject to
more extensive regulation, particularly in the areas of licensure and
reimbursement. The content of such regulations, the extent of any increased
regulation and the impact of any such regulation on the Company cannot be
predicted at this time and there can be no assurance that such regulations will
not adversely affect the Company's business.
As a Medicare and Medicaid provider with respect to its skilled nursing
facilities and rehabilitation and home health care operations, the Company is
subject to a variety of laws regulating relationships among health care
facilities, providers and physicians. Among these laws is the federal "Stark
Act" legislation which prohibits, with some exceptions, a physician from
referring patients for certain designated health care services, including home
health care and certain rehabilitation services, to entities in which the
physician or a member of his or her family has a financial interest. The
Company, as a Medicare and Medicaid provider, is also subject to federal
anti-kickback laws which prohibit the
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<PAGE> 77
payment or receipt of any remuneration 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. Violation of these provisions could result in civil or
criminal penalties, as well as exclusion from participation in the Medicare and
Medicaid programs. There are currently a number of federal initiatives being
undertaken to increase enforcement of the federal anti-kickback law and other
antifraud and abuse provisions. Additionally, the Balanced Budget Act of 1997
(the "Budget Act"), signed into law on August 5, 1997, contains a number of
anti-fraud provisions designed to further fight abuse and enhance program
integrity. Certain states have also enacted anti-kickback laws patterned on the
federal law. The Company believes that its operations are in substantial
compliance with the laws applicable to Medicare and Medicaid providers,
including antifraud and abuse provisions; however, there can be no assurance
that the administrative or judicial interpretation of such laws or the
regulations promulgated thereunder will not in the future have a material
adverse impact on the Company's operations or that the Company will not be
subject to an investigation which would require a significant investment of time
and manpower by the Company. Assisted living facilities may be eligible to
participate as Medicaid providers and receive reimbursement through Medicaid
waiver programs and managed care plans. If the Company elects to become a
Medicaid provider with respect to its assisted living facilities, such entities
would become subject to all of the requirements applicable to Medicaid
providers, including the anti-fraud and abuse legislation.
The Company derives a significant portion of its revenues from federal and
state reimbursement programs. All of the skilled nursing facilities operated by
the Company are certified to receive benefits under Medicare and Medicaid, and
the Company's home health care agency is certified under Medicare. Medicare
currently utilizes a cost-based reimbursement system for skilled nursing
facilities and home health care agencies which, subject to limits fixed for a
particular geographic area, reimburse skilled nursing facilities and home health
agencies for reasonable direct and indirect allowable costs incurred in
providing routine services (including nursing, room and board and administrative
overhead), as well as ancillary costs (such as physical, occupational and speech
therapy, drugs, supplies and equipment) and capital-related costs.
The reimbursement methodology for a variety of health care providers will
be significantly changed as a result of provisions contained in the Budget Act,
which provisions could materially impact the Company's operations and financial
condition. The Budget Act provides for the establishment of a prospective
payment system ("PPS") for skilled nursing services (rather than the
retrospective cost-based methodology used currently). The PPS for skilled
nursing facilities will be phased in over three cost reporting periods,
commencing on or after July 1, 1998. During the transition period, the payment
rate will be based on a percentage blend of a facility-specific rate and a
federal per diem rate. Once the PPS is fully implemented, skilled nursing
facilities will be paid a federal per diem rate for covered services, which
include routine and ancillary services and most capital-related costs. The
Budget Act additionally establishes a PPS for home health care services pursuant
to which all services which are currently paid on a reasonable cost basis will
be paid on a prospective basis. The PPS for home health care services is to
begin October 1, 1999, with a transition period not to exceed four years. Until
such time as there is full implementation of the PPS for home health care
services, the Budget Act imposes a number of interim modifications on
reimbursement, including a reduction in per visit cost limits. The Budget Act
also modifies reimbursement rates for rehabilitation agencies and outpatient
therapy providers. It is not possible to predict at this time the impact that
any or all these changes in reimbursement methodology may have on the business,
results of operations or financial condition of the Company.
Medicaid programs currently exist in all of the states in which the Company
has skilled nursing facilities and also apply in some of the states where the
Company has assisted living facilities. While these programs differ in certain
aspects from state to state, they are all subject to requirements imposed by the
federal government, which provides approximately 50% of the funds available
under these programs. In the states in which the Company operates skilled
nursing facilities, payments are
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<PAGE> 78
based upon specific cost reimbursement formulas established by that state, which
are generally based on historical costs with adjustment for inflation.
For the year ended June 30, 1997, the Company derived approximately 38% of
its patient services revenues from Medicare and approximately 38% of its patient
services revenues from Medicaid. The Company had no revenues from Medicare or
Medicaid in the periods ended June 30, 1995 and 1996.
Both governmental and private-payor sources have instituted cost
containment measures designed to limit payments made to long-term health which
adversely affect reimbursements to the Company. Furthermore, although federal
regulations do not recognize state budget deficiencies as a legitimate ground to
curtail funding of their Medicaid cost reimbursement programs, states have
nevertheless curtailed such funding in the past. No assurance can be given that
states will not do so in the future or that the future funding of Medicaid
programs will remain at levels comparable to present levels.
Government reimbursement programs are also subject to statutory and
regulatory changes, administrative rulings and interpretations, determinations
by reimbursement intermediaries, and governmental funding restrictions, all of
which may materially increase or decrease the rate of program payments to health
care providers operated by the Company. In addition, there can be no assurance
that facilities or other providers owned, leased or managed by the Company, now
or in the future, will initially meet or continue to meet the requirements for
participation in such programs.
The Company believes the structure and composition of government regulation
of health care will continue to change and, as a result, it regularly monitors
developments in the law. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment changes.
While the Company believes it will be able to structure all its agreements and
operations in accordance with applicable law, there can be no assurance that its
arrangements will not be successfully challenged.
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 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 is subject to various federal, state and local environmental
laws and regulations. Such laws and regulations often impose liability whether
or not the owner or operator knew of, or was responsible for, the presence of
hazardous or toxic substances. The costs of any required remediation or removal
of these substances could be substantial and the liability of an owner or
operator as to any property is generally not limited under such laws and
regulations and could exceed the property's value and the aggregate assets of
the owner or operator. The presence of these substances, or failure to remediate
such contamination properly, may also affect adversely the owner's ability to
sell or rent the property, or to borrow using the property as collateral. Under
these laws and regulations, an owner, operator or an entity that arranges for
the disposal of hazardous or toxic substances, such as asbestos-containing
materials, at the disposal site, may also be liable for the costs of any
required remediation or removal of the hazardous or toxic substances at the
disposal site. In connection with the ownership or operation of its properties,
the Company could be liable for these costs, as well as certain other costs,
including governmental fines and injuries to persons or properties.
LIABILITY AND INSURANCE
Providing health care services involves an inherent risk of liability.
Participants in the senior living and health care services industry are subject
to lawsuits alleging negligence or related legal theories,
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<PAGE> 79
many of which may involve large claims and result in the incurrence of
significant defense costs. The Company currently maintains property, liability
and professional medical malpractice insurance policies for the Company's owned
and leased facilities with such coverages and deductibles which management
believes are prudent, adequate and in keeping with industry practice. The
Company also has an umbrella excess liability protection policy in the amount of
$5.0 million to $10.0 million per location. In addition, the Company maintains
policies for employee practices and officers and directors liability in the
amounts of $1.0 million and $3.0 million respectively. There can be no assurance
that a claim in excess of the Company's insurance will not be asserted. A claim
against the Company not covered by, or in excess of, the Company's insurance,
could have a material adverse effect on the Company. The Company's insurance
policies are reviewed annually. There can be no assurance that the Company will
be able to obtain liability insurance in the future or that, if such insurance
is available, it will be available on acceptable terms.
EMPLOYEES
As of September 30, 1997, the Company had approximately 2,000 employees,
including approximately 1,700 full-time equivalent employees. None of the
Company's employees is represented by a union. The Company considers its
employee relations to be good. Although the Company believes it is able to
employ sufficient skilled personnel to staff the facilities it operates or
manages, a shortage of skilled personnel in any of the geographic areas in which
it operates could affect adversely the Company's ability to recruit and retain
qualified employees and its operating expenses.
LEGAL PROCEEDINGS
The Company may become involved from time to time in legal proceedings in
the ordinary course of its business. The Company is not currently a party to any
legal proceeding that it believes would have a material adverse effect on its
business, financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------
<S> <C> <C>
Brad E. Hollinger............................ 43 Chairman of the Board, President and Chief
Executive Officer and a Director
Paul A. Kruis................................ 43 Chief Financial Officer
Stephen G. Marcus............................ 45 Chief Operating Officer
Brian L. Barth............................... 37 Chief Development Officer
William T. McCarthy.......................... 45 Vice President -- Mergers and Acquisitions
Russell A. DiGilio........................... 41 Vice President -- Assisted Living Group
Kurt A. Meyer................................ 50 Vice President -- Health Care Group
John D. Foster............................... 47 Vice President -- Long Term Care
Roger A. Breed............................... 48 Vice President -- Development
David K. Barber.............................. 43 Vice President -- Construction and Design
Robert J. Sutton............................. 48 Vice President -- Corporate Services and
Secretary
Mark S. Moore................................ 36 Vice President -- Finance and Treasurer
Kenneth F. Barber............................ 67 Director
John M. Brennan.............................. 41 Director
Bill R. Foster, Sr........................... 70 Director
David L. Goldsmith........................... 49 Director
Edward R. Stolman............................ 71 Director
George H. Strong............................. 71 Director
</TABLE>
Brad E. Hollinger has served as a director and as Chairman of the Board,
President and Chief Executive Officer of the Company since its founding in April
1995. Previously he served as Executive Vice President of the Contract Service
Group of Continental Medical Systems ("CMS"), a national provider of medical
rehabilitation services and contract therapy services from 1990 to 1994. During
his eight years with CMS, Mr. Hollinger also served as Senior Vice
President/Development from 1987 to 1990, leading the development and financing
of eighteen medical rehabilitation hospitals in seven states. From 1985 to 1987,
Mr. Hollinger was Vice President of Development of Rehab Hospital Service
Corporation.
Mr. Hollinger, without admitting or denying the allegations, has agreed to
settle a proposed civil action by the Commission contending that he violated
certain federal securities laws in connection with trading in the common stock
of Continental Medical Systems, Inc. prior to its merger with Horizon
Healthcare, Inc. in 1995. Mr. Hollinger's agreement contemplates his consenting
to the entry of an order enjoining him from future violations of such securities
laws. In addition, Mr. Hollinger has agreed to pay the amount of $21,625,
representing profits allegedly realized by him and a family member, plus
interest, and to pay a civil money penalty in an amount equal to such payment,
plus interest. The proposed settlement is subject to approval by the Commission,
and the Commission staff has advised that it will recommend that the Commission
approve the settlement.
Paul A. Kruis has served as the Chief Financial Officer of the Company
since November 1997. From 1987 through 1993, Mr. Kruis served as Senior Vice
President, Treasurer and Chief Financial Officer of Rehab Systems Company
("RSC"), a company in the business of developing, building and operating
comprehensive medical rehabilitation hospitals. Mr. Kruis was a founding officer
of RSC, which was acquired by Novacare, Inc., in 1991. Mr. Kruis remained with
Novacare, Inc. in the same capacity until 1993. Prior to his employment with
RSC, Mr. Kruis was affiliated with Rehab Hospital
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<PAGE> 81
Services Corporation from 1983 through 1987, serving as Chief Financial Officer
from 1986 through 1987 and as Assistant Corporate Controller from 1983 through
1985. During the period following his departure from Novacare in 1993, Mr. Kruis
explored the formation of two new health care ventures, among other business
activities. Mr. Kruis is a CPA and a graduate of the College of William and
Mary.
Stephen G. Marcus, pursuant to an Employment Agreement with the Company
dated November 24, 1997, will, commencing January 5, 1998, serve as the Chief
Operating Officer of the Company. Prior to joining the Company, he served as
President of SelectRehab, a subsidiary of Horizon/CMS Healthcare Corporation,
from July 1994 to November 1997 and in various capacities during seven years
with CMS, including Senior Vice President -- Unit Management Group from January
1993 through July 1994, as Senior Vice President -- Development from July 1991
through December 1992 and as Vice President -- Development from August 1987
through July 1991. From April 1986 through July 1987, Mr. Marcus was Regional
Vice President -- Operations for the Southeastern Regional Office of Rehab
Hospital Services Corporation ("RHSC") and, from January 1985 through March
1986, Executive Director/Chief Executive Officer of Garden State Rehabilitation
Hospital, an RHSC facility.
Brian L. Barth has served as Chief Development Officer of the Company since
October 1997. Prior to October, Mr. Barth served as Vice
President -- Acquisitions of the Company since its founding in April 1995. He
served as Director of Medical Specialty Unit Development for Integrated Health
Services, Inc. ("IHS"), a post-acute care services company, from 1994 to 1995.
Mr. Barth's duties included oversight of the sub-acute program development for
the Northern Division. Prior to joining IHS, Mr. Barth was Director of
Development for CMS from 1987 to 1994.
William T. McCarthy has served as Vice President -- Mergers and
Acquisitions of the Company since October 1997. Mr. McCarthy has served as Vice
President of the Company since April 1996, and was Vice President and Chief
Financial Officer of the Company from April 1996 until September 1997. From
September 1994 until February 1996, he served as Chief Accounting Officer of
Concord Health Group, Inc., an owner and operator of long-term care facilities.
From 1988 to 1994, he was a partner of Coopers & Lybrand, an independent public
accounting firm.
Russell A. DiGilio has served as Vice President -- Assisted Living Group of
the Company since April 1996. Prior to joining the Company, he served as
Regional Director and as Executive Director of Operations for the Forum Group, a
company engaged in providing assisted living and retirement services, from 1987
to 1995.
Kurt A. Meyer has served as Vice President -- Health Care Group of the
Company since August 1995. From 1994 to 1995, he provided consulting services to
hospitals and skilled nursing facilities in the areas of rehabilitation and
sub-acute care, through Atlantic Rehab, Inc., a company he co-founded. From 1989
to 1994 he was Vice President of Operations for CMS. He was the Chief Executive
Officer of Mechanicsburg Rehabilitation System from 1986 to 1989.
John D. Foster has served as Vice President -- Long Term Care of the
Company since July 1997. From September 1996 to June 1997, Mr. Foster served as
President of Foster Health Care Group ("FHCG"). From 1985 to September 1996, Mr.
Foster served as Vice President of Operations for FHCG. For 14 years prior to
that, he worked in the areas of facility administration and project development
in the long-term care field. Mr. Foster is the son of Bill R. Foster, Sr., a
director of the Company.
Roger A. Breed has served as Vice President -- Development of the Company
since January 1997. Mr. Breed's background in health care includes eight years
with CMS, where he served as Vice President of Corporate Communications from
1991 to 1993 and Vice President of Public Affairs from 1993 to 1996.
David K. Barber has served as Vice President -- Construction and Design of
the Company since June 1996. He previously worked in the health care
construction field as Chief Financial Officer of CCI Construction Company from
1986 to 1995. Mr. Barber is the son of Kenneth F. Barber, a director of the
Company.
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<PAGE> 82
Robert J. Sutton has served as Vice President -- Corporate Services and
Secretary of the Company since its founding in April 1995. From 1993 to 1995, he
was Vice President, Finance and Strategy, of CMS. Mr. Sutton served in a variety
of managerial positions at Marriott Corporation from 1987 to 1993, including
Vice President of Finance and Strategic Planning for Marriott Management
Services and Director of Finance of the Courtyard Hotel Division.
Mark S. Moore has served as Vice President -- Finance and Treasurer of the
Company since July 1997 and as Vice President -- Financial Operations from
January 1997 to June 1997. Prior to joining the Company, he served in various
capacities during eight years with CMS, including Vice President -- Rehab
Hospital Group Controller from September 1996 to December 1996, as Vice
President -- Eastern Division Controller from January 1995 to August 1996 and as
Regional Controller from August 1988 to December 1994.
Kenneth F. Barber has served on the Board of Directors of the Company since
August 1995. He served as a director and as Senior Executive Vice President of
CMS from 1987 to 1994. From 1980 to 1987 , Mr. Barber served as Chief
Development Officer of Rehab Hospital Services Corporation. Mr. Barber is the
father of David K. Barber.
John M. Brennan has been a director of the Company since September 1995. In
1990, Mr. Brennan co-founded Golden Care, Inc., a respiratory therapy company,
and served as its President and a director from 1990 to 1995. From 1987 to 1990,
Mr. Brennan served as Chief Operating Officer of a private respiratory therapy
company headquartered in Indiana. From 1984 to 1987, he operated a chain of
private home care companies in the states of Texas, New Mexico, Illinois and
Indiana. From 1982 to 1984, Mr. Brennan was the Technical Director for two
hospital-based respiratory therapy departments in Texas.
Bill R. Foster, Sr., has served as a director of the Company since 1996. He
is the founder and was Chief Executive Officer of Foster Health Care Group. He
has been involved in the development and operation of skilled nursing,
independent living and assisted living facilities for four decades. Mr. Foster
serves on the State of Missouri Governor's Advisory Council on Aging, has served
as its President for two terms and has been a Delegate to the White House
Conference on Aging. He serves on the Board of Directors of the Missouri Health
Care Association. In February 1997, Mr. Foster was appointed as a Senator to the
Silver-Haired Congress, representing the state of Missouri. Mr. Foster is the
father of John D. Foster.
David L. Goldsmith has been a director since 1996. He has been associated
with BancAmerica Robertson Stephens since 1981 and is currently Managing
Director, Health Care. Mr. Goldsmith is also a member of the Boards of Directors
of Apria Healthcare Group Inc. and Matria Healthcare Inc. and selected private
companies.
Edward R. Stolman became a member of the Board of Directors of the Company
in 1997. Since 1982, he has owned and operated Stolman Investments, specializing
in real estate and health care investments and consulting. He co-founded
Hospital Affiliates International in 1968 and served as Chairman of Affiliated
Health Corporation from 1984 to 1990. Mr. Stolman was an original investor in
and a member of the Board of Directors of Dovebar International, Inc.
George H. Strong has served as a member of the Board of Directors of the
Company since 1996. He is a private investor with many years of experience in
both director and executive positions in health care enterprises. Mr. Strong was
a Senior Vice President and founding director of Universal Health Services, Inc.
for six years and was with American Medicorp for four years prior to that. He
also serves as a director for Integrated Health Services, HealthSouth
Rehabilitation Corporation, Clinical Partners, Managed Care USA, AmeriSource,
Corefunds Group and Pocantico Development Associates.
The Board of Directors of the Company is divided into three classes, each
class to be as nearly equal in number of directors as possible. At each annual
meeting of stockholders, directors in each class will be elected for three year
terms to succeed the directors of that class whose terms are expiring. Messrs.
Brennan, Foster and Stolman are Class I directors with their terms of office
expiring
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<PAGE> 83
in 1998, Messrs. Barber and Strong will be Class II directors whose terms will
expire in 1999, and Messrs. Goldsmith and Hollinger are Class III directors
whose terms will expire in 2000.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee currently consists of David L.
Goldsmith, Kenneth F. Barber and George H. Strong. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting.
Compensation Committee. The members of the Compensation Committee are
currently John M. Brennan, Edward R. Stolman and David L. Goldsmith. The
Compensation Committee establishes a general compensation policy for the Company
and approves increases both in directors' fees and in salaries paid to officers
and senior employees of the Company. The Compensation Committee determines,
subject to the provisions of the Company's plans, the directors, officers and
employees of the Company eligible to participate in any of the plans, the extent
of such participation and terms and conditions under which benefits may be
vested, received or exercised.
HEALTH SERVICES ADVISORY BOARD
The Company has formed a Health Services Advisory Board comprised of
professionals with specialized expertise in the delivery of senior living and
health care services. The Advisory Board meets three times per year to review
the Company's service delivery system and makes recommendations with respect
thereto to the Company's management. The Health Services Advisory Board,
however, has no authority to act on behalf of the Company. Each advisory
director receives $1,000 for each meeting attended and is reimbursed for
expenses incurred in connection therewith. The Company estimates that each
advisory director devotes approximately 40 hours per year on the Company's
affairs. The following table sets forth certain information regarding the
current members of the Health Services Advisory Board.
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<PAGE> 84
<TABLE>
<CAPTION>
NAME SPECIALTY POSITION
- ----------------------------------- ------------------------- ----------------------------
<S> <C> <C>
Michael Blackwood.................. Managed Care President of The Pilot
Group, a managed care
consulting firm,
Pittsburgh, Pennsylvania
Richard J. Carroll, M.D............ Preventative Cardiology Medical Director at the
Center for Clinical
Effectiveness at Loyola
University Medical Center,
Chicago, Illinois
Dennis L. Kodner, Ph.D............. Applied Gerontology Vice President of Research
and Innovation at
Metropolitan Jewish Health
System, Brooklyn, New York
Walter Leutz, Ph.D., MSW........... Health Delivery Systems Associate Research Professor
of Brandeis University
Institute for Health
Policy, Waltham,
Massachusetts
Michael F. Lupinacci, M.D.......... Physical Medicine and Medical Director at
Rehabilitation HealthSouth Rehabilitation
Hospital, Mechanicsburg,
Pennsylvania
Jeffrey A. Miller.................. Hospitality Chairman, Department of
Hotel, Restaurant and
Institutional Management,
Indiana University of
Pennsylvania
Karen A. Powers, M.D............... Geriatric Medicine Associate Medical Director
and Director of the
Geriatric Fellowship
Program, St. Margaret's
Hospital, Pittsburgh,
Pennsylvania
Kenneth M. Sakauye, M.D............ Geriatric Psychiatry Professor of Clinical
Psychiatry of Louisiana
State University Medical
Center, New Orleans,
Louisiana
Rebecca Trella, RN, MSN............ Care Management Director of Care Management
of Advocate Health
Partners, Chicago,
Illinois
</TABLE>
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EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation for services
rendered in all capacities to the Company by the Chief Executive Officer and the
four most highly compensated executive officers of the Company other than the
Chief Executive Officer for the fiscal year ended June 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------- ------------
STOCK OPTION ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS AWARDS COMPENSATION
- ----------------------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Brad E. Hollinger........................ $152,500 $58,000 75,000 --
Chairman of the Board, President and
CEO
William T. McCarthy...................... 119,495 -- 18,750 $3,600(1)
Vice President
Russell A. DiGilio....................... 89,667 3,683 18,750 1,708(2)
Vice President -- Assisted Living Group
Robert J. Sutton......................... 87,333 20,000 25,500 --
Vice President -- Corporate Services
and Secretary
Kurt A. Meyer............................ 83,333 12,000 14,250 --
Vice President -- Health Care Group
</TABLE>
- ------------
(1) Represents travel and lodging reimbursement.
(2) Represents the value received by Mr. DiGilio in connection with personal
usage of a company-owned vehicle.
EMPLOYMENT AGREEMENTS
The Company is party to an employment agreement with Mr. Hollinger that
became effective as of August 1, 1996 and is to expire on July 31, 2001, subject
to extension annually thereafter. Pursuant to the employment agreement, for the
period beginning August 1, 1996 and ending June 30, 1997, Mr. Hollinger was
entitled to receive an annual salary of $150,000; for the period beginning July
1, 1997 and ending June 30, 1998, Mr. Hollinger is to receive an annual salary
of $200,000; for the period beginning July 1, 1998 and for the duration of the
agreement, Mr. Hollinger is to receive an annual salary of $225,000. For each
fiscal year of the Company throughout the term of the agreement, Mr. Hollinger
is also entitled to receive an annual bonus in an amount not less than 75% of
his base salary upon achievement by the Company of certain levels of pre-tax
earnings to be determined by the Board of Directors. If the level of earnings
exceeds the level determined by the Board for a fiscal year, the Board may award
Mr. Hollinger additional bonus compensation. Pursuant to the employment
agreement, the Company granted to Mr. Hollinger as of August 1, 1996 the right
to purchase 37,500 shares of Common Stock at a purchase price of $2.00 per share
and, as of June 30, 1997, the right to purchase an additional 37,500 shares of
Common Stock at a per share purchase price equal to the fair market value of a
share of Common Stock on June 30, 1997. These options are generally to vest in
accordance with the Company's 1996 Stock Incentive Plan (including the Change of
Control acceleration provision contained in such plan), provided that if Mr.
Hollinger terminates his employment for Good Reason (as defined in the
employment agreement, which includes the occurrence of a Change in Control as
Good Reason), the options are to become fully vested and exercisable as of the
date of such termination and may be exercised within one year following such
termination. In addition, if Mr. Hollinger terminates his employment for Good
Reason, he will be entitled to receive a cash payment within 10 days of such
termination equal to three times his annual compensation plus the amount of any
bonus for that year.
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The Company is party to an employment letter with Mr. Kruis which provides
that, in the event of a change of control of the Company that results in his
position being diminished in scope of authority and responsibilities or change
in reporting responsibility, or if he is terminated without cause, Mr. Kruis is
entitled to receive three years compensation. Mr. Kruis is also entitled to
receive a performance bonus of up to 45% of his salary to be paid annually at
the discretion of the CEO and compensation committee of the Company. Mr. Kruis
was also granted the right to purchase 150,000 shares of Common Stock of the
Company, in accordance with the Company's 1996 Stock Incentive Plan at the fair
market value of a share of Common Stock on October 6, 1997.
The Company is party to an employment agreement with Mr. Marcus dated
November 24, 1997, providing for a commencement date of January 5, 1998 and a
three year term expiring on January 4, 2001, subject to three year extensions
thereafter unless either party gives a 180 day notice of nonrenewal prior to the
expiration of the then current term. Pursuant to the employment agreement, Mr.
Marcus for the first year of the agreement is entitled to receive an annual
salary of $170,000, which annual salary is to be increased in year two to
$200,000 and thereafter annually adjusted in an amount equal to 10% per year.
For each fiscal year of the Company throughout the term of the agreement, Mr.
Marcus is also entitled to receive an annual bonus of up to 50% of his base
salary based upon his performance of stated objectives and the Company's
achievement of certain levels of pre-tax earnings to be determined by the Board
of Directors. Pursuant to the employment agreement, the Company granted Mr.
Marcus the right to purchase 150,000 shares of Common Stock at a purchase price
equal to the fair market value of a share of Common Stock on January 5, 1998. On
each anniversary date of the employment agreement, the Company has agreed to
grant Mr. Marcus the right to purchase additional shares of Common Stock in an
amount of not less than 30,000 shares annually. These options are generally to
vest in accordance with the Company's 1996 Stock Incentive Plan (including the
Change of Control acceleration provision contained in such plan), provided that
if the Company terminates Mr. Marcus for reasons other than cause, does not
renew the agreement or if there is a Change in Control (as defined in the
employment agreement) the options are to become fully vested and exerciseable in
accordance with the Company's 1996 Stock Incentive Plan. In addition, in the
event of a change in control, termination by the Company without cause or
nonrenewal of the agreement by the Company, Mr. Marcus will be entitled to
receive a cash payment within 15 days of such termination equal to three times
his annual compensation plus the amount of any bonus for that year and to
participate for one year of such termination in all insurance, accident and
health plans in which he was entitled to participate prior to the termination,
or, at the Company's option receive the cash value of such benefits in a lump
sum payable within 15 days of his termination.
The Company is party to an employment agreement with Mr. Barth that became
effective as of September 1, 1995 and is to expire on August 31, 1998, subject
to automatic renewal unless one party provides written notice to the other not
later than 90 days prior to the next extension date of his or its intention not
to renew. The employment agreement provides that Mr. Barth is to receive an
annual salary of $70,000, subject to increase by the Board of Directors. In
October 1997, Mr. Barth's annual salary was increased to $125,000 in conjunction
with his designation as Chief Development Officer of the Company. Mr. Barth is
also entitled to receive an annual bonus of up to 35% of his base salary subject
to achievement of the Company's annual operating budget as approved by the Board
of Directors. In the event of a termination following a Change of Control (as
defined in the employment agreement) or Mr. Barth's voluntary withdrawal within
one year following such Change of Control, Mr. Barth is entitled to receive a
lump sum payment equal to his base salary and annual bonus for the preceding
three years.
The Company is party to an employment agreement with Mr. McCarthy that
became effective as of May 1, 1996 and is to expire on April 30, 1998, subject
to automatic annual renewal unless one party provides written notice to the
other not later than 60 days prior to the next extension date of his or its
intention not to renew. The employment agreement provides that Mr. McCarthy is
to receive an annual salary of $100,000, subject to increase by the Board of
Directors. Mr. McCarthy is also entitled to receive an annual bonus of up to 40%
of his base salary subject to the terms and conditions as may
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<PAGE> 87
be determined by Mr. Hollinger and approved by the Board. Pursuant to the
employment agreement, the Company granted to Mr. McCarthy an option to purchase
up to 75,000 shares of Common Stock at a per share exercise price of $2.00
vesting in equal installments over two years. In the event of a termination
following a Change of Control (as defined in the employment agreement), Mr.
McCarthy is entitled to receive his base salary at a rate then in effect for the
period equal to one year.
The Company is party to an employment agreement with Mr. Sutton that became
effective as of September 20, 1995 and is to expire on August 31, 1998, subject
to annual extension. The employment agreement provides that Mr. Sutton is to
receive an annual salary of $80,000 subject to increase by the Board of
Directors in its sole discretion. Mr. Sutton is also entitled to receive an
annual bonus of not less than 40% of his base salary upon achievement of the
annual operating budget as approved by the Board of Directors. In the event of a
termination following a Change of Control (as defined in the employment
agreement), Mr. Sutton will be entitled to a lump sum cash payment equal to his
total cash and bonus compensation for the proceeding three years.
STOCK INCENTIVE PLAN
Pursuant to the Company's 1996 Stock Incentive Plan, as amended (the
"Incentive Plan"), the Company may issue up to 2,025,000 shares of Common Stock
to employees of the Company, its affiliates and its subsidiaries for any purpose
or any type of benefit under the Incentive Plan. The number of shares which may
be issued under the Incentive Plan is subject to adjustment by the Board and
will be adjusted in proportion to any increase or decrease in the number of
issued shares of Common Stock resulting from a stock dividend, split or other
capital adjustment.
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors the members of which are each a "disinterested person,"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the regulations promulgated thereunder. The
actions of the Compensation Committee are subject to Board review. The
Compensation Committee is authorized to: (i) select employees for participation
in the Incentive Plan; (ii) make decisions regarding timing, pricing and amounts
of grants or awards under the Incentive Plan, subject to the terms of the
Incentive Plan; (iii) interpret and construe the Incentive Plan; (iv) adopt,
amend or rescind rules and regulations relating to the Incentive Plan; and (v)
make all other determinations necessary or advisable for the administration of
the Incentive Plan.
Each non-employee director is to be granted non-qualified stock options to
purchase 11,250 shares of Common Stock upon election to the Board and additional
non-qualified stock options to purchase 3,750 shares of Common Stock upon
re-election to the Board. Each such non-qualified stock option is exercisable at
a price equal to the fair market value of the underlying Common Stock on the
date of the grant, is fully vested on grant, has a duration for the shorter of
ten years or the director's term as a director and will no longer be exercisable
following the 91st day after the director's term ends. The Compensation
Committee has no authority to amend or vary the terms of these options.
If an incentive stock option, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), is granted to a stockholder
owning more than 10% of the total combined voting power of all classes of stock
issued by the Company as of the date an option is granted, the exercise price of
an option granted under the Incentive Plan is to be not less than 110% of the
fair market value of the Common Stock on the date of grant. For all other
options, the price is to be not less than the fair market value of the Common
Stock at the date of grant.
The Compensation Committee may also grant SARs to participants in the
Incentive Plan who have been granted options. A SAR is to expire no later than
the expiration date of the underlying option, and may be for no more than 100%
of the difference between the exercise price of the option and the fair market
value of the Common Stock subject to the option.
The Incentive Plan also provides for awards of restricted stock, including
restricted stock awarded in connection with specified performance targets.
Recipients of such awards are to be determined by
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<PAGE> 88
the Compensation Committee. The Incentive Plan provides that in the event of a
Change of Control (as defined in the 1996 Stock Incentive Plan): (1) any and all
Options and SARs, whether vested or not, will become immediately exercisable;
(2) any restrictions imposed on Restricted Stock will lapse and within 10 days
after the occurrence of a Change in Control will be delivered to the participant
and (3) the target values attainable under all Performance Shares and Units will
be deemed to have been fully earned for the entire award period as of the
effective date of the Change in Control.
The following table sets forth certain information with respect to the
grant of stock options by the Company to the executive officers named in the
Summary Compensation Table to whom stock options were granted for the fiscal
year ended June 30, 1997.
OPTION GRANTS IN YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION
GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE OR ---------------------
NAME GRANTED FISCAL YEAR BASE PRICE EXPIRATION DATE 5% 10%
- ---------------------- ------- ------------- ----------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Brad E. Hollinger..... 37,500 5.60% $2.00 08/01/01 $376,221 $467,519
37,500 5.57 6.67 06/25/02 222,338 344,374
William T. McCarthy... 3,750 0.56 2.00 08/01/01 37,622 46,752
15,000 2.23 6.67 06/25/02 88,935 137,750
Russell A. DiGilio.... 3,750 0.85 2.00 08/01/01 37,622 46,752
15,000 2.23 6.67 06/25/02 88,935 137,750
Robert J. Sutton...... 15,000 2.23 2.00 08/01/01 150,488 187,008
10,500 1.56 6.67 06/25/02 62,255 96,425
Kurt A. Meyer......... 3,750 0.56 2.00 08/01/01 37,622 46,752
10,500 1.56 6.67 06/25/02 62,255 96,425
</TABLE>
- ------------
(1) Based on an assumed initial public offering price of $10.00 per share, and
assuming that all such options are currently exercisable.
The following table sets forth certain information with respect to the
value of options held at June 30, 1997 by the executive officers named in the
Summary Compensation Table who held options during fiscal 1997. Such executive
officers did not exercise any options to purchase Common Stock for the fiscal
year ended June 30, 1997.
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<PAGE> 89
AGGREGATED OPTION EXERCISES IN YEAR ENDED JUNE 30, 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
HELD AT FISCAL YEAR-END YEAR-END(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brad E. Hollinger................... -- 75,000 $ -- $ 175,000
William T. McCarthy................. 37,500 56,250 175,000 192,500
Russell A. DiGilio.................. 37,500 56,250 175,000 192,500
Robert J. Sutton.................... -- 25,500 -- 70,000
Kurt A. Meyer....................... 23,438 84,563 109,375 345,625
</TABLE>
- ------------
(1) Represents the difference between the fair market value (as estimated by the
Company) of the Common Stock underlying the options of $6.67 per share as of
June 30, 1997 and the exercise price of the options.
COMPENSATION OF DIRECTORS
Members of the Board of Directors do not receive compensation for serving
as directors. Each non-employee director is granted a non-qualified option to
acquire 11,250 shares of Common Stock upon election to the Board and an option
to acquire 3,750 shares of Common Stock upon re-election to the Board. See
"-- Stock Incentive Plan." All directors receive reimbursement of reasonable
expenses incurred in connection with attending Board and committee meetings and
otherwise carrying out their duties.
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<PAGE> 90
CERTAIN TRANSACTIONS
Kenneth F. Barber, a director of the Company, is party to a consulting
agreement with the Company to provide financial, development and other
consulting services at the rate of $100 per hour not to exceed 20 hours per week
for 52 weeks. During fiscal 1997, Mr. Barber received $66,000 under such
arrangement. David Barber, Mr. Barber's son, has been employed by the Company as
Vice President of Construction and Design since 1996. For the fiscal year ended
June 30, 1997, David Barber received an annual salary of $75,000. Robin Barber,
Mr. Barber's daughter and sister-in-law of Brad E. Hollinger, Chairman,
President and Chief Executive Officer and a director of the Company, has been
employed by the Company as Director of Legal Services since 1996 and as Vice
President and Senior Counsel since September 1997. For the fiscal year ended
June 30, 1997, Ms. Barber received an annual salary of $67,500 and a bonus of
$10,000.
John M. Brennan, a director of the Company, is President of Respiratory
Resources LLC ("RRI"), an Indiana limited liability company that manages
respiratory therapy services in four skilled nursing facilities owned or leased
by the Company. The Company's payments to RRI for such services were $156,000
for the fiscal year ended June 30, 1997. Mr. Brennan received a warrant in
August 1996 to purchase 138,000 shares of Common Stock of the Company at a
purchase price of $3.00 per share. The warrant has a 10 year term and may be
exercised at any time.
Bill R. Foster, Sr., a director of the Company, is the majority stockholder
of Foster Health Care Group, a corporation that provided management services to
10 skilled nursing facilities, a pharmacy, a home health operation, and three
assisted living facilities and four independent living facilities operated by
the Company for which it received $1,076,000 during fiscal 1997. On July 1,
1997, the Company purchased the assets and operations of Foster Health Care
Group for approximately $120,000. For the fiscal year ended June 30, 1997, Mr.
Foster also leased two assisted living facilities in Springfield and Nevada,
Missouri to the Company at an annual rental of $186,000 and $132,000,
respectively. Mr. Foster is negotiating with the Company to enter a construction
agreement to build an assisted living facility in Springfield, Missouri. The
amount of the contract is not expected to exceed $3,600,000. John Foster, Mr.
Foster's son, became an officer of the Company effective July 1, 1997 and
receives an annual salary of $110,000, with an annual bonus of up to 40% of his
base salary. Susan Foster, Mr. Foster's daughter-in-law, became an officer of
the Company effective July 1, 1997 and receives an annual salary of $80,000,
with an annual bonus of up to 35% of her base salary.
Scott J. Hollinger, brother of Brad E. Hollinger, Chairman, President and
Chief Executive Officer and a director of the Company and son-in-law of Kenneth
F. Barber, a director of the Company, has been employed by the Company as a
Construction Project Manager since 1996. For the fiscal year ended June 30,
1997, Mr. Hollinger received an annual salary of $55,000.
Deborah Myers Welsh, spouse of Brad E. Hollinger, entered into a consulting
agreement with the Company on February 3, 1997 to provide legal services at the
rate of $90 per hour not to exceed 30 hours per week for 50 weeks. Ms. Welsh
received $32,000 under such arrangement during fiscal 1997.
George H. Strong, a director of the Company, provided financial consulting
services to the Company for the fiscal year ending June 30, 1997 for fees
aggregating $40,000. Mr. Strong also received a warrant to purchase 26,250
shares of Common Stock of the Company at a purchase price of $3.33 per share,
which was exercised in March 1997.
F. David Carr is a general partner of SAE Partners ("SAE"), a shareholder
of Hawthorn Health Partners, Inc. (formerly known as Medi-Cap Partners) ("HHP"),
a managing general partner of HCO Partners IV-BCC ("HCO"), a shareholder of
Hawthorn Health Properties, Inc. ("Hawthorn"), and Executive Vice President of
Hakman & Company Incorporated., an investment banking firm ("Hakman"). James A.
Diebold is a general partner of SAE, a shareholder of HHP, a general partner of
HCO and a shareholder of Hawthorn. Prior to the Offering, SAE owns 3.8% of the
Common Stock of the Company. Prior to the Offering, HCO owns 9.6% of the
Company's Series B Convertible Preferred Stock. Hakman has entered a broker's
agreement with the Company to find suitable acquisition
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<PAGE> 91
properties for the Company. Hakman receives a finder's fee for such
acquisitions, based upon the purchase price, in an amount equal to 2% of the
first $1,000,000 and 1% for any amount in excess of $1,000,000. Hawthorn leases
seven skilled nursing facilities to the Company for annual rentals aggregating
$4,501,000. For the year ended June 30, 1997, Hawthorn received $3,877,000 in
rental payments from the Company. The facility leases provide for an initial
term of 12 years, with four six-year renewal options and a fair market value
purchase option. In August 1996, Hawthorn also received a warrant to purchase
37,500 shares of Common Stock of the Company at a purchase price of $3.33 per
share. The warrant has a 10 year term and may be exercised at any time. Hakman
received a fee of $250,000 for its assistance in raising $12,500,000 in a Series
B Convertible Preferred Stock Offering in October 1996 and April 1997. Hakman
also assisted the Company in arranging a $10,000,000 line of credit, which is
expected to become available in November 1997, and for which Hakman will receive
a fee of up to $62,500.
As of September 30, 1997 Meditrust was the beneficial owner of more than
five percent of the Common Stock of the Company. See "Principal Stockholders."
The Company has entered into a non-binding letter of intent with Meditrust for
$150 million of project financing. Pursuant to this letter of intent, the
Company would develop assisted living facilities for Meditrust and Meditrust
would lease such facilities to an Operator/Lessee when construction is
completed. The Company expects to manage the assisted living facilities pursuant
to management agreements with the Operator/Lessees. See "Business--Development."
Specific development projects and acquisitions require Meditrust's approval
prior to the financing of a transaction. In addition, to date, the Company has
developed, or is developing, 12 assisted living facilities for Meditrust and has
entered into leases in the Meditrust for eight of such facilities, with lease
terms of ten years with three five-year renewal terms. The Company will manage
the remaining four facilities. Meditrust's investment in these facilities is
approximately $50 million. Additionally, in connection with the consummation of
the Foster and Wisconsin acquisitions, the Company incurred indebtedness of
$8,151,000 which was funded with mortgage financing from Meditrust, and which is
expected to be repaid with proceeds from the Offering.
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<PAGE> 92
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of Common Stock as of September 30,
1997 (after giving effect to the conversion of all Outstanding Preferred Stock
into an aggregate of 4,620,531 shares of Common Stock upon consummation of the
Offering) and as adjusted to reflect the sale of the Common Stock in the
Offering by (i) each person known by the Company to beneficially own more than
five percent of outstanding Common Stock, (ii) each of the Company's directors,
(iii) each executive officer named in the Summary Compensation Table, and (iv)
all directors and officers of the Company as a group. Unless otherwise
indicated, the person or persons named have sole voting and investment power.
<TABLE>
<CAPTION>
PERCENT OWNED
BENEFICIALLY
-----------------------
NUMBER OF PRIOR TO AFTER
NAME SHARES OWNED BENEFICIALLY OFFERING OFFERING
- ----------------------------------------- ------------------------- -------- --------
<S> <C> <C> <C>
Henry L. Hillman, Elsie Hilliard......... 682,500(1) 7.9% 4.4%
Hillman and C.G. Grefenstette,
Trustees(1)
2000 Grant Building
Pittsburgh, PA 15219
Omega Ventures II, L.P................... 503,845(2) 5.8% 3.2%
555 California Street
San Francisco, CA 94104
Omega Ventures II Cayman, L.P............ 130,008(2) 1.5% *
555 California Street
San Francisco, CA 94104
Crossover Fund II, L.P................... 416,051(2) 4.8% 2.7%
555 California Street
San Francisco, CA 94104
Crossover Fund IIA, L.P.................. 122,774(2) 1.4% *
555 California Street
San Francisco, CA 94104
R.S. Pacific Venture, L.P................ 300,000(2) 3.5% 1.9%
555 California Street
San Francisco, CA 94104
KD Investments........................... 640,537 7.4% 4.1%
1540 Fox Hollow Circle
Mechanicsburg, PA 17055
Inter Vivos Trust of Billy Ray Foster.... 767,412 8.9% 4.9%
426 S. Jefferson
Springfield, MO 65806-2351
Meditrust................................ 1,086,179(3) 11.6% 6.6%
197 First Avenue
Needham, MA 02194
SAE Partners............................. 331,312 3.8% 2.1%
232 Willow Avenue
Camp Hill, PA 17011
HCO Partners IV-BCC...................... 360,000 4.2% 2.3%
c/o F. David Carr,
Hakman & Company, Inc.
1350 Bayshore Highway, Suite 300
Burlingame, CA 94010
F. David Carr............................ 728,812(4) 8.4% 4.7%
c/o Hakman & Company, Inc.
1350 Bayshore Highway, Suite 300
Burlingame, CA 94010
</TABLE>
90
<PAGE> 93
<TABLE>
<CAPTION>
PERCENT OWNED
BENEFICIALLY
-----------------------
NUMBER OF PRIOR TO AFTER
NAME SHARES OWNED BENEFICIALLY OFFERING OFFERING
- ----------------------------------------- ------------------------- -------- --------
<S> <C> <C> <C>
Brad E. Hollinger........................ 787,687(5) 9.1% 5.0%
2850 Ford Farm Road
Mechanicsburg, PA 17055
John M. Brennan.......................... 1,270,801(6) 14.4% 8.1%
Brennan Holdings
11212 Mann Road
Mooresville, IN 46158
Kenneth F. Barber........................ 63,750(7) * *
1540 Fox Hollow Circle
Mechanicsburg, PA 17055
William R. Foster, Sr.................... 778,662(8) 9.0% 5.0%
Foster Health Care Group
426 South Jefferson
Springfield, MO 65801-2351
George H. Strong......................... 37,500 * *
946 Naveskink Road
Locust, NJ 07760
David L. Goldsmith....................... 41,250(9) * *
Robertson, Stephens & Company
555 California Street
San Francisco, CA 94104
Edward R. Stolman........................ 11,250(10) * *
8189 Sonoma Mountain Road
Glen Ellen, CA 94552
William T. McCarthy...................... 38,437(11) * *
386 Penn Road
Wynnewood, PA 19096
Robert J. Sutton......................... 437,587(12) 5.1% 2.8%
1055 Country Club Road
Camp Hill, PA 17011
Russell A. DiGilio....................... 38,437(13) * *
115 Cambridge Road
Landenberg, PA 19096
Kurt A. Meyer............................ 55,312(14) * *
253 Indian Creek Road
Mechanicsburg, PA 17055
David K. Barber.......................... 648,037(15) 7.5% 4.2%
111 Brindle Road
Mechanicsburg, PA 17055
Directors and officers of the Company as
a group (16 persons).................... 4,681,735(16) 52.1% 29.4%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares.
(1) Consists of 157,500 shares held by a trust for the benefit of Henry L.
Hillman (the "HLH Trust") and 525,000 shares owned by Juliet Challenger,
Inc., an indirect, wholly-owned subsidiary of The Hillman Company ("THC").
THC is a private company engaged in diversified investments and operations
which is controlled by the HLH Trust. The Trustees of the HLH Trust are
Henry L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette (the "HLH
Trustees"). The HLH Trustees share voting and investment power with respect
to the shares held of record by the HLH Trust and the assets of THC. Does
not include an aggregate of 210,000 shares held by four trusts for the
benefit of members of the Hillman family, as to which shares the HLH
Trustees (other than Mr. Grefenstette, who is one of the trustees of such
family trusts) disclaim beneficial ownership.
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<PAGE> 94
Also does not include 157,500 shares held by DBH Sec IV, L.P., as to which
shares the HLH Trustees disclaim beneficial ownership. Howard B. Hillman
and Tatnall L. Hillman, the general partners of DBH Sec IV, L.P., are
step-brothers of Henry L. Hillman.
(2) Omega Ventures II, L.P., Omega Ventures II Cayman, L.P., Crossover Fund II,
L.P., Crossover Fund IIA, L.P. and R.S. Pacific Venture, L.P. are funds
managed by, but not beneficially owned by, BancAmerica Robertson Stephens
and all have the same address.
(3) 465,124 shares held subject to warrants are owned by Meditrust Mortgage
Investments, Inc. and 289,743 shares held subject to warrants are owned by
Meditrust Acquisition Corporation II, wholly owned subsidiaries of
Meditrust.
(4) Mr. Carr is a general partner of SAE Partners, a shareholder of HHP, a
managing general partner of HCO Partners IV-BCC ("HCO") and a shareholder
of Hawthorn Health Properties, Inc., a California corporation ("Hawthorn")
that owns 37,500 shares held subject to warrants and may be deemed to have
an indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by such entities. Mr. Carr disclaims beneficial
ownership of such shares.
(5) Mr. Hollinger is a general partner of HCO and may be deemed to have an
indirect pecuniary interest in 5,250 shares owned by such entity. Mr.
Hollinger disclaims beneficial ownership of such shares. Also includes
9,375 shares held subject to stock options.
(6) Includes 138,000 shares held subject to warrants and 11,250 shares held
subject to stock options.
(7) Kenneth Barber, a director of the Company, is a general partner of HCO and
may be deemed to have an indirect pecuniary interest in 52,500 shares owned
by such entity. Mr. Barber disclaims beneficial ownership of such shares.
Also includes 11,250 shares held subject to stock options. Does not include
640,537 shares owned by KD Investments, a Pennsylvania general partnership,
of which the stockholder's spouse and children are general partners. Mr.
Barber disclaims any beneficial interest in shares owned by KD Investments.
(8) Includes 767,412 shares owned by the Inter Vivos Trust of Billy Ray Foster.
As the trustee, Mr. Foster has voting and investment power with respect to
the shares held by the trust and may be deemed to have indirect beneficial
ownership of them. Mr. Foster disclaims beneficial ownership of such
shares. Also includes 11,250 shares held subject to stock options.
(9) Includes 30,000 shares owned by the Goldsmith Family Trust. As the
co-trustee, Mr. Goldsmith has voting and investment power with respect to
the shares held by the trust and may be deemed to have indirect beneficial
ownership of them. Mr. Goldsmith disclaims beneficial ownership of such
shares. Also includes 11,250 shares held subject to stock options.
(10) Includes 11,250 shares held subject to stock options.
(11) Includes 38,437 shares held subject to stock options.
(12) Includes 3,750 shares held subject to stock options.
(13) Includes 38,437 shares held subject to stock options.
(14) Mr. Meyer is a general partner of HCO and may be deemed to have an indirect
pecuniary interest in 7,500 shares owned by such entity. Mr. Meyer
disclaims beneficial ownership of such shares. Also includes 47,812 shares
held subject to stock options.
(15) David Barber is a general partner of HCO and may be deemed to have an
indirect pecuniary interest in 7,500 shares owned by such entity. Mr.
Barber disclaims beneficial ownership of such shares. Also includes 640,537
shares owned by KD Investments, a Pennsylvania general partnership ("KD").
Mr. Barber is a general partner of KD, and as such, may be deemed to have
an indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by KD. Mr. Barber disclaims beneficial ownership of such
shares.
(16) Includes 138,000 shares held subject to warrants and 196,873 shares held
subject to stock options.
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<PAGE> 95
DESCRIPTION OF CAPITAL STOCK
The Amended and Restated Certificate of Incorporation of the Company (the
"Certificate"), provides that the authorized capital of the Company consists of
50,000,000 shares of Common Stock, par value $.001 per share, and 11,160,708
shares of Preferred Stock, par value $.001 per share, including 1,150,958 shares
of Series A Convertible Preferred Stock and 5,009,750 shares of Series B
Convertible Preferred Stock.
COMMON STOCK
Based upon shares of Common Stock outstanding as of September 30, 1997 and
after giving effect to the conversion of all Outstanding Preferred Stock into
shares of Common Stock, there will be 15,606,343 shares of Common Stock
outstanding upon completion of the Offering. As of September 30, 1997, warrants
and options to purchase an aggregate of 1,925,042 shares of Common Stock were
outstanding.
Each share of Common Stock entitles its holder of record to one vote for
the election of directors and all other matters to be voted on by the
stockholders. Holders of Common Stock do not have cumulative voting rights, and
therefore the holders of a majority of the shares of Common Stock voting for the
election of directors may elect all of the Company's directors. Subject to the
rights of holders of Preferred Stock, holders of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
Company's Board of Directors in its discretion from funds legally available for
that use. Subject to the rights of holders of Preferred Stock, holders of Common
Stock are entitled to share on a pro rata basis in any distribution to
stockholders upon liquidation, dissolution or winding up of the Company. All of
the outstanding shares of Common Stock are, and the shares of Common Stock to be
sold in the Offering will be, fully paid and nonassessable. No holder of Common
Stock has any preemptive right to subscribe for any stock or other security of
the Company.
PREFERRED STOCK
All Outstanding Preferred Stock will automatically be converted into an
aggregate of 4,620,531 shares of Common Stock effective upon consummation of the
Offering. The Board of Directors, without further action by the stockholders,
may from time to time authorize the issuance of other shares of Preferred Stock
in one or more series and, within certain limitations, fix the powers,
preferences and rights and the qualifications, limitations or restrictions
thereof and the number of shares constituting any series or designations of such
series. Satisfaction of any dividend preferences of outstanding Preferred Stock
would reduce the amount of funds available for the payment of dividends on
Common Stock. Holders of Preferred Stock would normally be entitled to receive a
preference payment in the event of any liquidation, dissolution or winding up of
the Company before any payment is made to the holders of the Common Stock. In
addition, under certain circumstances, the issuance of such Preferred Stock may
render more difficult or tend to discourage a change in control of the Company.
Although the Company currently has no plans to issue additional shares of
Preferred Stock, the Board of Directors, without stockholder approval, may issue
Preferred Stock with voting and conversion rights which could adversely affect
the rights of holders of Common Shares.
CERTAIN PROVISIONS OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Certificate provides that liability of directors of the Company is
eliminated to the fullest extent permitted under Section 102(b)(7) of the
Delaware General Corporation Law. As a result, no director of the Company will
be liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for any willful or negligent payment of an unlawful
dividend, stock purchase or redemption, or (iv) for any transaction from which
the director derived an improper personal benefit.
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<PAGE> 96
The Certificate divides the Board of Directors of the Company into three
classes, each class to be as nearly equal in number of directors as possible. At
each annual meeting of stockholders, directors in each class will be elected for
three year terms to succeed the directors of that class whose terms are
expiring. Messrs. Brennan, Foster and Stolman are Class I directors with their
terms of office expiring in 1998, Messrs. Barber and Strong are Class II
directors whose terms will expire in 1999, and Messrs. Goldsmith and Hollinger
are Class III directors whose terms will expire in 2000. In accordance with the
Delaware General Corporation Law, directors serving on classified boards of
directors may only be removed from office for cause. The Certificate provides
that stockholders may not take action by written consent, and that a special
meeting of stockholders may be called only by the Board of Directors. The Bylaws
of the Company provide that stockholders must follow an advance notification
procedure for certain stockholder nominations of candidates for the Board of
Directors and for certain other stockholder business to be conducted at an
annual meeting. These provisions could, under certain circumstances, operate to
delay, defer or prevent a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be American
Stock Transfer & Trust Company.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement, dated as of September 20,
1996, holders of 2,583,333 shares of Common Stock and warrants or options to
acquire 892,867 shares of Common Stock, together with the holders of Outstanding
Preferred Stock that will be converted upon consummation of the Offering into an
aggregate of 462,053 shares of Common Stock have the right to have shares of
Common Stock registered under the Securities Act. See "Principal Stockholders."
Under the Registration Rights Agreement, such stockholders can, beginning six
months after the Registration Statement of which this Prospectus forms a part is
declared effective and subject to certain limitations, require the Company to
file up to two registration statements and an unlimited number of registration
statements on Form S-3 covering the sale of all or any portion of their Common
Stock. The Company must pay registration expenses but not such stockholders'
underwriting commissions or discounts in connection with such registrations. In
addition, whenever the Company proposes to register any of its securities under
the Securities Act, other than pursuant to registrations pursuant to
registration statements on Form S-4 or S-8, any such stockholder may require the
Company, subject to certain limitations, to include all or any portion of its
Common Stock in such registration (a "piggyback registration") and to pay
registration expenses but not such stockholders' underwriting commissions or
discounts in connection with such registrations. All of the stockholder parties
to the Registration Rights Agreement have waived their piggyback registration
rights in connection with the Offering. See "Shares Eligible for Future Sale."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
15,606,343 shares of Common Stock (16,650,343 shares outstanding if the
Underwriters' over-allotment option is exercised in full) including shares of
Common Stock beneficially owned by existing stockholders. The 6,961,000 shares
of Common Stock to be sold pursuant to the Offering (8,005,000 if the
Underwriters' over-allotment option is exercised in full) will be eligible for
sale without restriction under the Securities Act in the public market after the
completion of the Offering. Pursuant to an agreement with the Company and
certain existing stockholders of the Company owning 9,772,586 shares of Common
Stock or securities convertible into or exercisable for shares of Common Stock
have agreed that they will not effect any public sale or distribution of equity
securities of the Company for a period of 180 days after the date of this
Prospectus (other than, in the case of the Company, pursuant to existing
employee stock option plans) without the prior written consent of the
representatives of the Underwriters. To the extent not subject to the
restrictions set forth above, 50,906 shares of Common Stock owned by
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<PAGE> 97
existing stockholders and, following the expiration or waiver of the
restrictions set forth above, 9,772,586 additional shares of Common Stock will
be immediately available for sale into the open market pursuant to Rule 144
under the Securities Act (including the volume and other limitations set forth
therein) and could impair the Company's future ability to raise capital through
an offering of its equity securities.
In general, under Rule 144 as presently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date shares of Common Stock that are "restricted securities"
(as that term is defined in Rule 144) were acquired from the Company or the date
they were acquired from an "affiliate" (as that term is defined in Rule 144) of
the Company, as applicable, then the holder of such restricted securities
(including an affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 156,063 shares immediately
after the consummation of the Offering, assuming that the Underwriters'
over-allotment option is not exercised) or the average weekly trading volume of
the Common Stock on the Nasdaq National Market during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements pertaining to the manner of such sales, notices of such sales and
the availability of current public information concerning the Company.
Affiliates may sell shares not constituting restricted securities in accordance
with the foregoing volume limitations and other requirements but without regard
to the holding period requirement.
Under Rule 144(k), if a period of at least two years has elapsed since the
later of the date restricted shares were acquired from the Company or the date
they were acquired from an affiliate of the Company, as applicable, then a
holder of such restricted shares who is not an affiliate of the Company at the
time of the sale and who has not been an affiliate of the Company for at least
three months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
The Company is party to an agreement pursuant to which certain stockholders
have the right to have shares of Common Stock registered under the Securities
Act. See "Description of Capital Stock -- Registration Rights."
The Company currently has 2,025,000 shares of Common Stock reserved for
issuance upon exercise of stock options granted under its stock option plan,
including 1,013,425 shares reserved for issuance upon exercise of stock options
outstanding as of September 30, 1997. The Company intends to file a registration
statement on Form S-8 under the Securities Act to register the shares of Common
Stock reserved for issuance upon the exercise of options under its stock option
plan. Such registration is expected to become effective as soon as practicable
following the Offering. Shares registered and issued pursuant to such
registration statements will be tradable except to the extent that the holders
thereof are deemed to be "affiliates" of the Company, in which case the
transferability of such shares will be subject to the volume limitations set
forth in Rule 144.
Each officer and director and certain other holders of the Company's Common
Stock have agreed, for a period of 180 days after the date of this Prospectus
(the "Lock-Up Period") not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock, or
any securities convertible into or exchangeable for shares of Common Stock owned
as of the date of this Prospectus or thereafter acquired directly by such
holders or with respect to which they have or hereinafter acquire the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens.
Prior to the Offering there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on market
prices prevailing from time to time. Nevertheless, sales of substantial amounts
of the Common Stock of the Company in the public market, or the prospect of such
sales, could adversely affect the market price of the Common Stock.
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<PAGE> 98
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, BT Alex. Brown Incorporated and Smith Barney
Inc. (the "Representatives"), have severally agreed subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their names below. The
Underwriters are committed to purchase and pay for all such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------------- ---------
<S> <C>
BancAmerica Robertson Stephens...........................................
BT Alex. Brown Incorporated..............................................
Smith Barney Inc. .......................................................
---------
Total............................................................... 6,961,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer shares of the Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 1,044,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 6,961,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
6,961,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 6,961,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director and certain other holders of the Company's Common
Stock have agreed with the Representatives, for a period of 180 days after the
date of this Prospectus (the "Lock-Up Period") not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of Common Stock, any options or warrants to purchase any
shares of Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock owned as of the date of this Prospectus or thereafter
acquired directly by such holders or with respect to which they have or
hereinafter acquire the power of disposition, without the prior written consent
of BancAmerica Robertson Stephens. However, BancAmerica Robertson Stephens may,
in its sole
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<PAGE> 99
discretion at any time from time to time, without notice, release all or any
portion of the securities subject to the lock-up agreements. There are no
agreements between the Representatives and any of the Company's stockholders
providing consent by the Representatives to the sale of shares prior to the
expiration of the Lock-Up Period. The Company has agreed that during the Lock-Up
Period, it will not, without the prior written consent of BancAmerica Robertson
Stephens, issue, sell, contract to sell or otherwise dispose of any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into, exercisable or exchangeable for shares of
Common Stock other than the Company's sale of shares in the Offering, the
issuance of Common Stock upon the exercise of outstanding warrants and options
and under the existing employee stock purchase plans and the Company's issuance
of options under existing stock option plans. See "Shares Eligible for Future
Sale."
The Representatives have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.
Each of the Underwriters has represented and, during the period of six
months after the date hereof, agreed that (a) it has not offered or sold and
will not offer or sell any shares of Common Stock in the United Kingdom except
to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purpose of
their business or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations (1995) (the "Regulations"); (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the shares of Common Stock offered hereby in, from or otherwise
involving the United Kingdom; and (c) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the shares of Common Stock if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996, or is a person to whom such
document may otherwise lawfully be issued or passed on.
Prior to this Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby was determined through negotiations between the
Company and the Representatives. Among the factors considered in such
negotiations were prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is a bid for or the purchase of the Common Stock on behalf
of the Underwriters to reduce a short position incurred by the Underwriters in
connection with the Offering. A "penalty bid" is an arrangement permitting the
Representatives to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the Offering of the Common
Stock originally sold by such Underwriter or syndicate member is repurchased by
the Representatives in syndicate covering transactions, in stabilizing
transactions or otherwise. The Representatives have advised the Company that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
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<PAGE> 100
Certain investment funds managed by BancAmerica Robertson Stephens own
approximately 17.0% of the Common Stock (7.5% after giving effect to the
Offering) excluding any exercise of the Underwriters' over-allotment option).
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania.
Certain legal matters in connection with the validity of the shares of Common
Stock offered hereby will be passed upon for the Underwriters by Shearman &
Sterling, New York, New York.
EXPERTS
The consolidated financial statements and related financial statement
schedule of Balanced Care Corporation and Subsidiaries as of June 30, 1997 and
1996 and for the years then ended and the period April 17, 1995 (date of
inception) to June 30, 1995 have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of Foster Health Care Affiliates as of
June 30, 1996 and 1995 and for the years then ended have been included herein in
reliance upon the report of Baird, Kurtz & Dobson, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The combined financial statements of Keystone Affiliates as of and for the
years ended December 31, 1996, 1995 and 1994 have been included herein in
reliance upon the report of Snyder & Clemente, independent certified public
accountants, appearing elsewhere herein upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Heavenly Health Care, Inc. (d/b/a Joe Clark
Residential Care Homes) as of December 31, 1996 and for the year then ended have
been included herein in reliance upon the report of Baird, Kurtz & Dobson,
independent certified public accountants, appearing elsewhere herein and upon
such report given upon the authority of said firm as experts in accounting and
auditing.
The consolidated balance sheets of Senior Living Centers, Inc. of December
31, 1996 and 1995 and the consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996 have been audited by Coopers & Lybrand L.L.P., independent accountants,
as set forth in their report appearing elsewhere herein, and are included herein
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The balance sheets of Feltrop's Personal Care Home as of June 30, 1997 and
1996 and the statements of operations, owners' equity and cash flows for each of
the three years in the period ended June 30, 1997 have been audited by Coopers &
Lybrand L.L.P., independent accountants, as set forth in their report appearing
elsewhere herein, and are included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The balance sheets of Butler Senior Care, Inc. as of June 30, 1997 and 1996
and the statements of operations, shareholders' equity and cash flows for each
of the three years in the period ended June 30, 1997 have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their report
appearing elsewhere herein, and are included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The combined balance sheets of Gethsemane Affiliates as of June 30, 1997
and 1996 and the combined statements of operations, shareholders' equity and
cash flows for each of the three years in
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<PAGE> 101
the period ended June 30, 1997 have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report appearing elsewhere
herein, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The balance sheets of Triangle Retirement Services, Inc. d/b/a Northridge
Retirement Center as of December 31, 1996 and 1995 and the statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended December 31, 1996 have been audited by Hodge, Steward & Company,
P.A., independent accountants, as set forth in their report appearing elsewhere
herein, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE> 102
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. The summaries in this Prospectus of additional
information included in the Registration Statement or any exhibit thereto are
qualified in their entirety by reference to such information or exhibit. For
further information with respect to the Company and the Common Stock, reference
is hereby made to such Registration Statement and the exhibits and schedules
thereto, copies of which may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or obtained from the
Commission upon payment of the fees prescribed by the Commission. In addition,
registration statements and certain other documents filed with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the World Wide Web,
located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
The Company was founded as a Delaware corporation in April 1995. The
Company's executive offices are located at 5021 Louise Drive, Suite 200,
Mechanicsburg, Pennsylvania 17055, and its telephone number is (717) 796-6100.
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<PAGE> 103
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
BALANCED CARE CORPORATION AND SUBSIDIARIES:
Independent Auditors' Report....................................................... F-3
Consolidated Balance Sheets as of September 30, 1997 (unaudited),
June 30, 1997 and 1996.......................................................... F-4
Consolidated Statements of Operations for the three months ended September 30, 1997
and 1996 (unaudited) and the years ended June 30, 1997 and 1996 and the period
April 17, 1995 (date of inception) to June 30, 1995............................. F-5
Consolidated Statements of Stockholders' Equity for the three months ended
September 30, 1997 and 1996 (unaudited) and the years ended June 30, 1997 and
1996 and the period April 17, 1995 (date of inception) to June 30, 1995......... F-6
Consolidated Statements of Cash Flows for the three months ended September 30, 1997
and 1996 (unaudited) and the years ended June 30, 1997 and 1996 and the period
April 17, 1995 (date of inception) to June 30, 1995............................. F-7
Notes to Consolidated Financial Statements......................................... F-8
FOSTER HEALTH CARE AFFILIATES
Independent Accountants' Report.................................................... F-22
Combined Balance Sheets as of June 30, 1996 and 1995............................... F-23
Combined Statements of Income for the years ended June 30, 1996 and 1995........... F-24
Combined Statements of Shareholders' Equity for the years ended June 30, 1996 and
1995............................................................................ F-25
Combined Statements of Cash Flows for the years ended June 30, 1996 and 1995....... F-26
Notes to Combined Financial Statements............................................. F-27
KEYSTONE AFFILIATES
Independent Auditor's Report....................................................... F-39
Combined Balance Sheets as of December 31, 1996 and 1995........................... F-40
Combined Statements of Income for the years ended December 31, 1996, 1995 and
1994............................................................................ F-41
Combined Statements of Changes in Stockholders' Equity for the years ended December
31, 1996, 1995 and 1994......................................................... F-42
Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994............................................................................ F-43
Notes to Combined Financial Statements............................................. F-44
HEAVENLY HEALTH CARE, INC. D/B/A JOE CLARK RESIDENTIAL CARE HOMES
Independent Accountants' Report.................................................... F-55
Balance Sheet as of December 31, 1996.............................................. F-56
Statement of Income for year ended December 31, 1996............................... F-57
Statement of Shareholders' Equity (Deficit) for the year ended December 31, 1996... F-58
Statement of Cash Flows for the year ended December 31, 1996....................... F-59
Notes to Financial Statements...................................................... F-60
BUTLER SENIOR CARE, INC.
Report of Independent Accountants.................................................. F-62
Balance Sheets as of September 30, 1997 (unaudited), June 30, 1997 and 1996........ F-63
Statements of Operations for the three months ended September 30, 1997 and 1996
(unaudited) and the years ended June 30, 1997, 1996 and 1995.................... F-64
Statements of Shareholders' Equity for the three months ended September 30, 1997
and 1996 (unaudited) and the years ended June 30, 1997, 1996 and 1995........... F-65
Statements of Cash Flows for the three months ended September 30, 1997 and 1996
(unaudited) and the years ended June 30, 1997, 1996 and 1995.................... F-66
Notes to Financial Statements...................................................... F-67
</TABLE>
F-1
<PAGE> 104
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
GETHSEMANE AFFILIATES
Report of Independent Accountants.................................................. F-71
Combined Balance Sheets as of September 30, 1997 (unaudited), June 30, 1997 and
1996............................................................................ F-72
Combined Statements of Income for the three months ended September 30, 1997 and
1996 (unaudited) and years ended June 30, 1997, 1996 and 1995................... F-73
Combined Statements of Shareholders' Equity (Deficit) for the three months ended
September 30, 1997 and 1996 (unaudited) and the years ended June 30, 1997, 1996
and 1995........................................................................ F-74
Combined Statements of Cash Flows for the three months ended September 30, 1997 and
1996 (unaudited) and the years ended June 30, 1997, 1996 and 1995............... F-75
Notes to Combined Financial Statements............................................. F-76
FELTROP'S PERSONAL CARE HOME
Report of Independent Accountants.................................................. F-82
Balance Sheets as of September 30, 1997 (unaudited), June 30, 1997 and 1996........ F-83
Statements of Operations for the three months ended September 30, 1997 and 1996
(unaudited) and the years ended June 30, 1997, 1996 and 1995.................... F-84
Statements of Owners' Equity for the three months ended September 30, 1997 and 1996
(unaudited) and the years ended June 30, 1997, 1996 and 1995.................... F-85
Statements of Cash Flows for the three months ended September 30, 1997 and 1996
(unaudited) and the years ended June 30, 1997, 1996 and 1995.................... F-86
Notes to Financial Statements...................................................... F-87
TRIANGLE RETIREMENT SERVICES INC. D/B/A NORTHRIDGE RETIREMENT CENTER
Independent Auditor's Report....................................................... F-91
Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 and
1995............................................................................ F-92
Statements of Income for the nine months ended September 30, 1997 and 1996
(unaudited) and the years ended December 31, 1996 and 1995...................... F-93
Statements of Changes in Stockholders' Equity for the nine months ended September
30, 1997 (unaudited) and the years ended December 31, 1996 and 1995............. F-94
Statements of Cash Flows for the nine months ended September 30, 1997 and 1996
(unaudited) and the years ended December 31, 1996 and 1995...................... F-95
Notes to Financial Statements...................................................... F-97
</TABLE>
F-2
<PAGE> 105
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Balanced Care Corporation
We have audited the consolidated balance sheets of Balanced Care
Corporation and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended and the period April 17, 1995 (date of inception)
to June 30, 1995. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Balanced
Care Corporation and subsidiaries as of June 30, 1997 and 1996 and the results
of their operations, and their cash flows for the years then ended and the
period April 17, 1995 (date of inception) to June 30, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
July 30, 1997, except for Notes 11 and 12
which are as of December 1, 1997
F-3
<PAGE> 106
BALANCED CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1997 1997 1996
-------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,362 $ 7,908 $ 567
Accounts receivable (net of allowance for doubtful
accounts of $330 in 1997 and $-0- in 1996).............. 7,774 6,679 65
Preferred stock subscription receivable................... -- -- 451
Deferred costs............................................ 2,373 2,062 666
Prepaid expenses and other current assets................. 1,938 945 25
Assets held for sale...................................... 6,351 6,351 --
-------- ------- -------
Total current assets............................... 20,798 23,945 1,774
Restricted investments...................................... 2,594 1,825 279
Property and equipment, net................................. 3,291 2,565 4,897
Goodwill, net............................................... 2,290 2,219 315
Other assets................................................ 2,651 2,463 27
-------- ------- -------
Total assets....................................... $ 31,624 $33,017 $ 7,292
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt......................... $ 98 $ 97 $ 29
Accounts payable.......................................... 4,858 5,929 517
Accrued payroll........................................... 1,154 1,818 201
Accrued expenses.......................................... 2,172 1,251 300
-------- ------- -------
Total current liabilities.......................... 8,282 9,095 1,047
Long-term debt, net of current portion...................... 8,354 8,177 5,043
Straight-line lease liability............................... 3,166 3,133 --
Deferred revenues........................................... 604 579 --
Other liabilities........................................... 70 228 78
-------- ------- -------
Total liabilities.................................. 20,476 21,212 6,168
-------- ------- -------
Redeemable preferred stock:
Series B authorized, issued and outstanding -- 5,009,750
shares at September 30 and June 30, 1997 at redemption
value which includes accretion of $1,893 and $1,267
September 30 and June 30, 1997, respectively............ 13,875 13,249 --
-------- ------- -------
Commitments and contingencies (Note 11)
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 5,000,000 authorized;
none outstanding........................................ -- -- --
Preferred stock, Series A authorized -- 1,150,958 shares
at September 30 and June 30, 1997 and 1,500,000 shares
at June 30, 1996; issued and outstanding -- 1,150,958
shares at September 30 and June 30, 1997 and 1,000,000
shares at June 30, 1996................................. 1 1 1
Series A subscription rights -- 250,000 shares at June 30,
1996.................................................... -- -- 451
Common stock, $.001 par value -- authorized -- 50,000,000
shares at September 30 and June 30, 1997 and 7,000,000
shares at June 30, 1996; issued and
outstanding -- 4,024,812 shares at September 30 and June
30, 1997 and 2,583,333 shares at June 30, 1996.......... 5 5 3
Additional paid-in capital................................ 3,335 3,961 1,588
Accumulated deficit....................................... (6,068) (5,411) (919)
-------- ------- -------
Total stockholders' equity (deficit)............... (2,727) (1,444) 1,124
-------- ------- -------
Total liabilities and stockholders' equity......... $ 31,624 $33,017 $ 7,292
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 107
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30, APRIL 17
-------------------- ------------------ TO JUNE 30,
1997 1996 1997 1996 1995
------- ------ ------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Patient services..................... $14,496 $3,304 $41,616 -- --
Resident services.................... 2,998 993 6,778 737 --
Other revenues....................... 1,644 75 1,086 74 --
------- ------ ------- ------ -------
Total revenues............... 19,138 4,372 49,480 811 --
------- ------ ------- ------ -------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits...... 7,305 1,851 19,186 320 --
Other operating expenses
(including related parties of
$751 in 1997)................... 7,187 1,765 20,727 179 --
Development and pre-opening
expenses.......................... 312 46 740 -- --
General and administrative expense
(including related parties of
$1,210 in 1997)................... 2,367 701 4,913 1,000 10
Lease expense (including related
parties of $4,030 in 1997)........ 2,212 475 5,417 77 --
Depreciation and amortization
expense........................... 281 90 693 49 --
Write-down of long-lived assets...... -- -- 1,591 -- --
------- ------ ------- ------ -------
Total operating expenses........ 19,664 4,928 53,267 1,625 10
------- ------ ------- ------ -------
Loss from operations................. (526) (556) (3,787) (814) (10)
Other income (expense):
Interest income................... 113 13 265 13 --
Interest expense.................. (237) (183) (917) (102) (10)
------- ------ ------- ------ -------
Loss before income taxes............. (650) (726) (4,439) (903) (10)
Provision for income taxes........... 7 3 53 6 --
------- ------ ------- ------ -------
Net loss............................. $ (657) $ (729) $(4,492) $ (909) $ (10)
======= ====== ======= ====== =======
Accretion of redemption value
attributable to redeemable
convertible preferred stock....... 626 -- 1,267 -- --
------- ------ ------- ------ -------
Net loss allocable to common
stockholders...................... $(1,283) $ (729) $(5,759) $ (909) $ (10)
======= ====== ======= ====== =======
Pro forma:
Pro forma net loss per share......... $ (.08) $ (.09) $ (0.56) $(0.29) $ --
======= ====== ======= ====== =======
Shares used in computing pro forma
loss per share.................... 7,980 7,954 7,954 3,088 2,939
======= ====== ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 108
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND THE YEARS ENDED
JUNE 30, 1997 AND 1996 AND THE PERIOD APRIL 17, 1995 (DATE OF INCEPTION) TO JUNE
30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED A STOCK COMMON STOCK
------------------------------- ---------------- ADDITIONAL
ISSUED PAR SUBSCRIPTION ISSUED PAR PAID-IN NET
SHARES VALUE RIGHTS SHARES VALUE CAPITAL LOSS TOTAL
------ ----- ------------ ------ ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common stock....... -- -- -- 2,325 $ 3 $ 24 -- $ 27
Net loss for the period.... -- -- -- -- -- -- $ (10) (10)
----- --- ---- ----- --- ------ ------- -------
Balance at June 30, 1995... -- -- -- 2,325 24 (10) 17
3
Sale of preferred stock.... 750 $ 1 -- -- 1,499 -- 1,500
--
Preferred stock
subscription rights...... 250 -- $451 -- -- -- 451
--
Sale of common stock....... -- -- -- 258 3 -- 3
--
Issuance of common stock
purchase warrants........ -- -- -- -- 62 -- 62
--
Net loss for the year...... -- -- -- -- -- (909) (909)
--
----- --- ---- ----- --- ------- ------- -------
Balance at June 30, 1996... 1,000 1 451 2,583 3 1,588 (919) 1,124
Stock dividend............. 151 -- -- -- -- -- -- --
Accretion of redemption
value attributable to
redeemable preferred
stock.................... -- -- -- -- -- (1,267) -- (1,267)
Issuance of common stock... -- -- -- 1,442 2 2,172 -- 2,174
Issuance of preferred
stock.................... -- -- (451) -- -- 451 -- --
Issuance of common stock
purchase warrants........ -- -- -- -- -- 1,017 -- 1,017
Net loss for the year...... -- -- -- -- -- -- (4,492) (4,492)
--- --- ---- ----- --- ------ ------- -------
Balance at June 30, 1997... 1,151 1 0 4,025 5 3,961 (5,411) (1,444)
Unaudited:
Accretion of redemption
value attributable to
redeemable preferred
stock.................... -- -- -- -- -- (626) -- (626)
Net loss for the quarter... -- -- -- -- -- -- (657) (657)
--- --- ---- ----- --- ------ ------- -------
Balance at September 30,
1997..................... 1,151 $ 1 $ 0 4,025 $ 5 $3,335 $(6,068) $(2,727)
=== === ==== ===== === ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 109
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30, APRIL 17
----------------- ----------------- TO JUNE 30,
1997 1996 1997 1996 1995
------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................. $ (657) $ (729) $(4,492) $ (909) $ (10)
Adjustments to reconcile net loss to net used for
operating activities:
Depreciation and amortization.......................... 281 90 693 49 --
Non-cash lease expense................................. 33 -- 1,454 -- --
Write-down of long-lived assets........................ -- -- 1,591 -- --
Changes in operating assets and liabilities, excluding
effects of acquisitions:
Increase in accounts receivable...................... (1,095) (75) (3,066) (65) --
Increase in deferred costs........................... (311) (42) (1,396) (666) --
Increase in prepaid expenses and other current
assets............................................. (1,040) (223) (739) (25) --
Increase (decrease) in accounts payable, accrued
payroll and accrued expenses....................... (814) 794 5,340 1,052 --
Increase in deferred revenues........................ 25 28 579 -- --
------- ------- ------- ------- -----
Net cash used for operating activities.......... (3,578) (157) (36) (564) (10)
------- ------- ------- ------- -----
Cash Flows from Investing Activities:
Purchases of property and equipment.................... (734) (295) (1,822) (157) --
Increase in restricted investments..................... (769) (189) (1,546) (279) --
Increase in goodwill................................... (98) (515) (1,882) (318) --
Increase in other assets............................... (188) (285) (1,462) (26) (1)
Acquisitions, net of cash acquired..................... -- (845) (487) (4,701) --
------- ------- ------- ------- -----
Net cash used for investing activities.......... (1,789) (2,129) (7,199) (5,481) (1)
------- ------- ------- ------- -----
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt............... -- 311 385 5,094 --
Payments on long-term debt............................. (22) (60) (142) (1) --
Proceeds from issuance of common stock................. -- -- 110 3 27
Proceeds from issuance of Series A preferred stock..... -- 451 451 1,500 --
Proceeds from issuance of Series B preferred stock..... -- 4,955 11,982 -- --
Issuance of notes payable.............................. -- 1,476 1,476 -- --
Payments on notes payable.............................. -- (344) (1,476) -- --
Increase in straight-line lease liability.............. -- 373 1,679 -- --
Increase(decrease) in other liabilities................ (157) -- 111 -- --
------- ------- ------- ------- -----
Net cash provided by financing activities....... (179) 7,162 14,576 6,596 27
------- ------- ------- ------- -----
Increase in cash and cash equivalents.................. (5,546) 4,876 7,341 551 16
Cash and cash equivalents at beginning of period....... 7,908 567 567 16 --
------- ------- ------- ------- -----
Cash and cash equivalents at end of period............... $ 2,362 $ 5,443 $ 7,908 567 16
======= ======= ======= ======= =====
Supplemental Cash Flow Information:
Cash paid during the period for interest............... $ 237 $ 169 $ 927 $ 47 --
======= ======= ======= ======= =====
Cash paid during the period for income taxes........... $ -- $ -- $ 35 $ -- --
======= ======= ======= ======= =====
Supplemental Non-cash Investing and Financing Activities:
Assets and lease obligations capitalized............... $ 197 $ -- $ 75 $ 40 --
======= ======= ======= ======= =====
Fair value of stock purchase warrants granted to a
lender............................................... $ -- $ 465 $ 1,017 $ 62 --
======= ======= ======= ======= =====
Preferred stock subscriptions receivable............... $ -- $ -- $ -- $ 451 --
======= ======= ======= ======= =====
Accretion of preferred B stock......................... $ 626 $ -- $ 1,267 $ -- --
======= ======= ======= ======= =====
Acquisitions:
Fair value of assets acquired........................ $ -- $(8,172) (8,188) (4,745) --
Liabilities assumed.................................. -- 5,512 5,636 44 --
Fair value of stock issued........................... -- 1,815 2,065 -- --
------- ------- ------- ------- -----
Consideration paid for acquisitions.................. $ -- $ (845) $ (487) $(4,701) --
======= ======= ======= ======= =====
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 110
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Background
Balanced Care Corporation (BCC or the Company) was incorporated in April
1995 and is engaged in the development and acquisition of assisted living
facilities and selective acquisitions of other operations which facilitate
implementation of the Company's balanced care continuum strategy, such as
medical rehabilitation, home health care and skilled nursing. As of June 30,
1997, the Company owned or operated 22 assisted and independent living
communities, 12 skilled nursing facilities, and had 10 assisted living
communities under construction(see Note 3). The Company also operates an
institutional pharmacy, a home health agency and a rehabilitation agency (see
Note 12). The Company's operations are located primarily in Pennsylvania,
Missouri and Wisconsin.
(b) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries from their respective acquisition
dates. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
The financial statements as of and for the three month periods ended
September 30, 1997 and 1996, are unaudited, but, in the opinion of management,
have been prepared on the same basis as the audited financial statements and
reflect all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the information set forth therein. The results of
operations for the three months ended September 30, 1997, are not necessarily
indicative of the operating results to be expected for the full year or any
other period.
(c) Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments with original
maturities of three months or less. The Company maintains its cash and cash
equivalents at financial institutions which management believes are of high
credit quality.
(d) Fair Value of Financial Instruments
Cash and cash equivalents, receivables, restricted investments and mortgage
notes payable are reflected in the accompanying balance sheet at amounts
considered by management to approximate fair value. Management generally
estimates fair value of its long-term fixed rate notes payable using discounted
cash flow analysis based upon the current borrowing rate for debt with similar
maturities.
(e) Restricted Investments
Restricted investments consist of money market mutual funds invested in
government securities which have been deposited as collateral for certain of the
Company's mortgage and lease commitments. The amounts are equivalent to three to
six months debt service or lease payments and are generally restricted until the
related debt is repaid or through the initial lease term.
(f) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation or,
where appropriate, the present value of the related capital lease obligations
less accumulated amortization. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets ranging
from 3-40 years. Expenditures for maintenance and repairs necessary to maintain
F-8
<PAGE> 111
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
property and equipment in efficient operating condition are charged to
operations. Costs of additions and betterments are capitalized.
(g) Goodwill
Goodwill resulting from acquisitions accounted for as purchases is being
amortized on a straight-line basis over lives ranging from 15 to 25 years.
Goodwill is reviewed for impairment whenever events or circumstances provide
evidence which suggests that the carrying amount of goodwill may not be
recoverable. The Company evaluates the recoverability of goodwill by determining
whether the amortization of the goodwill balance can be recovered through
projected undiscounted cash flows. At June 30, 1997 and 1996, accumulated
amortization of goodwill was $175,000 and $2,000, respectively.
(h) Impairment of Long-lived Assets and Long-lived Assets To Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets To Be Disposed Of, on July 1, 1996. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to undiscounted future net cash flow expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of SFAS No. 121 at July 1, 1996 did not have a material impact on
the Company's financial position, results of operations, or liquidity.
(i) Deferred Costs
Financing and leasing costs have been deferred and are being amortized on a
straight-line basis over the term of the related debt or lease. Accumulated
amortization of deferred financing and leasing costs was $43,000 and $0 at June
30, 1997 and 1996, respectively.
Third-party vendors invoice the Company for development costs which are
reimbursable by the real estate investments trusts (REITs) for whom the Company
develops assisted living facilities. These costs are recorded as current
deferred costs. Costs incurred by the Company for salaries, wages and benefits
and other direct costs of development activities are recorded as current
deferred costs until the related development fee revenue is recognized, at which
time these costs are expensed. The Company reviews deferred development costs to
assess recoverability based on the progress of each development project. When a
project is abandoned, deferred costs related to the project are expensed.
(j) Stock Option Plan
Prior to July 1, 1996 the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense the fair value of
all stock-based awards on the date of grant over the vesting period.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share
F-9
<PAGE> 112
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosures for employee stock option grants as if the fair-value-based-method
defined in SFAS No. 123 had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(k) Revenue Recognition
Patient revenues are recorded based on standard charges applicable to all
patients, and include charges for room and board, rehabilitation therapies,
pharmacy, medical supplies, sub-acute care, and other programs provided to
patients in skilled nursing facilities. Under Medicare, Medicaid, and other
cost-based reimbursement programs, each facility is reimbursed for services
rendered to covered program patients as determined by reimbursement formulas.
The differences between established billing rates and the amounts reimbursable
by the programs and patient payments are recorded as contractual adjustments and
deducted from revenues. Revenues from the Medicare and Medicaid programs
represented 31% and 31%, respectively, of total 1997 revenues. The Company had
no Medicaid or Medicare revenues in 1996. At June 30, 1997, accounts receivable
includes approximately $2,037,000 and $108,000 from the Medicaid programs of
Missouri and Pennsylvania, respectively.
Retroactively calculated third-party contractual adjustments are accrued on
an estimated basis based on cost reimbursement formulas in effect in the period
the related services are rendered. At June 30, 1997 the Company had accrued
estimated settlements receivable of $539,000 from Medicare and $79,000 from
Medicaid. Revisions to estimated contractual adjustments are recorded based upon
audits by third-party payors, as well as other communications with third-party
payors such as desk reviews, regulation changes and policy statements. These
revisions are made in the year such amounts are determined. Management is not
aware of any material claims or disputes with third-party payors. There were no
material settlements with third-party payors during the years ended June 30,
1997 and 1996.
Resident revenues are recognized when services are rendered and consist of
resident fees and other ancillary services provided to residents of the
Company's assisted living facilities.
Other revenues consist of management fees and development fees. Management
fees are recognized when services are rendered. On projects where BCC is the
lessee, development fees in excess of related development costs are recorded as
deferred revenues and recognized as earned over the lease term. On projects
developed for others development fees are recognized over the development
period. Prepaid expenses and other current assets include development fees
receivable of $6,000 and $-0- at June 30, 1997 and 1996, respectively.
(l) Income Taxes
The Company follows the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
(m) Straight-line Lease Liability
Straight-line lease liabilities represent lease deposit funding received
from REITs relating to lease transactions. The Company pays rent on these funds
and amortizes the related straight-line lease liability over the initial lease
term as a reduction of rent expense.
F-10
<PAGE> 113
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) Classification of Expenses
All expenses associated with corporate or support functions are classified
as general and administrative.
(o) Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These assumptions 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 these estimates.
(p) New Accounting Pronouncements
In February 1997 the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 replaces the presentation of primary
earnings per share (EPS) with a presentation of basic EPS. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period. SFAS
No. 128 also requires dual presentation of basic and diluted EPS on the face of
the income statement and other reconciliations and disclosures. The Company is
required to adopt SFAS No. 128 in fiscal year ending in 1998. There is no
difference between the loss per share calculated under SFAS No. 128 and the loss
per share presented in these financial statements.
(q) Net Loss Per Share
Pro Forma Net Loss Per Share
Pro forma net loss per share is computed using the weighted average number
of common shares and common equivalent shares (using the treasury stock method)
outstanding and gives effect to certain adjustments described below. Common
equivalent shares from stock options and warrants and convertible preferred
stock are excluded from the computation as their effect is antidilutive, except
that, pursuant to Securities and Exchange Commission (SEC) Staff Accounting
Bulletins and SEC staff policy, common and common equivalent shares issued
during the 12-month period prior to the proposed Initial Public Offering
(Offering) at prices below the anticipated Offering price are presumed to have
been issued in contemplation of the Offering and have been included in the
calculations as if they were outstanding for all periods presented (using the
treasury stock method and a proposed Offering price of $10.00). In the
computation of pro forma net loss per share, accretion of the redemption value
attributable to redeemable preferred stock is not included as an increase to net
loss.
Pursuant to the policy of the SEC staff, the calculation of shares used in
computing pro forma net loss per share also includes the Series B redeemable
convertible preferred stock that will convert into shares of common stock upon
completion of the Offering (using the if-converted method) from their original
date of issuance.
F-11
<PAGE> 114
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the calculation of total number of shares
used in the computation of pro forma net loss per common share:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Weighted average common shares outstanding.......................... 3,583 2,474 2,325
Additional shares assuming exercise of:
Convertible preferred stock....................................... 3,757 -- --
Common stock...................................................... 242 242 242
Stock options..................................................... 478 478 478
Warrants.......................................................... 240 240 240
Shares assumed repurchased.......................................... (346) (346) (346)
----- ----- -----
Weighted average common and common equivalent shares used in the
computation of pro forma net loss per common share................ 7,954 3,088 2,939
===== ===== =====
</TABLE>
Supplementary Net Loss Per Share
As required by APB 15 the pro forma net loss per share presented above has
been further adjusted to reflect the retirement of debt with the proceeds of the
offering (using a proposed offering price of $10.00).
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net loss........................................................ $(4,492) $ (909) $ (10)
Interest savings on debt retirement............................. 806 -- --
------- ------ ------
Adjusted net loss............................................... $(3,686) $ (909) $ (10)
======= ====== ======
Weighted average common and common equivalent shares used in the
computation of pro forma net loss per common share............ 7,954 3,088 2,939
Incremental shares issued for retirement of debt................ 812 -- --
------- ------ ------
Adjusted shares................................................. 8,766 3,088 2,939
======= ====== ======
Supplementary net loss per common share......................... $ (.42) $ (.29) $ --
======= ====== ======
</TABLE>
2. ACQUISITIONS
In May 1997, the Company completed the Clark acquisition which involved the
operations of three assisted living facilities with 77 operating beds (171
licensed beds) from Heavenly Healthcare Inc. in Nevada, Missouri. In August
1997, the Company closed on the acquisition of a fourth assisted living
community with 25 beds (57 licensed beds) from the same seller. The facilities
were acquired by Capstone Capital Corporation (Capstone), a health care REIT,
for approximately $5,335,000 including transaction costs. The Company has
entered into a 10-year lease with three 5-year renewal options with the REIT.
In January 1997, the Company consummated the Keystone acquisition which
involved the operations of five assisted living facilities (317 beds) and two
skilled nursing facilities (103 beds) located in Pennsylvania. Capstone acquired
the facilities and certain other assets for approximately $21,600,000 including
transaction costs from Keystone Affiliates, a group of commonly controlled "S
Corporations", and leases them to the Company pursuant to an 11-year lease
agreement with three 5-year renewal options. The Company paid a total purchase
price of approximately $2,050,000 comprised of $1,900,000 in cash 187,500 shares
of its common stock valued at $1.33 per share for the operations and the rights
to seven early stage development projects. Goodwill of approximately
F-12
<PAGE> 115
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1,840,000 was recorded for this acquisition, which is being amortized over 25
years. This acquisition was accounted for using the purchase method of
accounting.
In August 1996, the Company acquired the operations of seven skilled
nursing facilities and a facility based home health agency as well as the stock
of three skilled nursing facilities and a pharmacy company, all in Missouri
(Missouri acquisition) from Foster Health Care Affiliates, a group of commonly
controlled "C" corporations. The total purchase price of approximately
$8,691,000 was comprised of 1,200,000 shares of its common stock valued at $1.33
per share, the issuance of notes payable aggregating $1,476,000, mortgage
financing of $3,115,000 funded by Meditrust, a health care REIT, liabilities
assumed of approximately $1,800,000 and transaction costs of approximately
$700,000. Goodwill of approximately $3,401,000 relating to the Pharmacy was
recorded. The Pharmacy has been reclassified as an asset held for sale as of
June 30, 1997 (see Note 3). The real estate assets of these seven skilled
nursing facilities were purchased by Hawthorn Health Properties, Inc. (HHP), a
related party, for approximately $39,100,000 including transaction costs with
mortgage financing provided by Meditrust. The Company has leased these seven
facilities from HHP pursuant to a 12-year lease agreement with four 6-year
renewal options. This acquisition was accounted for as a purchase. In February
1997, the Company leased two additional assisted living facilities in Missouri
from the same seller. The facilities have a capacity for 61 residents. The
initial lease term is for three years with two 1-year renewal options.
In May 1996, the Company acquired Harmony Manor which is comprised of seven
assisted living facilities in Wisconsin with 158 licensed beds for $5,046,000
including transaction costs which was funded with mortgage financing provided by
a health care REIT (Wisconsin Acquisition). This acquisition was accounted for
using the purchase method of accounting. (See Note 3).
In March 1996, the Company acquired the operations of Outlook Pointe at
Allison Park (formerly Mt. Royal Pines) a 68-bed assisted living community in
Pennsylvania for cash of approximately $318,000, which has been recorded as
goodwill and is being amortized over 25 years. Health Care Property Investors,
Inc. (HCPI), a health care REIT, acquired the facility for $2,350,000 and leases
it to the Company pursuant to a 15-year lease agreement with three five-year
renewal options. This acquisition was accounted for using the purchase method of
accounting.
The following unaudited summary, prepared on a pro forma basis, combines
the results of operations of the acquired businesses with those of the Company
as if the acquisitions and leases had been consummated as of the beginning of
the respective periods after including the impact of certain adjustments such
as: amortization of goodwill, depreciation on assets acquired, interest on
acquisition financing and lease payments on the leased facility (in thousands
except for net loss per common share):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Revenue......................................................... $ 63,882 $ 3,868
Expenses........................................................ (68,262) (4,305)
-------- -------
Net Loss........................................................ $ (4,380) $ (437)
======== =======
Net Loss per common share....................................... $ (0.55) $ (0.14)
======== =======
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed as of July
1, 1996 and 1995, respectively. In addition, they are not intended to be a
projection of future results of operations.
F-13
<PAGE> 116
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ASSETS HELD FOR SALE
In June 1997, management determined that the Wisconsin market does not
provide adequate opportunity to achieve the operational efficiencies necessary
to operate profitably. As a result, the Company committed to a plan for the
disposal of its Wisconsin assisted living facilities. Management also decided to
sell the Pharmacy in order to focus on its assisted living and skilled nursing
operations. As a result of the planned Wisconsin disposition, a non-cash charge
of $1,591,000 has been recorded to write these assets down to their estimated
fair value of approximately $3,150,000 based on the present value of expected
discounted future cash flows less estimated costs of disposal. For the year
ended June 30, 1997, the Wisconsin operations experienced a pre-tax loss of
$381,000 and the Pharmacy experienced pretax income of $240,000 (see Note 12).
The Company plans to dispose of the Wisconsin assisted living facilities as soon
as practicable.
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following as of June 30
(dollars in thousands).
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1997 1996
----------- ------ ------
<S> <C> <C> <C>
Land and land improvements............................ 2-15 yrs $ 418 $ 194
Buildings and improvements............................ 2-37 yrs 509 4,081
Fixed and moveable equipment.......................... 3-20 yrs 2,119 671
------
3,046 4,946
Less: accumulated depreciation........................ (481) (49)
------
$2,565 $4,897
======
</TABLE>
Depreciation expense was $477,000, $47,000 and $-0-, the years, ended June
30, 1997, 1996, and 1995.
5. LONG-TERM DEBT
Long-term debt consisted of the following as of June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Mortgages payable to Meditrust, interest at rates ranging from
10.6% to 10.7%; principal and interest due monthly through August
2008 based on 30-year amortization; unpaid principal and interest
due May 2006 and August 2008. ................................... $8,159 $4,986
Other (including capital lease obligations)........................ 115 86
------ ------
8,274 5,072
Less: current portion.............................................. 97 29
------ ------
$8,177 $5,043
====== ======
</TABLE>
The mortgage notes payable were incurred for the acquisitions in Wisconsin
and Missouri. Commencing in the second year of the loans and thereafter, the
Company will pay additional interest of up to 2.0% of the total principal and
interest payments in the prior year based contingently on 20% of the increase in
revenues of the facilities over the prior year. The mortgage note is
collateralized by the facilities property and equipment which had a carrying
amount of approximately $10,000,000 at June 30, 1997. Meditrust was issued
approximately 460,000 common stock warrants exercisable at a nominal value of
$.001 per share in connection with these financings. The value of the underlying
F-14
<PAGE> 117
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of common stock of approximately $613,676 has been recorded as deferred
financing cost and a corresponding non-cash increase in additional paid-in
capital. The interest cost and discount are being recognized as interest expense
over the life of the mortgages using the effective interest method.
At June 30, 1997, the aggregate maturities of long-term debt for the next
five fiscal years ending June 30 are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998............................................ $ 97
1999............................................ 97
2000............................................ 49
2001............................................ 54
2002............................................ 60
Thereafter...................................... 7,917
------
$8,274
======
</TABLE>
6. REDEEMABLE PREFERRED STOCK
In September 1996 and March 1997, the Company completed a two-stage private
offering of Series B Convertible Preferred Stock (Series B Stock) at $2.50 per
share to a group of venture capital funds and certain other private investors
who purchased 5,009,750 shares for proceeds of approximately $12.2 million net
of related transaction costs.
Dividends of 8% per year are payable when and if declared by the Board of
Directors. The Series B Stock participates in any dividends on common stock on
an as-converted basis. The Series B stockholders are entitled to a liquidation
preference payment equal to $2.50 per share plus 8% accrued dividends from the
date of issue. The Series B stockholders can redeem their Series B Stock at the
fifth anniversary for $5.00 per share and on each subsequent anniversary of
their purchase date for an additional $0.50 per share per year. Each share of
Series B Stock is convertible into one share of the Company's common stock.
However, the conversion ratio increases if the Company issues shares at a price
less then $2.50 per share except for the granting of employee stock options. The
Company has the right to require conversion in the event of an initial public
offering of its common stock of $25 million or more at a per share price of at
least $8.00 per share. The Series B stockholders have separate class of voting
rights on certain matters such as dividends on common stock, repurchases of
common stock, creation of any senior equity security, changes to the Series B
Stock rights and increases in the size of the Board of Directors. There are no
redemption requirements on the Series B Stock during the next five years. There
are 3,757,313 authorized shares of common stock reserved for the conversion of
the Series B Stock. Hakman & Company Incorporated, a related party, was paid a
fee of $250,000 in connection with this capital raising. The value of Series B
stock includes $1,267,000 for the accretion of redemption value with a
corresponding charge to additional paid-in capital.
7. STOCKHOLDERS' EQUITY
The Series A stockholder purchased 1,000,000 shares of Series A Convertible
Preferred Stock (Series A Stock) and 344,444 shares of common stock for net
proceeds to the Company of approximately $2,000,000. These shares were purchased
in stages over a one year period from September 1995 through September 1996.
The Series A Stock is junior to the Series B Stock. Dividends on the Series
A Stock were payable annually at the rate of $0.24 per share in cash or Series A
Shares based on a $2.00 per share value. On September 6, 1996, the Company paid
a stock dividend of 50,958 Series A shares. The Company had the option to make a
payment of 100,000 Series A shares to terminate the dividend on Series A shares.
On
F-15
<PAGE> 118
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 6, 1996, the Company exercised its option and issued 100,000 Series A
shares to terminate this dividend provision. The Series A Stock is also entitled
to share in any dividend on common shares on a prorata basis as though the
Series A Stock has been converted. The Series A stockholders are entitled to a
liquidation preference payment equal to $2.00 per share. This preference right
is subordinate to the Series B preferential liquidation payment. Each share of
Series A Stock is convertible into one share of the Company's common stock. The
Series A Stock automatically converts in the event of an initial public offering
of the Company's common stock. The Company can redeem the Series A Stock at any
time at $2.00 per share. The Series A stockholders have the right to vote with
the common stockholders on a prorata basis as though the Series A Stock has been
converted. There are 863,218 authorized shares of common stock reserved for the
conversion of the Series A Stock. There are no redemption requirements on the
Series A Stock during the next five years.
Common Stock
As of June 30, 1997, the Company had 937,867 outstanding warrants to
purchase shares of its common stock. Of these warrants, 141,827 are exercisable
at $3.00 per share, 46,040 are exercisable at $3.33 per share and 750,000 are
exercisable at $.001 per share.
Other
The Company's mortgage loan and lease agreements place restrictions on the
ability of certain of its subsidiaries to transfer funds to the parent or other
affiliates in the form of loans, advances or cash dividends. Any such transfers
are subordinated to payment of lease or debt service and other payments required
under the agreements. However, such transfers are permissible if all required
lease or debt service payments are being made. The Company's payments under its
lease and debt agreements are current.
8. INCOME TAXES
The provision for income tax expense for the years ended June 30, 1997 and
1996, and the period April 17, 1995 (date of inception) through June 30, 1995
consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--- --- ---
<S> <C> <C> <C>
Current
Federal................................................................. -- -- --
State................................................................... $53 $ 6 --
--- -- ---
Total Income Tax Expense.................................................. $53 $ 6 --
=== == ===
</TABLE>
A reconciliation of income tax expense at the federal statutory rate of 34%
to the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Income taxes computed at statutory rate............................. (34.0)% (34.0)% (34.0)%
State income taxes, net of federal benefit.......................... (6.0) (6.6) (6.0)
Other............................................................... 1.3 2.0 40.0
Valuation allowance adjustment...................................... 39.9 39.3 --
----- ----- -----
1.2% 0.7% --
===== ===== =====
</TABLE>
F-16
<PAGE> 119
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences giving rise to a significant amount of deferred tax
assets and liabilities at June 30, 1997 and 1996 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
6/30/97 6/30/96
------- -------
<S> <C> <C>
Excess tax over book basis of fixed assets............................... $ (985) $ 22
Development fee income................................................... 347 --
Lease acquisition proceeds............................................... (146) --
Accrued expense.......................................................... (99) (20)
Net operating loss....................................................... (1,721) (357)
Other.................................................................... (108) --
Net deferred tax asset................................................. (2,712) (355)
------- -----
Valuation allowance...................................................... 2,712 355
------- -----
Deferred income tax liability (asset).................................... $ -- $ --
======= =====
</TABLE>
The Company has net operating loss carryforwards at June 30, 1997 available
to offset future federal and state taxable income, if any, of approximately
$4,300,000 expiring through 2012 for federal tax purposes and $6,000,000
expiring through 2000 for state income tax purposes. The net operating losses
are subject to limits on their future utilization under federal and state tax
laws. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company
is in a cumulative pretax loss position since inception. Recognition of deferred
tax assets will require generation of future taxable income. There can be no
assurance that the Company will generate any earnings or any specific level of
earnings in future years. Therefore, the Company established a valuation
allowance on deferred tax assets of approximately $2,712,000 as of June 30,
1997.
9. STOCK OPTIONS
The 1996 Stock Option Plan combines the features of an incentive and
non-qualified stock option plan, a stock appreciation rights ("SAR") plan and a
stock award plan (including restricted stock). The 1996 Plan is a long-term
incentive compensation plan and is designed to provide a competitive and
balanced incentive and reward program for participants.
The Company has authorized 2,025,000 shares of common stock to be reserved
for grants under the 1996 Plan. Options generally vest over a four-year period
in cumulative increments of 25% each year beginning one year after the date of
the grant and expire not later than five years from the date of grant. The
options are granted at an exercise price at least equal to the fair market value
of the common stock on the date of the grant.
The Company applies APB Opinion No. 25 in accounting for its 1996 Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below.
F-17
<PAGE> 120
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For SFAS 123 purposes options were valued using the Black-Scholes Multiple
Option Model. Assumptions used were as follows:
<TABLE>
<S> <C>
Risk free interest rate.................................. 5.5% to 6.0%
Expected life............................................ 1 year after vest
Expected volatility...................................... .30
Expected dividends....................................... 0
</TABLE>
These assumptions produced weighted average fair values per option of $.41
and $.001 for options issued during the years ended June 30, 1997 and 1996. All
options issued during these periods were at an exercise price in excess of the
fair market value on the grant date.
<TABLE>
<CAPTION>
PRO FORMA NET
NET LOSS LOSS PER
IN THOUSANDS EXCEPT ----------------- -----------------
PER SHARE DATA 1997 1996 1997 1996
- ------------------- ------- ----- ------ ------
<S> <C> <C> <C> <C>
As reported $(4,492) $(909) $(0.56) $(0.29)
Pro forma $(4,511) $(910) $(0.57) $(0.29)
</TABLE>
<TABLE>
<CAPTION>
STOCK OPTION ACTIVITY DURING THE WEIGHTED-AVERAGE
PERIODS INDICATED NUMBERS OF SHARES EXERCISE PRICE
--------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Balance at July 1, 1995............................ -- --
Granted.......................................... 340,125 $ 2.00
Exercised........................................ -- --
Forfeited........................................ -- --
Expired.......................................... -- --
----------------- -------
Balance at June 30, 1996........................... 340,125 2.00
Granted.......................................... 673,300 5.16
Exercised........................................ (11,250) (2.00)
Forfeited........................................ (15,000) (2.84)
Expired.......................................... -- --
----------------- -------
Balance at June 30, 1997........................... 987,175 $ 4.15
================ ===============
</TABLE>
At June 30, 1997, the range of exercise prices, weighted-average remaining
contractual life of outstanding options and shares exercisable were as follows:
<TABLE>
<CAPTION>
EXERCISE OUTSTANDING WEIGHTED AVERAGE SHARES
PRICE OPTIONS CONTRACTUAL LIFE EXERCISABLE
- -------- ----------- ---------------- -----------
<S> <C> <C> <C>
$ 2.00 464,250 3.77 yrs. 127,687
$ 3.33 45,000 9.21 yrs. 45,000
$ 5.33 135,250 5.09 yrs. 11,250
$ 6.67 342,675 4.96 yrs. 0
------- -------
987,175 183,937
======= =======
</TABLE>
There were no options exercisable at June 30, 1996.
F-18
<PAGE> 121
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS
The Company had the following related party transactions:
- Fees paid to an investment banking firm for finding acquisition targets
and for raising private equity. A minority stockholder of the Company is
an officer of this firm.
- Rental payments made to companies owned by a stockholder/director for the
lease of two facilities and other items. Management fees paid to a
company owned by the same stockholder/director for managing ten skilled
nursing facilities owned or leased by the company. On July 1, 1997, the
Company purchased the assets and operations of this management company
for approximately $120,000.
- Respiratory therapy supplies and management fees paid to a company owned
by a stockholder/director.
- Legal services provided by a relative of a stockholder/officer and
consulting services provided by two stockholders/directors.
- Rental payments to a company owned by two minority stockholders for the
lease of seven skilled nursing facilities.
A summary of those transactions for the periods ended June 30 follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
<S> <C> <C> <C>
Finder's fees.................................... $ 250 35 --
Rentals.......................................... 175 -- --
Management fees.................................. 1,076 -- --
Respiratory therapy.............................. 731 -- --
Legal & consulting services...................... 134 -- --
Skilled nursing facility rentals................. 3,877 -- --
</TABLE>
Accounts payable include approximately $648,000 and $0 related to these
services at June 30, 1997 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases 16 assisted living facilities and 12 skilled nursing
facilities, as well as certain equipment and office space under noncancellable
operating and capital leases that expire at various times through 2011. Rental
expense on such operating leases for the years ended June 30, 1997, 1996 and
1995 was $5,417,000, $77,000, and $-0-. At June 30, 1997 and 1996, property and
equipment includes approximately $115,000 and $45,000 of assets that have been
capitalized under capital leases. Amortization of the leased assets is included
in depreciation and amortization expense.
F-19
<PAGE> 122
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future annual minimum lease payments for the next five years and thereafter
under capital leases and noncancellable operating leases with initial terms of
one year or more in effect at June 30, 1997, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
---------------------------------------------------------------- ------- ---------
<S> <C> <C>
1998............................................................ $54 $ 8,040
1999............................................................ 37 7,940
2000............................................................ -- 7,915
2001............................................................ -- 7,896
2002............................................................ -- 7,786
Thereafter...................................................... -- 37,077
--- -------
Total Minimum Lease Payments.................................... 91 $76,654
=======
Amount Representing Interest.................................... 9
---
Present value of net minimum lease payments (including current $82
portion of $45)............................................... ===
</TABLE>
The operating lease agreements require the payment of additional rent
commencing in the second lease year of up to 2% of prior year rent based
contingently upon increases in facility gross revenues. In addition, most of the
facility leases have renewal options for periods ranging from 5 years up to 24
years after the initial lease period. There were no contingent lease payments
made during the year ended June 30, 1997.
Development Arrangements
The Company has recently entered into non-binding letters of intent
aggregating $365 million with the following health care REITs and others (the
"Owners") (i) Meditrust for $150 million, (ii) Nationwide Health Properties,
Inc. ("NHP") for $100 million, (iii) Capstone Capital Corporation ("Capstone")
for $50 million, (iv) American Health Properties, Inc. ("AHP") for $35 million
and (v) Ocwen Financial Corporation ("Ocwen") for $30 million pursuant to which
the Company would develop assisted living facilities for the Owners or the
Owners would acquire existing facilities and lease them to the Company. Initial
lease rates under these arrangements are expected to range from 3.2% to 3.4%
over the 10-year Treasury rate. Specific development projects and acquisitions
require approval of the REITs prior to the financing of a transaction.
Litigation
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such a kind, or involve such amounts,
that their unfavorable disposition would not have a material effect on the
financial position, results of operations or the liquidity of the Company.
12. SUBSEQUENT EVENTS
Line of Credit
On July 7, 1997, the Company executed a commitment letter with a commercial
bank for a $10 million line of credit which will be collateralized by the
accounts receivable of its skilled nursing facilities. The Company expects
borrowings under this credit arrangement to be available during November 1997.
F-20
<PAGE> 123
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stockholders' Equity
Effective October 14, 1997, the Company amended its certificate of
incorporation to increase the authorized common stock to 50,000,000 shares, to
increase the authorized preferred stock to 11,160,708 and to effect a
three-for-four reverse stock split. As a result, all share and per share data in
the accompanying consolidated financial statements have been restated to reflect
the stock split.
Completed Acquisitions
On October 9, 1997, the Company purchased a 92-bed assisted living facility
from Feltrop's Personal Care Home which will be accounted for as a purchase. The
total purchase price of approximately $5,842,000, including transaction costs,
was paid in cash and funded with by bridge financing from Capstone at the prime
rate plus 2.0%. The Company estimates that goodwill of approximately $1,550,000
will be recorded for this acquisition and amortized over 40 years.
On October 30, 1997, the Company purchased three assisted living facilities
from Butler Senior Care with an aggregate of approximately 172 residents which
will be accounted for as a purchase. The total purchase price of approximately
$9,104,000, including transaction costs, was paid in cash and funded by bridge
financing from Capstone at the prime rate plus 2.0%. The Company estimates that
goodwill of approximately $2,643,000 (excluding contingent payments) will be
recorded for this acquisition and amortized over 40 years. A 29-bed addition
(the "Addition") is under construction at one of the facilities which is
expected to open in January 1998. The agreement provides for additional cash
payments as follows: (i) a $450,000 payment when the Addition becomes
operational, (ii) payments during 1998 when the Addition becomes 80% occupied
and 90% occupied based on a multiple of Butler's net operating income (NOI), and
(iii) a final payment in January 1999 based on a multiple of Butler's annualized
NOI for the six months ended December 31, 1998. Based on estimates of Butler's
1998 NOI, the Company estimates that additional payments of approximately
$4,100,000 will be made. These contingent payments will be recorded as
additional goodwill when the NOI targets have been achieved.
On December 1, 1997, the Company purchased a 117-bed assisted living
facility from Triangle Retirement Services, Inc. which will be accounted for as
a purchase. The total purchase price of approximately $8,549,000, including
transaction costs, was paid in cash and funded by bridge financing from Capstone
at the prime rate plus 2.0%. The Company estimates that goodwill of
approximately $3,349,000 will be recorded for this acquisition and amortized
over 40 years.
Sale of Pharmacy Operations
The Company completed the sale of the assets of its pharmacy operations on
October 16, 1997 for net proceeds of approximately $4,700,000. A gain of
approximately $1,346,000 before tax effects will be recorded in the quarter
ending December 31, 1997.
Pending Acquisition
On November 26, 1997, the Company signed asset purchase agreements for the
purchase of a 66-bed skilled nursing facility (Gethsemane Retirement Community,
Inc.--"GRCI") and a 51-bed assisted living facility (Gethsemane Assisted Living,
Inc.--"GALI"). The transactions are scheduled to close on January 2, 1998. The
purchase price of approximately $5,528,000, including transaction costs, for
GRCI will be paid in cash and funded with bridge financing from Capstone at the
prime rate plus 2%. The Company estimates that goodwill of approximately
$1,597,000 (excluding any contingent payment) will be recorded for this
acquisition and amortized over 40 years. The asset purchase agreement for GALI
provides for a purchase price of up to $1,200,000 based upon a multiple (5.80
times) of GALI's annualized net operating income for the period from the closing
date through June 30, 1998. This payment is expected to be made during the
quarter ending September 30, 1998 and will be recorded as additional land,
property and equipment up to the appraised value of $1,062,000 and goodwill will
be recorded for purchase price in excess of that amount.
F-21
<PAGE> 124
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Balanced Care Corporation
Mechanicsburg, Pennsylvania
We have audited the accompanying combined balance sheets of Foster Health
Care Affiliates (detailed in Note 1) as of June 30, 1996 and 1995, and the
related combined statements of income, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Foster Health Care
Affiliates as of June 30, 1996 and 1995, and the results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
BAIRD, KURTZ & DOBSON
Springfield, Missouri
July 17, 1997
F-22
<PAGE> 125
FOSTER HEALTH CARE AFFILIATES
COMBINED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 2,964 $ 755
Certificates of deposit................................................ 350 1,343
Accounts receivable, less allowance for uncollectible accounts of $414
and $305, respectively.............................................. 3,550 3,546
Estimated settlements from third-party payors.......................... 983 471
Prepaid expenses, inventory and other assets........................... 270 247
Due from related parties............................................... 176 374
Deferred income taxes.................................................. 280 233
------- -------
Total Current Assets........................................... 8,573 6,969
Investments.............................................................. 192 392
Assets limited as to use................................................. 1,188 1,721
Property, plant and equipment, net....................................... 16,483 14,636
Other assets............................................................. 538 689
------- -------
Total Assets................................................... $26,974 $24,407
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term notes payable to banks...................................... $ 2,456 $ 525
Current maturities of long-term debt................................... 997 964
Accounts payable....................................................... 1,510 1,190
Accrued expenses....................................................... 565 835
Income taxes payable................................................... 385 237
Accrued salaries and payroll taxes..................................... 848 792
Due to related parties................................................. 1,244 980
Estimated settlements due third-party payors........................... 162 187
------- -------
Total Current Liabilities...................................... 8,167 5,710
Long-term debt........................................................... 14,958 13,765
Deferred income taxes.................................................... 452 388
------- -------
Total Liabilities.............................................. 23,577 19,863
------- -------
Shareholders' equity:
Common stock........................................................... 20 20
Retained earnings...................................................... 5,888 4,524
Less: Treasury stock, at cost; 1996 -- 2,067 shares.................... (2,511) --
------- -------
Total Shareholders' Equity..................................... 3,397 4,544
------- -------
Total Liabilities and Shareholders' Equity..................... $26,974 $24,407
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE> 126
FOSTER HEALTH CARE AFFILIATES
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net patient service revenue.............................................. $35,220 $29,186
Pharmacy................................................................. 1,135 949
Rental income............................................................ 822 594
Other income............................................................. 132 45
------- -------
Total operating revenues....................................... 37,309 30,774
------- -------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits........................................ 15,942 14,787
Other operating expenses, including related parties of $1,854 and
$1,407............................................................. 8,349 7,065
Medical supplies, drugs and therapies expense, including related
parties of $61 in 1996............................................. 8,194 4,907
Provision for uncollectible accounts................................... 379 199
Interest expense, net, including related parties of $37 and $43........ 1,499 1,403
Depreciation and amortization.......................................... 1,055 934
------- -------
Total operating expenses....................................... 35,418 29,295
------- -------
Income from operations................................................... 1,891 1,479
Nonoperating income...................................................... 213 200
------- -------
Income before provision for income taxes................................. 2,104 1,679
Provision for income taxes............................................... 705 485
------- -------
Net income............................................................... $ 1,399 $ 1,194
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE> 127
FOSTER HEALTH CARE AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED TREASURY
STOCK EARNINGS STOCK TOTAL
------ -------- -------- -------
<S> <C> <C> <C> <C>
Balance at July 1, 1994............................. $ 20 $3,330 $ -- $ 3,350
Net income........................................ -- 1,194 -- 1,194
--- ------ ------- -------
Balance at June 30, 1995............................ 20 4,524 -- 4,544
Net income........................................ -- 1,399 -- 1,399
Distribution to shareholders...................... -- (35) -- (35)
Purchase of treasury stock........................ -- -- (2,511) (2,511)
--- ------ ------- -------
Balance at June 30, 1996............................ $ 20 $5,888 $ (2,511) $ 3,397
=== ====== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE> 128
FOSTER HEALTH CARE AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities
Net income............................................................. $ 1,399 $ 1,194
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 1,055 935
Deferred income taxes............................................... 17 (15)
Changes in operating assets and liabilities:
Increase in accounts receivable..................................... (4) (575)
Increase in estimated third-party payor settlements................. (537) (90)
Decrease in prepaid expenses, inventory and other assets............ 66 59
Increase in accounts payable and accrued expenses................... 50 458
Increase (decrease) in accrued salaries and payroll................. 56 (25)
Increase in income tax payable...................................... 148 45
------- -------
Net cash provided by operating activities...................... 2,250 1,986
------- -------
Cash flows from investing activities
Purchases of property and equipment.................................... (1,797) (1,602)
Net maturities (purchases) of investments.............................. 1,193 (633)
Repayments from related parties........................................ 198 52
Change in assets limited as to use..................................... 533 (101)
------- -------
Net cash provided by (used in) investing activities............ 127 (2,284)
------- -------
Cash flows from financing activities
Payments on short-term notes payable................................... (179) (191)
Proceeds from short-term notes payable................................. 2,110 72
Net borrowings from (to) related parties............................... 264 (34)
Proceeds from issuance of long-term debt............................... 1,096 2,774
Payments on long-term debt............................................. (921) (1,956)
Payments of deferred financing costs................................... (27) (32)
Purchase of treasury stock............................................. (2,511) --
------- -------
Net cash provided by (used in) financing activities............ (168) 633
------- -------
Increase in cash and cash equivalents.................................... 2,209 335
Cash and cash equivalents, beginning of year............................. 755 420
------- -------
Cash and cash equivalents, end of year................................... $ 2,964 $ 755
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE> 129
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Foster Health Care Affiliates (the "Affiliates") are a group of commonly
controlled corporations engaged in the ownership and management of facilities
which provide subacute, skilled, rehabilitative and intermediate nursing care,
residential care and personalized services to the elderly in independent living
units. The Affiliates own and operate nine skilled nursing facilities with an
aggregate of 1,065 beds and lease one 60-bed facility. The Affiliates also own
and operate three facilities which provide residential care and independent
living units. In addition, the Affiliates own and operate a pharmacy which
serves nine of the facilities and a home health agency which operates in 22
counties in Missouri.
(a) Principles of Combination and Basis of Presentation
The combined financial statements include only the accounts of the
companies sold on August 30, 1996 (see Note 15) which are as follows:
- National Care Centers of Lebanon, Inc. (Lebanon Park)
- National Care Centers, Inc. (Lebanon)
- Springfield Retirement Village, Inc. (Mt. Vernon Park)
- National Care Centers of Hermitage, Inc. (Hermitage)
- Dixon Management, Inc. (Dixon)
- National Care Centers of Nevada, Inc. (Nevada)
- National Care Centers of Nixa, Inc. (Nixa)
- National Care Centers of Republic, Inc. (Republic)
- National Care Centers of Springfield, Inc. (Springfield)
- Mt. Vernon Park Care Center West, Inc. (West Park)
- Long Term Pharmaceutical Care, Inc. (Pharmacy)
All of the above companies are included in the combined financial
statements for the two-year period ended June 30, 1996. All significant
intercompany accounts and transactions have been eliminated in the combined
financial statements.
(b) Cash and Cash Equivalents:
Cash and cash equivalents consist of cash and certificates of deposit
purchased with original maturities of three months or less.
(c) Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives ranging from four years to
forty years. Expenditures for maintenance and repairs necessary to maintain
property and equipment in efficient operating condition are charged to
operations. Costs of additions and betterments are capitalized. Interest costs
associated with construction or renovations are capitalized in the period in
which they are incurred.
(d) Inventory
Inventories of pharmaceuticals and supplies are stated at the lower of cost
or market. Cost is determined on the first-in, first-out (FIFO) method.
F-27
<PAGE> 130
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Patient Service Revenues
Revenues are recorded at the estimated net realizable amounts from
residents, third-party payors (e.g. Medicare, Medicaid, managed care companies
and insurers) and others for services rendered. Revenues under third-party payor
agreements are subject to audit and retroactive adjustment. Provisions for
estimated third-party payor settlements are provided in the period the related
services are rendered. Differences between the estimated amounts accrued and the
interim or final settlements are reported in operations in the year of
settlement.
(f) Deferred Financing Costs
Costs incurred in connection with the arrangement of certain financings
have been capitalized and are being amortized over the term of the related debt
using the effective interest method. Accumulated amortization as of June 30,
1996 and 1995, was $111,000 and $90,000 respectively. Amortization expense
related to deferred financing costs for the years ended June 30, 1996 and 1995,
was $21,000 and $20,000 respectively. Financing fees increased $27,000 and
$32,000 during the years ended June 30, 1996 and 1995, respectively.
(g) Income Taxes
Deferred tax liabilities and assets are recognized for the tax effect of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not a deferred tax asset will not be realized.
(h) 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.
(i) Concentrations
A significant portion of the Affiliates' revenues are derived from the
Medicare and Medicaid programs. There have been, and the Affiliates expect that
there will continue to be, a number of proposals to limit reimbursements to
long-term care facilities under these programs. The Affiliates cannot predict
whether any of the proposals will be adopted, or if adopted and implemented,
what effect such proposals would have on the Affiliates. Approximately 76% of
the Affiliates' net patient service revenues in the years ended June 30, 1996
and 1995, are from the Medicare and Medicaid programs. All of the Affiliates'
facilities are located in Missouri.
(j) Facility Operating Expenses
Facility operating expenses include direct operating costs at the facility
level. The majority of these costs consist of payroll and employee benefits
related to nursing, housekeeping, laundry and dietary services provided to
patients, as well as maintenance and administration of the facilities. Other
significant facility operating expenses include the cost of rehabilitation
therapies, medical and pharmacy supplies, food and utilities.
F-28
<PAGE> 131
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Assessment of Long-lived Assets
The Affiliates periodically review the carrying values of their long-lived
assets whenever events or circumstances provide evidence that suggest that the
carrying amount of long-lived assets may not be recoverable. If this review
indicates that long-lived assets may not be recoverable, the Affiliates review
the expected undiscounted future net operating cash flows from their facilities,
as well as valuations obtained in connection with various refinancings. Any
permanent impairment in value is recognized as a charge against earnings in the
statement of income. As of June 30, 1996, the Affiliates do not believe there is
any indication that the carrying value or the amortization period of their
long-lived assets need to be adjusted.
(l) Shareholders' Equity
The Affiliates outstanding common stock is summarized below:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES
PAR VALUE SHARES ISSUED AND
PER SHARE AUTHORIZED OUTSTANDING
--------- --------- -----------
<S> <C> <C> <C>
Dixon............................................. $ 1.00 30,000 3,000
Hermitage......................................... $ 1.00 30,000 3,000
Pharmacy.......................................... $ 1.00 30,000 2,000
Lebanon........................................... None 2,000,000 100
Lebanon Park...................................... $ 1.00 30,000 1,000
Nevada............................................ $ 1.00 30,000 1,000
Nixa.............................................. None 30,000 999
Republic.......................................... $ 1.00 30,000 3,250
Springfield....................................... $ 1.00 30,000 1,000
Mt. Vernon Park................................... $ 1.00 100,000 1,500
West Park......................................... $100.00 300 30
</TABLE>
2. MEDICARE AND MEDICAID REIMBURSEMENT ADJUSTMENTS
The Affiliates have been reimbursed for services rendered to patients
covered by the Federal Medicare program on the basis of estimated per diem
rates. During fiscal years 1996 and 1995, the Affiliates were reimbursed either
at historical costs or prospectively for the routine and capital-related costs
of services and at historical costs for ancillary services provided to patients
covered under the Federal Medicare Program. Provisions for adjustment of the per
diem rates to actual reimbursements have been included in the accompanying
financial statements. The Medicare cost reports are subject to audit and
retroactive adjustment under the terms of the Affiliates' Medicare reimbursement
agreements which may affect the actual reimbursement for the year.
The Affiliates have also been reimbursed for services rendered to Title XIX
Medicaid patients on the basis of estimated per diem rates. The Medicaid
reimbursement plan is on a prospective basis. Any provisions for adjustments of
the per diem rates to actual reimbursement have been included in the
accompanying financial statements.
The home health agency has agreements with third-party payors that provide
for payments to the agency at amounts different from its established rate. A
summary of the payment arrangements with major third-party payors follows:
- Medicare. Services rendered to Medicare program beneficiaries are
reimbursed under a cost reimbursement methodology. The agency is
reimbursed at an interim rate with final settlement
F-29
<PAGE> 132
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
determined after submission of annual cost reports by the agency and
audits thereof by the Medicare fiscal intermediary.
- Medicaid. Services rendered to Medicaid program beneficiaries are
reimbursed prospectively at the lesser of the Medicaid periodic interim
payment rate or the Medicaid ceiling rate in effect.
3. RESIDENT PATIENTS' PERSONAL FUNDS
The Affiliates are the trustee of $98,000 and $127,000 at June 30, 1996 and
1995, respectively, in funds received on behalf of various residents. The
Affiliates have fiduciary responsibility for the administration of the bank
accounts and the distribution of the funds to residents.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
ESTIMATED -------------------
USEFUL LIVES 1996 1995
------------ ------- -------
<S> <C> <C> <C>
Land................................................ N/A $ 849 $ 789
Land improvements................................... 5-25 years 283 283
Buildings and improvements.......................... 5-40 years 19,255 18,193
Furniture and equipment............................. 3-25 years 3,799 3,115
Vehicles............................................ 4 years 117 79
Construction in progress............................ N/A 1,042 28
------- -------
25,345 22,487
Less: Accumulated depreciation...................... 8,862 7,851
------- -------
$16,483 $14,636
======= =======
</TABLE>
Depreciation expense related to property and equipment for the years ended
June 30, 1996 and 1995, was $1,001,000 and $872,000 respectively. Interest costs
capitalized during the years ended June 30, 1996 and 1995, totaled $45,000 and
$77,000 respectively.
Construction in progress related to the construction of a 28-unit apartment
complex to open in August 1996. Estimated total construction should be
approximately $1,150,000.
5. ASSETS LIMITED AS TO USE
The Affiliates' Boards of Directors had designated $1,188,000 and
$1,721,000 as of June 30, 1996 and 1995, respectively, to be set aside for the
future replacement of capital assets. These investments consist of certificates
of deposit, recorded at cost which approximates fair value.
F-30
<PAGE> 133
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVESTMENTS
Investments consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1996 1995
------ ----
<S> <C> <C>
Certificates of deposit(a).......................................... $ -- $200
Land(b)............................................................. 192 192
---- ----
$ 192 $392
==== ====
</TABLE>
- ---------------
(a) The certificates of deposit, which were purchased through various commercial
banks, are recorded at cost which approximates fair value and bear interest
at rates ranging from 4.72% to 7.0%.
(b) Land held for investment includes approximately 61 acres of land in Lebanon,
Missouri.
7. NOTES PAYABLE
Notes payable consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1996 1995
------ ----
<S> <C> <C>
Notes payable to banks at rates ranging from 6.0% to 8.25% and due
dates ranging from August 1996 to December 1996(a)................ $2,000 $ 5
Line of credit borrowings at rates ranging from 5.625% to 10.25%,
due on demand(b).................................................. 456 520
------ ----
$2,456 $525
====== ====
</TABLE>
- ---------------
(a) At June 30, 1996, the note payable was collateralized by deeds of trust. The
proceeds were used to purchase treasury stock (see Note 10). The notes
payable were collateralized by land and land improvements at June 30, 1995.
(b) The lines of credit included unsecured notes payable and one note payable
guaranteed by stockholders of the Affiliates.
The weighted average interest rate on short-term debt was 8.37% and 8.58%
at June 30, 1996 and 1995, respectively.
The aggregate unused lines of credit were $179,000 at June 30, 1996. All
notes payable and line of credit borrowings were repaid in connection with the
merger transaction (see Note 15).
F-31
<PAGE> 134
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
Mortgages payable(a)............................................. $15,914 $14,664
Notes payable to banks(b)........................................ 41 53
Other(c)......................................................... -- 12
------- -------
15,955 14,729
Less current maturities.......................................... 997 964
------- -------
$14,958 $13,765
======= =======
</TABLE>
- ---------------
(a) At June 30, 1996, the mortgage loans payable to banks were at rates ranging
from 7.75% to 10.25% and mature at various dates from 1997 to 2022.
Aggregate monthly payments are approximately $82,000. The mortgage loans are
collateralized by a first or second deed of trust on the buildings and
rental property along with equipment, furniture and fixtures and land.
Mortgages payable includes a loan endorsed for insurance by the U.S.
Department of Housing and Urban Development (HUD) under authority of
Section 232 of the National Housing Act. Under the terms of its financing
arrangement, the Affiliates were required to make monthly escrow deposits
of approximately $5,000 for insurance premiums and tax requirements. Also,
monthly deposits to a plant replacement reserve of approximately $1,000
were required.
Mortgages payable includes loans guaranteed by the Small Business
Administration, the Missouri Industrial Development Board and loans
personally guaranteed by certain shareholders of the Affiliates.
Mortgages payable includes a construction line of credit amortized over 15
years to be permanently financed upon completion of the project.
(b) The notes payable to banks bore interest at rates ranging from 7.75% to 9.5%
at June 30, 1996. Aggregate monthly payments were approximately $1,000. The
notes were collateralized by vehicles.
All long-term debt was repaid in connection with the merger transaction
(see Note 15).
Aggregate annual maturities of long-term debt at June 30, 1996, are
(dollars in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 997
1998............................................................... 968
1999............................................................... 1,055
2000............................................................... 1,115
2001............................................................... 1,102
Thereafter......................................................... 10,718
-------
$15,955
=======
</TABLE>
9. INCOME TAXES
The Affiliates are members of a controlled group for income tax purposes.
The effect of this controlled group membership is that the Affiliates must share
the corporate surtax exemption with the
F-32
<PAGE> 135
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
other members of the controlled group. The allocation of the graduated rates is
subject to the annual discretion of management.
The provision for income taxes includes these components (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Taxes currently payable..................................................... $ 688 $500
Deferred income taxes....................................................... 17 (15)
---- ----
$ 705 $485
==== ====
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on
the June 30, 1996 and 1995, balance sheets were (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................................... $ 157 $ 116
Accrued vacation pay...................................................... 76 68
Accrued professional fees................................................. 39 38
Contribution carryover.................................................... 19 14
Accumulated depreciation.................................................. 7 6
Net operating loss carryforwards.......................................... 292 325
Alternative minimum tax credits........................................... 48 34
General business credits.................................................. 9 9
Other..................................................................... 4 10
----- -----
651 620
----- -----
Deferred tax liabilities:
Accumulated depreciation.................................................. (655) (662)
Other..................................................................... (14) (12)
----- -----
(669) (674)
----- -----
Net deferred tax liability before valuation allowance............. (18) (54)
----- -----
Valuation allowance:
Beginning balance...................................................... (101) (262)
(Increase) decrease during the year.................................... (53) 161
----- -----
Ending balance......................................................... (154) (101)
----- -----
Net deferred tax liability........................................ $(172) $(155)
===== =====
</TABLE>
The above net deferred tax liability is presented on the balance sheets as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Deferred tax assets -- current.............................................. $ 280 $ 233
Deferred tax liability -- long-term......................................... (452) (388)
----- -----
$(172) $(155)
===== =====
</TABLE>
F-33
<PAGE> 136
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax at the statutory rate to income tax expense
at the Affiliates' effective rate is shown below (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computed at the statutory rate............................................... 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State income taxes -- net of federal tax benefits.......................... 2.6 3.3
Change in deferred tax valuation allowance................................. 2.5 (9.6)
Other...................................................................... (5.6) 1.2
---- ----
Actual tax provision......................................................... 33.5% 28.9%
==== ====
</TABLE>
As of June 30, 1996, the Affiliates had approximately $768,000 of unused
net operating loss carryforwards. The carryforwards will expire as follows
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
<S> <C>
2009............................................................. $ 79
2010............................................................. 533
2011............................................................. 156
----
$768
====
</TABLE>
The Affiliates also have approximately $48,000 of alternative minimum tax
credits with no expiration period available to offset future federal income
taxes and approximately $9,000 of general business credits which will expire in
2006.
10. RELATED PARTY TRANSACTIONS
The amounts due (to) from related parties consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
National Care Centers of America, Inc.(a)................................. $ (73) $ (79)
Foster Health Care Group, Inc.(a)......................................... (464) (241)
B. R. Foster, Inc.(a)..................................................... 15 65
Elder Care Facilities Development Co., Inc.(a)............................ 5 36
Elder Care Facilities Equipment Company, Inc.(a).......................... -- 2
Ozark Mobile(a)........................................................... -- (2)
Mid-Continental Marco(a).................................................. -- 18
National Care Centers of Licking, Inc.(a)................................. 22 --
Country Club Condominiums -- A Partnership(a)............................. -- 32
John D. Foster, Stockholder............................................... 2 (39)
Robert A. Foster, Stockholder............................................. 2 2
Mark Foster, Stockholder.................................................. -- 93
Bill R. Foster, Stockholder............................................... (83) (398)
Bill R. Foster, Jr., Stockholder.......................................... 6 7
</TABLE>
F-34
<PAGE> 137
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Todd Spence, Stockholder.................................................. -- (25)
Paul F. Rich, Stockholder................................................. (500) (77)
------- -----
$(1,068) $(606)
======= =====
</TABLE>
- ---------------
(a) These corporations/partnerships are related to the Affiliates through common
ownership.
The Affiliates entered into management contracts with Foster Health Care
Group, Inc., a corporation owned by the Affiliates' majority stockholder and his
family, to supervise, direct and control the management and operation of its
nursing and other facilities. Management fees paid to the management company
during the years ended June 30, 1996 and 1995, totaled $1,394,000 and
$1,165,000.
The Affiliates paid B. R. Foster, Inc. $54,000 for rental of their nurse
aide training building during the years ended June 30, 1996 and 1995.
The Affiliates paid Foster Health Care Group, Inc. $36,000 and $34,000 for
training and education during the years ended June 30, 1996 and 1995,
respectively.
The Affiliates' stockholders have personally guaranteed the obligations of
the Affiliates in regard to certain prepayment provisions of the HUD-insured
mortgage (see Note 8).
The Affiliates acquired computer equipment from Foster Health Care Group,
Inc. in the amount of $184,000. The equipment is recorded at the cost paid by
Foster Health Care Group, Inc.
The Affiliates wrote off $27,000 due from Elder Care Facilities
Development, Inc. determined to be uncollectible during the fiscal year 1996.
During the fiscal year ended June 30, 1996, the Affiliates purchased
treasury stock from stockholders of Hermitage, Mt. Vernon Park, Nixa, West Park
and Dixon totaling $2,511,000 of which $2,000,000 was financed through a
short-term note payable (see Note 7).
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Affiliates in
estimating the fair value of its financial instruments:
Cash, Certificates of Deposit and Assets Limited as to Use The
carrying amount reported in the balance sheet for these instruments
approximates their fair value.
Estimated Third-Party Payor Settlements The carrying amount reported
on the balance sheet for estimated third-party payor settlements
approximates its fair value.
Notes Payable to Banks For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Long-term Debt Fair values of the Affiliates' long-term debt are
estimated using discounted cash flow analysis, based on the Affiliates'
current incremental borrowing rates for similar types of borrowing
arrangements.
Due to/due From Related Parties It was not practicable to estimate
the fair value of amounts due to/due from related parties. The terms and
amounts outstanding at June 30, 1996, are described in Note 10.
F-35
<PAGE> 138
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and fair values of the Affiliates' financial
instruments at June 30, 1996, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents.............................................. $ 2,964 $ 2,964
Certificates of deposit and asset limited as to use.................... 1,538 1,538
Estimated third-party payor settlements................................ 983 983
Financial Liabilities:
Short-term note payable to bank........................................ 2,456 2,456
Long-term debt......................................................... 15,955 15,955
Estimated third-party payor settlements................................ 162 162
</TABLE>
12. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995
------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Noncash Investing and Financing Activities
Financing of construction-in-progress with long-term note payable...... $1,051 $ -0-
Property distributed to shareholder.................................... 35 -0-
Additional Cash Payment Information
Interest paid (net of amount capitalized).............................. 1,535 1,362
Income taxes paid...................................................... 524 399
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Workers' Compensation Insurance
The Affiliates have obtained workers' compensation insurance through
membership in the Missouri Nursing Home Insurance Trust (the Trust), a trust
formed for the benefit of qualified nursing homes in the state of Missouri who
wish to pool their resources to qualify as a group self-insurer as permitted
under the Workmen's Compensation Law, Chapter 287 of the Revised Statutes of
Missouri, as amended. As of June 30, 1996, approximately 75 Missouri nursing
homes are participating in the Trust. The Trust and its members jointly and
severally agree to assume and discharge, by payment, any lawful awards entered
against any member of the Trust. Workers' compensation expense through
participation in the Trust was $476,000 and $413,000 for the years ended June
30, 1996 and 1995, respectively.
Professional Liability Coverage and Claims
The Affiliates pay fixed premiums for annual professional liability
coverage under an occurrence-basis policy. For covered claims, in general, the
Affiliates bear the risk of (1) the excess, if any, over individual claim costs
of $1,000,000 and (2) the excess, if any, over aggregate claims costs of
$3,000,000 for claims occurring during the policy year. In the opinion of
management, there are no material liabilities which are probable and estimable
for claims relating to professional liability.
F-36
<PAGE> 139
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Leases
The Affiliates lease a 60-bed skilled nursing facility located in Dixon,
Missouri, from an unrelated party under a noncancelable operating lease. In June
1997, the lease term was extended seven years to January 2007, and the rent
payments were renegotiated.
Future minimum lease payments for the next five years and thereafter under
noncancelable operating leases with initial terms of one year or more in effect
at June 30, 1996, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997................................................................ $ 307
1998................................................................ 307
1999................................................................ 307
2000................................................................ 307
2001................................................................ 307
Thereafter.......................................................... 1,714
------
Total minimum lease payments.............................. $3,249
======
</TABLE>
Total rental expense for the years ended June 30, 1996 and 1995, was
approximately $316,000 and $289,000, respectively.
Litigation
The Affiliates were a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are without merit or are of such a kind, or involve such amounts,
that their unfavorable disposition would not have a material effect on the
financial position or results of operation of the Affiliates.
14. DEFINED CONTRIBUTION PLAN
Foster Health Care Group, Inc., a related company, provides the Affiliates
a non-contributory defined contribution retirement savings plan (401k plan)
covering all of its eligible employees. Eligibility for this plan requires an
employee to be at least 21 years of age with one year of service (full-time or
at least thirty hours per week). Under the plan, employees may contribute up to
10% of their salaries.
15. SUBSEQUENT EVENTS
Sale of the Company
On August 30, 1996, the Affiliates' owners sold their stock in eight
skilled nursing companies (Lebanon Park, Lebanon, Mt. Vernon Park, Hermitage,
Dixon, Springfield, West Park and Nixa) and the Pharmacy. The majority of the
stock was sold to Hawthorne Health Properties (HHP) with the remainder redeemed
by the respective companies for certain liquid assets, land and rental property
included in these financial statements. At the same time, the Affiliates' owners
exchanged their stock in Republic and Nevada for 1,600,000 shares of Balanced
Care Corporation (BCC) common stock. HHP simultaneously sold the stock of Dixon
and the Pharmacy to BCC as well as the operations and nonreal estate assets of
the other seven skilled nursing facilities and leased these nursing facilities
to BCC pursuant to ten-year lease agreements.
F-37
<PAGE> 140
FOSTER HEALTH CARE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Debt
All of the Affiliates' outstanding indebtedness was paid off by HHP in
connection with the above transactions.
16. CONCENTRATION OF CREDIT RISK
The Affiliates are located in Missouri and grant credit without collateral
to their residents, most of whom are covered by third-party payor agreements.
The mix of receivables from residents and third-party payors at June 30,
1996 and 1995, was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Medicare....................................................... 18% 22%
Medicaid....................................................... 39 41
Other third-party payors....................................... 1 2
Private........................................................ 42 35
--- ---
100% 100%
=== ===
</TABLE>
17. SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerability due to certain concentrations.
Estimates of allowances for adjustments included in net patient revenues are
described in Note 2. Estimates related to the accrual for workers' compensation
self-insurance claims are described in Note 13.
F-38
<PAGE> 141
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Balanced Care Corporation
We have audited the accompanying combined balance sheets of Keystone
Affiliates ("S" corporations) as of December 31, 1996, and 1995, and the related
combined statements of income, retained earnings, and cash flows for each of the
years ended December 31, 1996, 1995 and 1994.. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Keystone
Affiliates as of December 31, 1996 and 1995 , and the results of their
operations and their cash flows for each of the years ended December 31, 1996,
1995 and 1994 in conformity with generally accepted accounting principles.
SNYDER & CLEMENTE
Kingston, Pennsylvania
May 13, 1997
F-39
<PAGE> 142
KEYSTONE AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................... $ 561 $ 511
Residents' trust account................................................ 19 16
Accounts receivable..................................................... 1,006 782
Inventory -- food and supplies.......................................... 19 13
Prepaid expenses........................................................ 5 9
------- ------
Total current assets............................................ 1,610 1,331
Property and equipment, net............................................... 10,540 8,107
Prepaid financing costs................................................... 135 114
Certificate of Need, Net of Amortization.................................. 66 71
Security deposit -- lease................................................. -- 13
------- ------
Total assets.................................................... $12,351 $9,636
======= ======
LIABILITIES
Current liabilities:
Line of Credit.......................................................... $ 134 $ 99
Current Maturities of Long-term Debt...................................... 551 568
Resident prepayments.................................................... 36 13
Short-term borrowing.................................................... 39 39
Accounts payable........................................................ 1,247 809
Residents' trust account payable........................................ 18 16
Accrued expenses........................................................ 470 252
Accrued management fee.................................................. 51 67
Cost settlement payable................................................. -- 55
------- ------
Total current liabilities....................................... 2,546 1,918
Long-term debt............................................................ 8,005 6,346
------- ------
Total liabilities............................................... 10,551 8,264
------- ------
STOCKHOLDERS' EQUITY
Common stock.............................................................. 216 216
Additional paid-in capital................................................ 1,150 812
Retained earnings......................................................... 434 343
------- ------
Total stockholders' equity...................................... 1,800 1,372
------- ------
Total liabilities and stockholders' equity...................... $12,351 $9,636
======= ======
</TABLE>
See Notes to Combined Financial Statements.
F-40
<PAGE> 143
KEYSTONE AFFILIATES
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Resident revenues............................................... $10,000 $7,247 $4,331
------- ------ ------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits............................... 3,700 2,529 1,828
Other operating expenses................................... 3,743 2,671 1,072
Management fees............................................ 384 279 168
Depreciation and amortization................................. 436 299 251
Rent.......................................................... -- 163 288
------- ------ ------
Total operating expenses.............................. 8,263 5,941 3,607
------- ------ ------
Income from operations.......................................... 1,737 1,306 724
------- ------ ------
Other income (expenses):
Interest expense.............................................. (771) (540) (312)
Bad debts..................................................... (70) (53) (5)
Miscellaneous and interest income............................. 63 13 6
------- ------ ------
Total other income and (expenses)..................... (778) (580) (311)
------- ------ ------
Net income............................................ $ 959 $ 726 $ 413
======= ====== ======
PRO FORMA INCOME DATA (UNAUDITED):
Income before income taxes.................................... $ 959 $ 726 $ 413
Pro forma income tax provision................................ 389 295 173
------- ------ ------
Net income after pro forma tax provision.............. $ 570 $ 431 $ 240
======= ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-41
<PAGE> 144
KEYSTONE AFFILIATES
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
Balance at January 1, 1994................................... $209 $ 224 $ 182
Additional contributions by Stockholder.................... -- 348 --
Net income................................................. -- -- 413
Stockholder distributions.................................. -- -- (430)
---- ------ ----
Balance at December 31, 1994................................. 209 572 165
Stock issued, Bloomsburg Manor Personal Care and Retirement
Center.................................................. 7 -- --
Additional contributions by Stockholder.................... -- 240 --
Net income................................................. -- -- 726
Stockholder distributions.................................. -- -- (548)
---- ------ ----
Balance at December 31, 1995................................. 216 812 343
Additional contributions by Stockholder.................... -- 338 --
Net income................................................. -- -- 959
Stockholder distributions.................................. -- -- (868)
---- ------ ----
Balance at December 31, 1996................................. $216 $1,150 $ 434
==== ====== ====
</TABLE>
See Notes to Combined Financial Statements.
F-42
<PAGE> 145
KEYSTONE AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................... $ 959 $ 726 $ 413
Adjustments to reconcile net income to net income to net cash
provided by operating activities:
Depreciation and amortization............................. 436 299 251
(Increase) decrease in:
Residents' trust account.................................. (3) (7) 8
Accounts receivable....................................... (223) (540) (81)
Prepaid expenses.......................................... 4 (8) (1)
Deposits.................................................. 13 -- 12
Inventory................................................. (6) (4) --
Other receivables......................................... -- -- 15
Increase (decrease) in:
Resident prepayments...................................... 23 (19) (3)
Accounts payable.......................................... 437 675 (14)
Residents' trust payable.................................. 2 7 (8)
Accrued expenses.......................................... 189 145 4
Cost settlement payable................................... (55) (1) 44
Emergency evacuation liability............................ 13 -- --
Due to affiliate.......................................... -- (1) 1
------- ------ -------
Net cash provided by operating activities.................... 1,789 1,272 641
------- ------ -------
Cash flows from investing activities:
Purchase of property and equipment........................... (2,852) (2,264) (2,581)
Certificate of need.......................................... -- -- (75)
Proceeds from affiliate receivable........................... -- 10 --
------- ------ -------
Net cash used by investing activities.......................... (2,852) (2,254) (2,656)
------- ------ -------
Cash flows from financing activities:
Stock issuance............................................... -- 7 --
Repayment of borrowings...................................... (850) (474) (1,056)
Proceeds from related party loan............................. 30 -- 42
Stockholder distributions.................................... (868) (548) (430)
Proceeds from borrowings..................................... 2,496 1,969 3,246
Additional paid-in capital contributed....................... 338 241 348
Payment for debt issue costs................................. (33) (35) (50)
------- ------ -------
Net cash provided by financing activities................. $ 1,113 $1,160 $ 2,100
------- ------ -------
Net increase in cash...................................... 50 178 85
Cash at beginning of year...................................... 511 333 248
------- ------ -------
Cash at end of year............................................ $ 561 $ 511 $ 333
======= ====== =======
Supplemental disclosures of cash flow information:
Interest paid (net of capitalized interest).................. $ 752 $ 541 $ 311
======= ====== =======
</TABLE>
See Notes to Combined Financial Statements.
F-43
<PAGE> 146
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS, ORGANIZATION AND CONCENTRATION
Keystone Affiliates (the "Company") is a group of commonly controlled
subchapter "S" corporations which own and operate two nursing homes and five
personal care homes. The nursing homes provide therapy services and skilled
nursing care and the personal care facilities provide assisted living services
to seniors. The facilities are located in northeastern Pennsylvania and service
residents in that region.
The combined financial statements include the accounts of the following
companies. Blakely Pine Health Care Center, Inc. is a thirty-eight bed nursing
home which was incorporated September 17, 1990. Kingston Healthcare Center, Inc.
is a sixty-five bed nursing home which was incorporated on April 12, 1993 and
commenced operations April 11, 1995. Kingston Manor Personal Care and Retirement
Center, Inc. was incorporated on July 12, 1991 as a personal care and retirement
facility which now has seventy-eight beds. Old Forge Manor Personal Care and
Retirement Center, Inc. is a forty-nine bed personal care facility incorporated
in November 1990. Keystone Health Ventures, Inc. D/B/A MidValley Manor Personal
Care Center is a seventy-one bed personal care facility incorporated January 25,
1989. West Side Manor Personal Care and Retirement Center, Inc. T/A West View
Personal Care and Retirement Center is a fifty bed personal care facility which
was incorporated on November 1, 1993. Bloomsburg Manor Personal Care and
Retirement Center, Inc. was incorporated September 11, 1995 and commenced
operations in April 1996 as a sixty-nine bed personal care facility.
The Company maintains cash accounts at a variety of banks. At various times
throughout the year, the balances on deposit exceeded the Federal Deposit
Insurance Corporation's ("FDIC") insured limit of $100,000 per depositor,
thereby creating a possible loss to the Company of the amounts in excess of the
insured limit.
The nursing homes extend credit to various parties in the form of accounts
receivable, which are essentially collected from the patient, third party
payors, federal and state agencies. These receivables are not collateralized.
The personal care homes collect rent from the residents in advance, however, on
occasion due to unusual circumstances, the Company will extend credit to
residents. These resident receivables are minimal and uncollateralized.
Revenue from private pay residents accounted for 54% of the Company's
revenue while 28% originated from Medicare and coinsurance and 17% from Medical
Assistance during 1996. During 1995, 55% of revenue originated from private pay
residents, 17% from Medical Assistance and 27% from Medicare. During 1994, 71%
of revenue originated from private pay residents, 21% of revenue from Medical
Assistance and 7% from Medicare. The personal care home revenues are solely from
private pay residents.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The combined financial statements do not contain any intercompany accounts
and transactions because none existed therefore eliminations were not necessary.
(b) Basis of Accounting
The Company uses the accrual basis of accounting, that is, it recognizes
income in the period when services are rendered and recognizes costs and
expenses in the period they are incurred. This method is used for both financial
statements and the Company's state and federal tax returns.
F-44
<PAGE> 147
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Patient Accounts Receivable from Third Party Payors
The Company records patient accounts receivable and recognizes as patient
revenue the amount that is going to be paid by the patient, the patient's
insurance carrier, or a state agency for Medical Assistance. These amounts are
predetermined prior to invoicing; any differences are minor and are resolved
when they occur. As such, the Companies do not record any allowance, or contra
accounts, for third party settlements or adjustments.
(d) Inventory
Inventory is valued at the lower of cost or market value using the
first-in, first-out method.
(e) Property and Equipment
Property and equipment are recorded at cost. Any improvements which enhance
the value or extend the life of the assets are capitalized and depreciated over
the expected life of the asset. Those items which do not enhance the value or
extend the life of the asset are expensed in the period they are incurred.
Depreciation of property and equipment is being taken using an accelerated
method which does not differ materially from the straight-line method.
(f) Other Assets
Other assets are recorded at cost and are being amortized using the
straight-line method. Financing fees are amortized over the life of the related
loans and the certificate of need is amortized over 15 years.
(g) Income Taxes
1. The Company has elected by unanimous consent of the respective
stockholders to be taxed under the provisions of Subchapter "S" status of the
Internal Revenue Code and for state tax purposes. Under these provisions, the
Company does not pay federal or state corporate income taxes on their taxable
income and are not allowed a net operating loss carryover or carryback as a
deduction. Instead, the stockholders are liable for individual federal and state
income taxes on their respective shares of the Company's taxable income or
include their respective shares of the Company's net operating loss in their
individual income tax return.
2. A pro forma provision for income taxes is presented as if the Company
were taxed as a "C" corporation. The pro forma income tax provisions for the
years ended December 31, 1996, 1995 and 1994 have been calculated using the
financial net income.
(h) 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.
3. RESIDENTS' TRUST ACCOUNT
Residents' trust account represents the patients' personal money being held
by the nursing homes and is used only for the individual patients' personal use.
A corresponding liability is also recognized by the nursing homes.
F-45
<PAGE> 148
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PATIENT ACCOUNTS RECEIVABLE
Patient accounts receivable are due from the following payors (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Private paying patients............................................. $ 30 $ 33
Pa. Medicaid........................................................ 377 119
N.Y. Medicaid....................................................... 78 34
Medicare A.......................................................... 362 299
Medicare B.......................................................... 159 124
Other............................................................... -- 173
------ ----
Total..................................................... $1,006 $782
====== ====
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment and accumulated depreciation consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE 1996 1995
----------- ------- ------
<S> <C> <C> <C>
Construction-in-progress............................. N/A $ 160 $ 687
Land and improvements................................ 15 yrs 846 716
Building and improvements............................ 5 - 40 yrs 9,250 6,466
Equipment............................................ 5 - 15 yrs 1,584 1,140
Vehicles............................................. 5 yrs 33 13
------- ------ ------
Total property and equipment....................... 11,873 9,022
Less: Accumulated depreciation..................... 1,333 915
------ ------
Property and equipment, net........................ $10,540 $8,107
====== ======
Depreciation expense for the year.................... $ 419 $ 287
====== ======
</TABLE>
6. CERTIFICATE OF NEED
Kingston Healthcare Center:
The balance consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Certificate of Need.................................................... $75 $75
Less: Amortization................................................... 9 4
--- ---
Total........................................................ $66 $71
=== ===
</TABLE>
Amortization expense for the years ended December 31, 1996, 1995 and 1994
is $5,000, $3,750 and $0, respectively.
7. PREPAID FINANCING COSTS
Prepaid financing costs are reported net of accumulated amortization.
Accumulated amortization at December 31, 1996 and 1995 was $29,000 and $17,000,
respectively. Amortization expense for the years ended 1996, 1995 and 1994 was
$12,000, $8,000 and $5,000 respectively.
F-46
<PAGE> 149
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED EXPENSES
Accrued expenses consist of the following items (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accrued pension.................................................... $ 5 $ 4
Accrued insurance.................................................. 49 20
Accrued payroll and taxes.......................................... 171 115
Accrued annual leave............................................... 72 46
Accrued PA capital stock tax....................................... 20 8
Accrued fees....................................................... 38 29
Accrued interest................................................... 46 28
Accrued property taxes............................................. 48 --
Accrued other expenses............................................. 21 2
---- ----
Total accrued expenses................................... $470 $252
==== ====
</TABLE>
9. SHORT-TERM DEBT
Credit line notes (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ---
<S> <C> <C>
Kingston Healthcare Center, Inc. maintains a line of credit at a
commercial bank in the amount of $100,000. This line of credit is
secured by the real and personal property of the debtor. Interest
is charged at 1% above prime. The rate at December 31, 1996 was
9.25%............................................................ $ 99 $99
West View Manor Personal Care and Retirement Center, Inc. maintains
a line of credit at a commercial bank in the amount of $35,000.
Interest is charged at 1% above the highest prime rate as
published by the Wall Street Journal. The interest rate at
December 31, 1996 was 9.25%...................................... 35 --
---- ---
Total short-term debt.................................... $134 $99
==== ===
</TABLE>
10. NOTES PAYABLE
The following is a summary of notes payable of the Company (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Short-term Borrowing:
Old Forge Manor Personal Care and Retirement Center, Inc.:
KISS Realty, Ltd., short-term loan originally due 10-01-93,
deferred to an unspecified period................................ $ 39 $ 39
====== ======
Long-term Debt:
Blakely Pine Health Care Center, Inc.:
First National Community Bank:
Note payable, $500,000, interest at 1 1/4% over Fidelity Bank of
Philadelphia, PA, prime, monthly payments of interest only
until July 21, 1992, thereafter $5,593 monthly including
interest, final payment due in full, 8-21-07, secured by land
and building in Peckville, PA................................. 366 397
</TABLE>
F-47
<PAGE> 150
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Amresco (MTGLQLP):
Note payable, construction phase loan to $500,000, interest at
approximately 8.0615%, monthly payments of interest only until
project completion or 6-21-92, whichever occurs first.
Thereafter, $4,291 monthly, including principal and interest.
Final payment due in full, 8-01-11. Secured with second lien
mortgages after the First National Community Bank on land and
buildings in Peckville, Lackawanna County, PA. Also, second
lien on all equipment, furnishings, fixtures, accounts
receivable and inventory...................................... $ 438 $ 455
Blakely Pine Health Care Center, Inc.:
Chrysler Financial Corporation:
Note payable, interest at 4.8%, monthly payments of $470, final
payment due May 2000, secured by vehicle of the Company....... 18 --
Shareholder:
Note payable, interest at 8.5%, monthly payments of $1,152, final
payment due June 1999, secured by personal guarantee of
certain shareholders.......................................... -- 41
Kingston Healthcare Center, Inc.:
Keystone Management Services:
Note payable, (original amount $75,000), note written at $59,078,
interest at 8%, monthly interest payments only, principal
payments will vary with cash availability. Unsecured.......... 24 59
Note payable, $173,000, interest payments at 8%, only until
January 1, 1997 then payments of $2,000 principal plus 8%
interest for two years. On January 1, 1999 the Company will
make balloon payment on the outstanding balance. Unsecured.... 173 173
Mellon Bank:
Mortgage payable, $1,547,700, interest at 9.07%, 119 monthly
payments of $15,762 plus interest beginning July 23, 1995.
Final payment due in full, June 23, 2005. Secured with all
property of the Company as first lien......................... 1,264 1,453
Kingston Healthcare Center, Inc.:
Mellon Bank:
Note payable, $122,500, interest at 9.49%, 59 monthly payments of
$2,002 including interest beginning January 23, 1995. Final
payment due December 23, 1999. Secured by all property of the
Company....................................................... 103 116
Luzerne National Bank:
Note payable, $80,000, interest at 10.25%, 24 payments of $3,072
beginning November 10, 1995. Final payment due October 10,
1997 for all unpaid principal and accrued interest. Secured by
a second lien on the real property of the Company............. -- 74
Kingston Manor Personal Care and Retirement Center, Inc.:
Mellon Bank:
Note payable, interest at 9.3%, 59 monthly principal and interest
payments of $15,088 with balance of indebtedness due and
payable on the 60th month from closing date, final payment due
07-99. Secured by lien on property located in Kingston, PA and
all equipment, furnishings, inventory and accounts receivable
and personal guarantees of majority stockholders.............. 993 1,076
</TABLE>
F-48
<PAGE> 151
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Keystone Management Services:
Demand note payable, term 7 years at 7%, with a balloon payment
of $55,279 after 36 months, monthly payments of $1,707,
including interest, related party transaction................. -- $ 71
Old Forge Manor Personal Care and Retirement Center, Inc.:
Old Forge Bank:
Note payable, monthly payment of $11,150, including interest at
10.0%, final payment 09-17-07, secured by a mortgage on 246
South Main Street, Old Forge, PA and personal guarantees of
the shareholders.............................................. $ 881 924
Keystone Management Services:
Loans to the Company with no stated interest rates or repayment
terms. The loans are to be available to the Company on a
long-term basis............................................... 66 66
Mid-Valley Manor Personal Care Center:
First National Community Bank:
Note payable, initial rate of 8.5% to be adjusted every 36 months
to a rate of prime plus 1 1/4%, monthly payment of $10,512,
final payment due September 2009, secured by property and
equipment..................................................... 984 1,023
Shareholders:
Notes payable, initial rate of 8.5% to be adjusted every 36
months to a rate of prime plus 1 1/4%, monthly payments of
interest only, principal due September 2009, secured by
property and equipment........................................ 250 250
West View Manor Personal Care and Retirement Center:
Keystone Management Services:
Loans to the Company with no stated interest rates or repayment
terms. The loans are to be available to the Company on a
long-term basis............................................... 41 41
First National Community Bank:
Note payable, interest at 9% for initial 60 month period then
adjusted by bank every 5 years, monthly payments of $13,496,
including interest, final payment date 01-2016. Loan includes
a call provision by bank for 180 months after closing. Secured
by real estate of the Company, real estate of Old Forge Manor
(an affiliate of the Company), all inventory, machinery and
equipment, furniture and fixtures and personal guarantee of
the majority shareholders, Old Forge Manor and Keystone
Management Services (Related Party)........................... 1,378 --
First Valley Bank:
Note payable, interest at 2% over Wall Street prime, monthly
principal payment of $2,619 plus interest, final payment
6-2002, secured by the personal guarantees of the
shareholders, accounts receivable, inventory, furniture and
fixtures and assignment of life insurance..................... -- 163
Bloomsburg Manor Personal Care and Retirement Center, Inc.:
First Columbia Bank and Trust:
Note payable, initial rate of 9.0% to be adjusted every 60 months
to a rate of prime plus 1 1/2%, monthly payment of $11,516,
final payment due May 2011, secured by property and equipment
and personal guarantees of two shareholders................... 1,266 439
</TABLE>
F-49
<PAGE> 152
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Note payable, initial rate of 9.0% to be adjusted every 60 months
to a rate of prime plus 1 1/2%, monthly payment of $3,218,
final payment due May 2003, secured by equipment and personal
guarantees of two shareholders................................ $ 188 --
Keystone Management Services:
Loans to the Company with no stated interest rates or repayment
terms. The loans are to be available to the Company on a
long-term basis............................................... 123 $ 93
------ ------
Total long-term debt..................................... $8,556 $6,914
Less: Current Portion.................................... 551 568
------ ------
Long-term debt........................................... $8,005 $6,346
====== ======
</TABLE>
The aggregate amount of required future principal payments at December 31,
1996 are estimated as follows (dollars in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 551
1998........................................................ 578
1999........................................................ 1,443
2000........................................................ 484
2001........................................................ 509
Later Years................................................. 4,991
------
Total notes payable............................... $8,556
======
</TABLE>
11. RELATED PARTY TRANSACTIONS
A. The Company paid Keystone Management Services management fees in the
amount of $385,000, $279,000 and $168,000 for the years ended December
31, 1996, 1995 and 1994, respectively. The principals of Keystone
Management Services own the majority of the outstanding stock in all
companies as follows:
<TABLE>
<S> <C>
Blakely Pine Healthcare Center.............................. 50%
Kingston Healthcare Center.................................. 55.1%
Kingston Manor.............................................. 58%
Old Forge Manor............................................. 66.67%
Mid-Valley Manor............................................ 66.67%
West View Manor............................................. 67%
Bloomsburg Manor............................................ 60%
</TABLE>
B. The following companies are indebted to Keystone Management Services
for working capital advances as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Kingston Healthcare Center.................... $197 $232 $180
Kingston Manor................................ -- 71 86
Old Forge Manor............................... 66 66 59
West View Manor............................... 41 41 41
Bloomsburg Manor.............................. 123 93 --
</TABLE>
F-50
<PAGE> 153
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
C. Blakely Pine Healthcare has notes payable to Eugene and Antoinette
Pazzaglia a 12.5% shareholder in the amount of $0, $41,000 and $97,000
at December 31, 1996, 1995 and 1994, respectively.
D. Kingston Healthcare Center owed Keystone Management Services $50,934,
$67,000 and $0 at December 31, 1996, 1995 and 1994, respectively, for
management services accrued.
E. Mid-Valley Manor has notes payable to two stockholders, Robert and Jane
Strony and Eugene and Antoinette Pazzaglia, each an 8.33% stockholder.
Both notes are in the amount of $125,000 for each of the periods ending
December 31, 1996, 1995 and 1994. Interest paid on these notes totaled
$21,000 during 1996 and 1995.
F. Mid-Valley Manor advanced funds to Harrison House Personal Care Center
during 1992 for insurance bills in the amount of $10,000. The Company's
majority stockholders also own controlling interest in this company.
This amount was repaid during 1995.
G. During part of 1994, Mid-Valley Manor leased its facilities from Omni
Enterprises, Inc. whose stockholders own shares of the outstanding stock
of this company. Rent expense for 1994 was $141,000. This facility was
purchased in 1994 for $1,306,000.
H. West View Manor was indebted to Keystone Management Services at December
31, 1994 in the amount of $1,000 for expenses.
I. The 401(k) plan for the Company is a plan administered by and under the
name of Keystone Management Services, Inc. making the Company's
participation a related party activity, as the principals of Keystone
Management Services, Inc., Michael Kelly and James Blumer own
controlling interest in the Company's stock.
12. COMPANY SAVINGS PLAN
The Company participates in a 401(k) Savings Plan. All employees who have
attained age 21 and completed one year of service are eligible to participate in
the plan. The plan allows all employees to defer up to 15% of their income on a
pre-tax basis through contributions from earnings each pay period, subject to
limitations established by the Internal Revenue Service. Nondeductible
contributions may be made at the option of the employee. The Company will match
salary reduction contributions at a rate of 100% on the first 2% of
compensation. In 1996, 1995 and 1994, the Company made contributions in the
amounts of $5,000, $5,000 and $5,000, respectively.
13. COMMON CONTROL
The Companies are under the same controlling interest. Patients from a
facility under this common control are at times referred to another facility for
nursing or physical therapy care. The Company bills either the patient or the
patients' third-party payor for the services provided. There are no transactions
involving billings or reimbursement for these referral situations between the
companies under common control.
14. MEDICAL ASSISTANCE AND MEDICARE COST SETTLEMENTS
Blakely Pine Healthcare Center and Kingston Healthcare Center have
residents who are approved Pennsylvania Medicare or Medicaid patients. As such,
the Company is paid at an established rate per day under the Medicare or Medical
Assistance Programs. However, the rate per day is subject to final determination
based on cost reports submitted by the Company. After the cost reports have been
reviewed, the final cost settlement amount is determined by the Medicare or
Medical Assistance Programs.
F-51
<PAGE> 154
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The nursing homes can negotiate or appeal the final cost settlement. The
settlement can result in either additional payments to the Company or a return
of funds to the Medicare or Medical Assistance Program. This settlement process
can occur up to several years after the year end report is submitted.
The estimated settlements receivable or (payable) are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Blakely Pine Healthcare Center................................ $ 70 $(55) $(55)
Kingston Healthcare Center.................................... 267 50 --
</TABLE>
15. CAPITALIZED INTEREST
KINGSTON HEALTHCARE CENTER:
Interest costs charged to operations for the year ended December 31, 1995
consists of the following (dollars in thousands):
<TABLE>
<S> <C>
Interest cost incurred................................................ $144
Decrease as a result of capitalizing interest as a cost of
construction........................................................ 30
----
Interest charged to operations as an expense.......................... $114
====
</TABLE>
16. OPERATING LEASES
BLAKELY PINE HEALTHCARE CENTER:
The Company has entered into an agreement to lease a copier effective
February 6, 1995. This agreement is for a 60 month term with payments of $333
beginning March 1995. The Company entered into a vehicle lease agreement
effective June 1, 1996. The terms of the agreement are for monthly payments of
$424, beginning June 1, 1996 for a 24 month period. The Company has the option
to purchase this vehicle for $15,797 at the end of the lease period. The payment
schedule for these leases at December 31, 1996 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
DUE DATE AMOUNT
-------------------------------------------------------------------- ------
<S> <C>
1997................................................................ $ 9
1998................................................................ 6
1999................................................................ 4
2000................................................................ 1
---
Total..................................................... $ 20
===
</TABLE>
F-52
<PAGE> 155
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
KINGSTON HEALTHCARE CENTER:
The Company has entered into an agreement to lease equipment effective
April 25, 1995. The terms of this agreement are for monthly payments of $302 for
a 60 month period. The payment schedule for this lease at December 31, 1996 is
as follows (dollars in thousands):
<TABLE>
<CAPTION>
DUE DATE AMOUNT
------------------------------------------------------------------ ------
<S> <C>
1997.............................................................. $ 4
1998.............................................................. 4
1999.............................................................. 3
2000.............................................................. 1
---
Total................................................... $ 12
===
</TABLE>
Total lease payments for the year ended December 31, 1996 and 1995 was
$4,000 and $3,000.
WEST VIEW MANOR:
The Company leased its facility from KISS Realty, Ltd. During the first 60
months of the lease, the monthly rent was to be $13,000. Rent expense for the
years ended December 31, 1995 and 1994 was $163,000 and $146,000. The Company
purchased the facility on January 11, 1996.
17. ADDITIONAL PAID-IN CAPITAL
A. The stockholders of West View Manor contributed $338,000 to the Company
during 1996 to assist with the purchase of the property and the
financing of the purchase of the facility.
B. The stockholders of Bloomsburg Manor contributed $240,000 for the year
ended December 31, 1995.
C. The stockholders of Kingston Healthcare Center contributed $348,000 for
the year ended December 31, 1994.
18. OUTSTANDING COMMON STOCK
The Keystone Affiliates outstanding stock is summarized below:
<TABLE>
<CAPTION>
PAR VALUE NUMBER OF SHARES NUMBER OF SHARES
PER SHARE AUTHORIZED OUTSTANDING
--------- ---------------- ----------------
<S> <C> <C> <C>
Kingston Healthcare Center...................... None 1,000 1,000
Blakely Pine Health Care Center................. None 1,000 500
Kingston Manor.................................. None 10,000 1,000
Old Forge Manor................................. None 1,000 150
Mid-Valley Manor................................ None 1,000 90
West View Manor................................. None 1,000 150
Bloomsburg Manor................................ None 1,000 200
</TABLE>
19. PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
The pro forma tax data is based on the assumption that the Companies were
taxable as a "C" corporation for the years ended December 31, 1996, 1995 and
1994. Income tax provisions have been computed by multiplying the net income of
the combined company by the statutory tax rates for
F-53
<PAGE> 156
KEYSTONE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
federal and state tax purposes. There are no significant timing differences
which would necessitate applying SFAS 109 "Accounting for Income Taxes."
20. PENDING LITIGATION
Kingston Healthcare Center is being sued by another nursing home for
approximately $13,000 for temporary accommodations given during January 1996
when there was an emergency evacuation of the facility. During this emergency,
all patients and staff were given accommodations at another nursing home and
charged the semi-private rate plus expenses. The Company has accrued $13,000 to
meet this liability.
21. SUBSEQUENT EVENT
The fixed assets of the Companies were sold on January 31, 1997 and all
notes payable were subsequently paid off and the majority of the remaining sale
proceeds were distributed to the stockholders. The existing accounts receivable
of the Company will continue to be collected and the existing accounts payable
and other liabilities of the Company will be paid during 1997.
F-54
<PAGE> 157
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Heavenly Health Care, Inc.
d/b/a Joe Clark Residential Care Homes
Nevada, Missouri
We have audited the accompanying balance sheet of Heavenly Health Care,
Inc, d/b/a Joe Clark Residential Care Homes, as of December 31, 1996, and the
related statements of income, shareholders' equity (deficit) and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heavenly Health Care, Inc.,
d/b/a Joe Clark Residential Care Homes, as of December 31, 1996, and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
BAIRD, KURTZ & DOBSON
Springfield, Missouri
September 12, 1997
F-55
<PAGE> 158
HEAVENLY HEALTH CARE, INC.
D/B/A/ JOE CLARK RESIDENTIAL CARE HOMES
BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash.................................................................................. $ 1
Accounts receivable, less allowance for uncollectible accounts $5..................... 27
Prepaid expenses...................................................................... 13
----
Total Assets................................................................ $ 41
====
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable.................................................................... $ 22
Accrued expenses.................................................................... 6
Accrued salaries and payroll taxes.................................................. 25
----
Total liabilities........................................................... 53
----
Shareholders' equity (deficit):
Common stock, $1 par value; authorized 30,000 shares, issued and outstanding 500
shares........................................................................... 1
Retained earnings (deficit)......................................................... (13)
----
Total shareholders' equity (deficit)........................................ (12)
----
Total liabilities and shareholders' equity.................................. $ 41
====
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE> 159
HEAVENLY HEALTH CARE, INC.
d/b/a JOE CLARK RESIDENTIAL CARE HOMES
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Resident service revenue.............................................................. $995
----
Expenses:
Facility operating expenses:
Salaries, wages and benefits..................................................... 326
Other operating expenses......................................................... 200
Lease expense....................................................................... 148
----
Total operating expenses.................................................... 674
----
Net income............................................................................ $321
====
PRO FORMA INCOME TAX DATA (UNAUDITED)
Income before income taxes.......................................................... $321
Pro forma income tax provision...................................................... 122
----
Net income after pro forma tax provision.................................... $199
====
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 160
HEAVENLY HEALTH CARE, INC.
d/b/a CLARK RESIDENTIAL CARE HOMES
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
------ -------- -----
<S> <C> <C> <C>
Balance at January 1, 1996...................................... $ 1 $ 14 $ 15
Net income.................................................... -- 321 321
Distributions to shareholders................................. -- (348) (348)
--- ----- -----
Balance at December 31, 1996.................................... $ 1 $ (13) $ (12)
=== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 161
HEAVENLY HEALTH CARE, INC.
d/b/a JOE CLARK RESIDENTIAL CARE HOMES
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net income......................................................................... $ 321
Changes in operating assets and liabilities:
Increase in accounts receivable................................................. (1)
Increase in prepaid expenses.................................................... (8)
Increase in accounts payable and accrued expenses............................... 17
Increase in accrued salaries and payroll........................................ 16
-----
Net cash provided by operating activities.................................. 345
-----
Cash Flows From Financing Activities:
Distributions to shareholders...................................................... (348)
-----
Net cash used in financing activities...................................... (348)
-----
Decrease in cash..................................................................... (3)
Cash, beginning of year.............................................................. 4
-----
Cash, end of year.................................................................... $ 1
=====
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 162
HEAVENLY HEALTH CARE, INC.
d/b/a JOE CLARK RESIDENTIAL CARE HOMES
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
Heavenly Health Care, Inc., d/b/a Joe Clark Residential Care Homes,
operates four 57-bed residential care facilities licensed with the Missouri
Department of Social Services, Division of Aging as Residential Care Facility II
facilities. Two of the facilities are located in Nevada, Missouri. These
facilities opened in October 1993 and July 1995. The third facility is located
in Butler, Missouri, and opened in March 1996. The fourth facility opened in
April 1996 and is located in Lamar, Missouri.
(b) 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.
(c) Income Taxes
The Company, with the consent of its stockholders, has elected under
sec.1362 of the Internal Revenue Code and a similar section of the Missouri
income tax law to have the stockholder recognize their proportionate share of
the Company's income or loss on their personal income tax returns in lieu of
corporate income taxes. Therefore, the financial statements do not include any
provision for income taxes.
A pro forma provision for income taxes is presented as if the Company were
taxed as a "C" corporation. The pro forma income tax provision for the year
ended December 31, 1996, has been calculated using the financial net income.
(d) Patient Service Revenue
Patient service revenue is reported at the estimated net realizable amounts
from residents, third-party payors and others for services rendered.
2. MEDICAL MALPRACTICE COVERAGE AND CLAIMS
The Company pays fixed premiums for annual medical malpractice coverage
under occurrence-basis policies. The Company accrues the expense of its share of
asserted and unasserted claims occurring during the year by estimating the
probable ultimate cost of any such claim. Management does not expect any claims
to exceed malpractice insurance coverage limits; therefore, the financial
statements include no accrual for loss.
3. CONCENTRATIONS OF CREDIT RISK
The Company operates facilities located in Butler, Lamar and Nevada,
Missouri. The Company grants credit without collateral to its residents, most of
whom are local residents. The mix of revenues from residents and third-party
payors for 1996 was as follows:
<TABLE>
<S> <C>
Medicaid..................................................................... 37%
Private-pay.................................................................. 63
---
100%
===
</TABLE>
F-60
<PAGE> 163
HEAVENLY HEALTH CARE, INC.
d/b/a JOE CLARK RESIDENTIAL CARE HOMES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. RELATED PARTY TRANSACTIONS
The four residential care facilities are leased from the sole shareholders
under operating leases with month-to-month terms. These triple net leases
require the Company to pay respective executory costs (property taxes,
insurance, utilities and maintenance) in addition to the basic rent. The monthly
lease payments for the facilities range from $3,395 to $3,625. The total lease
expense for all four facilities for the year ended December 31, 1996, was
$148,000.
5. SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerability due to certain concentrations.
Estimates related to the accrual for medical malpractice claims are described in
Note 2.
6. SUBSEQUENT EVENT
During 1997 the facilities at all of the Company's operating locations were
sold to an unrelated party. Following the sale, the Company ceased operating the
facilities.
F-61
<PAGE> 164
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Butler Senior Care, Inc.:
We have audited the accompanying balance sheets of Butler Senior Care, Inc.
(the Company) as of June 30, 1997 and 1996, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1997 and 1996, and the results of its operations and cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Pittsburgh, Pennsylvania
September 12, 1997
F-62
<PAGE> 165
BUTLER SENIOR CARE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER ----------------------
1997 1997 1996
--------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 100 $ 125 $ 51
Accounts receivable....................................... 9 17 19
Prepaid expenses.......................................... 20 24 12
------ ------ -------
Total current assets.............................. 129 166 82
Property and equipment, net................................. 3,704 3,655 3,714
Other assets................................................ 6 8 13
------ ------ -------
Total assets...................................... $ 3,839 $3,829 $ 3,809
====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 77 $ 63 $ 70
Accrued payroll and related expenses...................... 52 52 48
Other accrued liabilities................................. 13 57 32
Current portion of long-term debt......................... 148 148 156
Notes payable -- related parties.......................... 118 131 --
------ ------ -------
Total current liabilities......................... 408 451 306
Long-term debt.............................................. 2,284 2,323 2,214
Notes payable -- related parties............................ -- -- 240
------ ------ -------
Total liabilities................................. 2,692 2,774 2,760
------ ------ -------
Contingencies (Note 5)
Shareholders' equity:
Common stock, $1 par value; 1,000,000 shares authorized;
22,059 shares issued and outstanding................... 22 22 22
Paid-in capital........................................... 844 844 844
Retained earnings......................................... 281 189 183
------ ------ -------
Total shareholders' equity........................ 1,147 1,055 1,049
------ ------ -------
Total liabilities and shareholders' equity...... $ 3,839 $3,829 $ 3,809
====== ====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE> 166
BUTLER SENIOR CARE, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------------ ------------------------------
1997 1996 1997 1996 1995
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Resident services....................... $ 673 $ 628 $2,617 $2,426 $1,499
Office rentals.......................... 56 42 159 163 166
Other................................... 8 7 23 17 16
------ ------ ------ ------ ------
Total revenues.................. 737 677 2,799 2,606 1,681
------ ------ ------ ------ ------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits......... 267 254 1,017 950 635
Other operating expenses............. 103 116 467 491 400
General and administrative.............. 70 62 282 261 178
Depreciation and amortization........... 35 34 135 131 112
------ ------ ------ ------ ------
Total operating expenses........ 475 466 1,901 1,833 1,325
------ ------ ------ ------ ------
Operating income................ 262 211 898 773 356
Other income (expense):
Interest income......................... 7 1 17 1 2
Interest expense........................ (51) (54) (183) (245) (192)
Other................................... (1) (7) (25) (11) (46)
------ ------ ------ ------ ------
Net income...................... $ 217 $ 151 $ 707 $ 518 $ 120
====== ====== ====== ====== ======
PRO FORMA INCOME TAX DATA (UNAUDITED):
Income before income taxes.............. $ 217 $ 151 $ 707 $ 518 $ 120
Pro forma income tax provision.......... 87 60 283 208 48
------ ------ ------ ------ ------
Net income after pro forma tax
provision..................... $ 130 $ 91 $ 424 $ 310 $ 72
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE> 167
BUTLER SENIOR CARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996, AND 1995
AND THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ -------- -------- ------
<S> <C> <C> <C> <C>
Balance at June 30, 1994.............................. $ 22 $844 $ 98 $ 964
Distributions paid.................................. -- -- (130) (130)
Net income.......................................... -- -- 120 120
--- ---- ----- ------
Balance at June 30, 1995.............................. 22 844 88 954
Distributions paid.................................. -- -- (423) (423)
Net income.......................................... -- -- 518 518
--- ---- ----- ------
Balance at June 30, 1996.............................. 22 844 183 1,049
Distributions paid.................................. -- -- (701) (701)
Net income.......................................... -- -- 707 707
--- ---- ----- ------
Balance at June 30, 1997.............................. 22 844 189 1,055
Distributions paid (unaudited)...................... -- -- (125) (125)
Net income (unaudited).............................. -- -- 217 217
--- ---- ----- ------
Balance at September 30, 1997 (Unaudited)............. $ 22 $844 $ 281 $1,147
=== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE> 168
BUTLER SENIOR CARE, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30
--------------- ---------------------------
1997 1996 1997 1996 1995
----- ----- ----- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 217 $ 151 $ 707 $ 518 $ 120
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 35 34 135 131 112
Increase (decrease) from changes in:
Accounts receivable....................... 8 7 2 (3) (1)
Prepaid expenses.......................... 4 (8) (12) 5 (10)
Accounts payable.......................... 14 (8) (7) (3) 41
Accrued payroll and related expenses...... -- -- 4 5 25
Other accrued liabilities................. (44) 40 25 (28) 33
----- ----- ----- ----- -------
Cash provided by operating
activities......................... 234 216 854 625 320
----- ----- ----- ----- -------
Cash flows from investing activities:
Purchase of property and equipment........... (82) (5) (71) (117) (1,719)
----- ----- ----- ----- -------
Cash used in investing activities.... (82) (5) (71) (117) (1,719)
----- ----- ----- ----- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt..... -- 790 790 -- 1,900
Repayment of long-term debt.................. (39) (587) (688) (99) (593)
Proceeds from notes payable to
shareholders.............................. -- -- 131 115 175
Repayment of notes payable to shareholders... (13) (240) (240) (50) --
Distributions paid........................... (125) (125) (702) (423) (130)
----- ----- ----- ----- -------
Cash (used in) provided by financing
activities......................... (177) (162) (709) (457) 1,352
----- ----- ----- ----- -------
Net increase (decrease) in cash and cash
equivalents.................................. (25) 49 74 51 (47)
Cash and cash equivalents at beginning of
year......................................... 125 51 51 -- 47
----- ----- ----- ----- -------
Cash and cash equivalents at end of year....... $ 100 $ 100 $ 125 $ 51 $ --
===== ===== ===== ===== =======
Supplemental disclosure of cash flows
information:
Cash paid for interest....................... $ 51 $ 54 $ 183 $ 245 $ 192
===== ===== ===== ===== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-66
<PAGE> 169
BUTLER SENIOR CARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Background
Butler Senior Care, Inc. (the Company) is incorporated as an S-Corporation
and operates assisted living communities and office buildings. As of June 30,
1997, the Company owned and operated three assisted living communities with a
total of 176 beds and two office buildings with 19,000 square feet in total
rental space.
(b) 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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
(c) Cash and Cash Equivalents
All unrestricted, highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents. The
Company maintains its cash and cash equivalents at financial institutions which
management believes are of high credit quality.
(d) Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Expenditures for
maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation applicable to property no longer in service are
eliminated from the accounts and any gain or loss thereon is included in
operations.
(e) Other Assets
Other assets consist of organizational costs and are being amortized using
the straight-line method over five years.
(f) Revenue Recognition
Resident fees are recognized when services are rendered and consist of
resident fees and other ancillary services provided to residents of the
Company's assisted living communities. Office rentals are recognized ratably
over the life of the tenant lease agreements.
(g) Income Tax Status
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company does not pay
federal or state corporate income taxes on its taxable income. Instead, the
shareholders are liable for individual taxes on their respective shares of the
Company's taxable income. Accordingly, no provision has been made for federal or
state income tax in the accompanying statements of operations.
A pro forma provision for income taxes is presented as if the Company had
been subject to federal and state income taxes as a C-Corporation based on a tax
rate of 40%. The pro forma tax provision for the years ended June 30, 1997, 1996
and 1995 have been calculated using financial net income.
F-67
<PAGE> 170
BUTLER SENIOR CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) Interim Financial Statements (Unaudited)
The unaudited balance sheet as of September 30, 1997 and the unaudited
statements of operations, shareholders' equity and cash flows for the three
months ended September 30, 1997 and 1996, in the opinion of management, have
been prepared on the same basis as the audited financial statements and include
all significant adjustments (consisting primarily of normal recurring
adjustments) considered necessary for a fair presentation of the results of
these interim periods. Operating results for the three-month period ended
September 30, 1997 are not necessarily indicative of the results for the entire
year.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Land..................................................... $ 124 $ 124
Buildings and improvements (10 to 40 years).............. 3,554 3,504
Furniture, fixtures and equipment (5 to 15 years)........ 359 347
Construction in progress................................. 8 --
------ ------
4,045 3,975
Less accumulated depreciation............................ 390 261
------ ------
$3,655 $3,714
====== ======
</TABLE>
Depreciation expense was approximately $130,000, $125,000 and $104,000 for
the years ended June 30, 1997, 1996 and 1995, respectively.
3. LONG-TERM DEBT
Long-term debt consisted of the following as of June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Construction loan........................................ $1,708 $1,829
Refinancing note......................................... 763 --
Other notes payable...................................... -- 541
------ ------
2,471 2,370
Less current portion..................................... 148 156
------ ------
$2,323 $2,214
====== ======
</TABLE>
In April 1994, the Company entered into a $1,900,000 Construction Loan
Agreement (the Loan), the proceeds of which were used to construct an assisted
living community that opened in September 1994. The Loan is payable in varying
monthly principal installments with a final balloon payment in May 2005.
In August 1996, the Company entered into a $790,000 Refinancing Note
Agreement (the Note), the proceeds of which were used to retire the then
outstanding indebtedness from two bank notes and a note payable to a related
party (see Note 4). The Note is payable in varying monthly principal
installments with a final balloon payment in July 2001.
Interest on both the Loan and the Note is payable subject to the Company's
election of a floating or fixed rate option, as defined in the agreements. As of
June 30, 1997, the Company elected the fixed rate option to be in effect for
both the Loan and the Note, which was approximately 7.5% and 7.6%, respectively.
F-68
<PAGE> 171
BUTLER SENIOR CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has pledged substantially all of the assets of the Company as
collateral for the Loan and the Note.
Aggregate scheduled maturities of long-term debt for each of the five years
ending June 30 and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 148
1999................................................................ 160
2000................................................................ 172
2001................................................................ 186
2002................................................................ 773
Thereafter.......................................................... 1,032
------
$2,471
======
</TABLE>
4. NOTES PAYABLE -- RELATED PARTIES
In May 1995, the Company borrowed $175,000 from a shareholder, the proceeds
of which were used to aid in the financing of the construction of an additional
wing to an existing assisted living community. In addition, the Company borrowed
an additional $115,000 in 1996 from this shareholder for the same purpose.
Interest only payments were made monthly at the prime rate plus 1%, which was
9.25% at June 30, 1996 and 9.50% at June 30, 1997, with a $50,000 principal
payment being made in 1996. The remaining unpaid balance from these loans was
retired with the proceeds from the Refinancing Note discussed in Note 3.
Interest paid and expensed by the Company for the years ended June 30, 1997,
1996 and 1995 was approximately $2,000, $24,000 and $1,000, respectively.
In June 1997, the Company entered into a non-interest bearing demand note
payable with an entity affiliated with the shareholders in the amount of
$131,000, the proceeds of which are being used for the construction discussed in
Note 8. The note will be repaid concurrently with the sale of certain assets of
the Company discussed in Note 8.
5. CONTINGENCIES
In the ordinary course of business, various lawsuits, claims and
proceedings have been or may be instituted or asserted against the Company.
Based on currently available facts, management is not aware of any matters that
are pending or asserted that would have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
6. RELATED PARTY TRANSACTIONS
In addition to the notes payable disclosed in Note 4, the Company has a
management agreement with an entity affiliated with certain shareholders. The
management agreement provides for a base fee of 2% of certain revenues earned
from the assisted living communities and 5% of certain revenues earned from the
office buildings. Management fees paid and expensed by the Company for the years
ended June 30, 1997, 1996 and 1995 were approximately $62,000, $60,000 and
$49,000, respectively.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
determining the estimated fair value for financial instruments for which it is
practicable to estimate that value:
Cash and Cash Equivalents -- The carrying amount reported in the balance
sheets for cash and cash equivalents approximates its fair value.
F-69
<PAGE> 172
BUTLER SENIOR CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-term Debt and Notes Payable -- Related Parties -- The fair value of
long-term debt and notes payable -- related parties is estimated using a
discounted cash flow analysis, based on the Company's currently available
incremental borrowing rate.
The carrying amounts and the estimated fair values of the financial
instruments as of June 30 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents............................. $ 125 125 $ 51 51
Long-term debt........................................ 2,471 2,471 2,370 2,370
Notes payable -- related parties...................... 131 131 240 240
</TABLE>
8. SUBSEQUENT EVENTS
In July 1997, the Company closed one of the office buildings and began
construction that will convert the facility to an additional wing of an existing
assisted living community. The conversion will add 28 beds at a projected cost
of approximately $450,000 with an anticipated opening date of November 1997.
On July 21, 1997, the Company entered into a Letter of Intent (Agreement)
pursuant to which Balanced Care Corporation, a Delaware Corporation, will
acquire only the business, licenses and other intangibles and property and
equipment of the Company's assisted living communities for approximately $12
million, subject to certain terms and conditions as outlined in the Agreement.
F-70
<PAGE> 173
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders of Gethsemane Affiliates:
We have audited the combined balance sheets of Gethsemane Affiliates as of
June 30, 1997 and 1996, and the related combined statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Gethsemane
Affiliates as of June 30, 1997 and 1996 and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
One South Market Street
Harrisburg, Pennsylvania
September 23, 1997
F-71
<PAGE> 174
GETHSEMANE AFFILIATES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -----------------
1997 1997 1996
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 25 $ 3 $ 1
Restricted cash -- resident funds......................... 18 19 23
Accounts receivable -- residents (net of allowance for
doubtful accounts of $2 and $2)........................ 61 159 117
Receivable from third-party............................... 144 147 150
Prepaid expenses.......................................... 89 34 37
------ ------ ------
Total current assets.............................. 337 362 328
Organizational costs........................................ 11 11 --
Property and equipment, net................................. 3,902 3,924 1,690
------ ------ ------
Total assets...................................... $ 4,250 $4,297 $2,018
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Demand notes payable -- bank.............................. $ 374 $ 376 $ 394
Current portion of long-term debt......................... 82 120 23
Notes payable to shareholder.............................. 343 390 380
Accounts payable.......................................... 269 382 131
Accrued expenses.......................................... 121 115 114
Deferred revenue.......................................... -- 18 17
Resident funds............................................ 18 19 23
------ ------ ------
Total current liabilities......................... 1,207 1,420 1,082
Long-term debt.............................................. 2,356 2,293 637
------ ------ ------
Total liabilities................................. 3,563 3,713 1,719
------ ------ ------
Commitments and Contingencies (Note 8)
Shareholders' equity:
Common stock, $1 par value -- authorized -- 100,100
shares; issued and outstanding -- 10,100............... 10 10 10
Additional paid-in capital................................ 240 240 240
Retained earnings......................................... 437 334 49
------ ------ ------
Total shareholders' equity........................ 687 584 299
------ ------ ------
Total liabilities and shareholders' equity........ $ 4,250 $4,297 $2,018
====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-72
<PAGE> 175
GETHSEMANE AFFILIATES
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER
30, YEAR ENDED JUNE 30,
--------------- ----------------------------
1997 1996 1997 1996 1995
---- ---- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Patient services............................. $853 $570 $2,876 $1,864 $1,705
Other revenues............................... -- -- 1 2 5
---- ---- ------ ------ ------
Total revenues....................... 853 570 2,877 1,866 1,710
---- ---- ------ ------ ------
Expenses:
Facility operating expenses:
Salaries, wages and benefits.............. 354 289 1,227 1,181 1,013
Other operating, including related parties
$45, $0, and $45........................ 261 167 856 308 339
General and administrative expense, including
related parties of $65, $119 and $65...... 39 40 198 235 171
Depreciation and amortization expense........ 36 13 120 64 49
---- ---- ------ ------ ------
Total operating expenses............. 690 509 2,401 1,788 1,572
---- ---- ------ ------ ------
Income from operations......................... 163 61 476 78 138
Other expense:
Interest expense............................. (60) (13) (191) (68) (85)
---- ---- ------ ------ ------
Net income..................................... $103 $ 48 $ 285 $ 10 $ 53
==== ==== ====== ====== ======
Pro forma income data (unaudited):
Income before income taxes................... $103 $ 48 $ 285 $ 10 $ 53
Pro forma income tax provision............... (41) (19) (114) (4) (21)
---- ---- ------ ------ ------
Net income after pro forma tax
provision.......................... $ 62 $ 29 $ 171 $ 6 $ 32
==== ==== ====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-73
<PAGE> 176
GETHSEMANE AFFILIATES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL RETAINED
ISSUED PAR PAID-IN EARNINGS
SHARES VALUE CAPITAL (DEFICIT) TOTAL
------ ----- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994..................... 10,000 $10 $ 84 $ (14) $ 80
Capital contributed........................ -- -- 156 -- 156
Net income................................. -- -- -- 53 53
------ --- ---- ---- ----
Balance at June 30, 1995..................... 10,000 10 240 39 289
Net income................................. -- -- -- 10 10
------ --- ---- ---- ----
Balance at June 30, 1996..................... 10,000 10 240 49 299
Shares issued.............................. 100 -- -- --
Net income................................. -- -- -- 285 285
------ --- ---- ---- ----
Balance at June 30, 1997..................... 10,100 $10 $240 $ 334 $ 584
Net income (unaudited)..................... 103 103
------ --- ---- ---- ----
Balance at September 30, 1997................ 10,100 $10 $240 $ 437 $ 687
====== === ==== ==== ====
</TABLE>
See accompanying notes to combined financial statements.
F-74
<PAGE> 177
GETHSEMANE AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
--------------- ---------------------------
1997 1996 1996 1995 1997
----- ----- ------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 100 $ 48 $ 285 $ 10 $ 53
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on disposal of assets................ -- -- -- -- (1)
Depreciation and amortization............. 39 13 120 64 49
Changes in operating assets and
liabilities:
(Increase) in accounts receivable....... 76 (101) (42) (35) (17)
(Increase) decrease in cost rate
adjustment receivable................ 3 4 3 (3) 35
(Increase) decrease in prepaid
expenses............................. (55) 14 3 (6) 3
Increase in accounts payable............ (144) 87 251 67 1
Increase (decrease) in accrued
expenses............................. 6 (2) 1 26 (3)
Increase (decrease) in deferred
revenue.............................. 4 -- 1 4 14
----- ----- ------- ----- -----
Net cash provided by operating
activities......................... 59 63 622 127 134
----- ----- ------- ----- -----
Cash flows from investing activities:
Organizational costs......................... (11)
Purchase of property and equipment, net...... (14) (4) (2,354) (838) (27)
----- ----- ------- ----- -----
Net cash used for investing
activities......................... (14) (4) (2,365) (838) (27)
----- ----- ------- ----- -----
Cash flows from financing activities:
Proceeds from borrowings on demand notes..... -- -- 84 71 523
Repayments on demand notes................... (2) (21) (102) (16) (460)
Proceeds from long-term borrowings........... 51 -- 1,796 482 (134)
Repayments of long-term borrowings........... (25) (42) (43) (205) --
Proceeds of borrowings from shareholder...... -- -- 386 380 --
Repayments of borrowings from shareholder.... (47) -- (376) -- (36)
----- ----- ------- ----- -----
Net cash provided (used by) financing
activities......................... (23) (63) 1,745 711 (107)
----- ----- ------- ----- -----
Increase in cash and cash equivalents.......... 22 (4) 2 -- --
Cash and cash equivalents at beginning of
period....................................... 3 1 1 1 1
----- ----- ------- ----- -----
Cash and cash equivalents at end of period..... $ 25 $ (3) $ 3 $ 1 $ 1
===== ===== ======= ===== =====
Supplemental Cash Flow Information:
Cash paid during the period for interest..... -- -- $ 179 $ 53 $ 86
===== ===== ======= ===== =====
During 1995, the shareholders paid $271,000 of
the Company's long-term debt. This
transaction reduced the balance of a note
receivable from shareholders by $115,000 and
increased additional paid-in capital by
$156,000.
</TABLE>
See accompanying notes to combined financial statements.
F-75
<PAGE> 178
GETHSEMANE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Background
Gethsemane Affiliates (the "Company") consists of two corporations under
common control, Gethsemane Retirement Community, Inc. ("GRCI") -- formerly
operated as Boone Nursing Home, Inc. and Gethsemane Assisted Living, Inc.
("GALI"). The Company operates a 66-bed skilled nursing facility located in
Bloomsburg, Pennsylvania and a 51-bed assisted living facility located in
Millville, Pennsylvania which commenced operations in April, 1997.
(b) Basis of Presentation
The accompanying combined financial statements for the year ended June 30,
1997 include the accounts of GRCI and GALI, from the date operations were
commenced through June 30, 1997. The financial statements for the years ended
June 30, 1996 and 1995 include only the accounts of the GRCI. All significant
intercompany accounts and transactions have been eliminated in the combined
financial statements.
(c) Fair Value of Financial Instruments
Cash and mortgage notes payable are reflected in the accompanying balance
sheets at amounts considered by management to approximate fair value. Management
generally estimates fair value of its long-term fixed rate notes payable using
discounted cash flow analysis based upon its current borrowing rate for debt
with similar maturities.
(d) Restricted Cash -- Resident Funds
GRCI is the trustee for these funds which are held on behalf of the
residents. The Company has fiduciary responsibility for the administration of
the bank accounts and the distribution of funds to the residents.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation or,
where appropriate, the present value of the related capital lease obligations
less accumulated amortization. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets ranging
from 5 to 40 years. Expenditures for maintenance and repairs necessary to
maintain property and equipment in efficient operating condition are charged to
operations. Costs of additions and betterments are capitalized.
(f) Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of long-lived Assets
and for long-lived Assets To Be Disposed of," on July 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to undiscounted future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-76
<PAGE> 179
GETHSEMANE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(g) Patient Service Revenue/Third Party Payor
The Company records patient service revenue at its full charge rates. For
services provided to patients under agreements with its third-party cost payors
(Medicare and Medicaid), the Company records contractual adjustments which are
the difference between its full charge rates and the allowable costs incurred to
render such services. The Company receives interim payments under the
third-party cost payor agreements based upon its estimated allowable costs.
Estimated allowable costs are subject to audit and retroactive adjustment by the
third-party cost payors. Revenues from the Medicare and Medicaid programs
represented 19% and 50% respectively of total 1997 revenues. Revenues from the
Medicaid program represented 70% and 69% of total 1996 and 1995 revenues,
respectively.
Retroactively calculated third-party contractual adjustments are accrued on
an estimated basis in the period the related services are rendered. Revisions to
estimated contractual adjustments are recorded based upon audits by third-party
payors, as well as other communications with third-party payors such as desk
reviews, regulation changes and policy statements. These revisions are made in
the year such amounts are determined. Patient service revenues were increased by
$63,000 in 1997 for changes in estimates due to settlements with third-party
payors.
Resident services are recognized when services are rendered and consist of
resident fees and other ancillary services provided to residents of the
Company's assisted living communities.
(h) Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code and Laws of the Commonwealth of Pennsylvania. Under
those provisions, the Company does not pay federal or state corporate income
taxes on its taxable income. Instead, the stockholders are liable for individual
federal and state income taxes on their respective shares of the Company's
taxable income. Accordingly, no provision has been made for federal or state
income tax in the accompanying statements of income.
A pro forma provision for income taxes is presented as if the Company were
taxed as a C corporation based on a tax rate of 40%. The pro forma tax
provisions for the years ended June 30, 1997, 1996 and 1995 have been calculated
using financial net income.
(i) Use of Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These assumptions 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 these estimates.
(j) Interim Financial Statements (unaudited)
The unaudited balance sheet as of September 30, 1997 and the unaudited
statements of operations, shareholders' equity and cash flows for the three
months ended September 30, 1997 and 1996, in the opinion of management, have
been prepared on the same basis as the audited financial statements and include
all significant adjustments (consisting primarily of normal recurring
adjustments) considered
F-77
<PAGE> 180
GETHSEMANE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
necessary for a fair presentation of the results of these interim periods.
Operating results for the three-month period ended September 30, 1997 are not
necessarily indicative of the results for the entire year.
2. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following as of June 30
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Land............................................................... $ 136 $ 136
Buildings and improvements......................................... 3,791 975
Fixed and moveable equipment....................................... 482 238
Construction-in-progress........................................... -- 707
------ ------
4,409 2,056
Less: accumulated depreciation..................................... (485) (366)
------ ------
$3,924 $1,690
====== ======
</TABLE>
Depreciation expense was $119,000, $53,000 and $48,000 for the years ended
June 30, 1997, 1996 and 1995, respectively.
3. DEMAND NOTES PAYABLE
Demand notes payable, bank consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Line of credit, to a maximum of $300,000 bearing interest at a rate
of 1% above prime (10% at June 30, 1997). The note is
collateralized by accounts receivable from residents and
third-party payors, estimated third-party payor settlements, a
second mortgage on substantially all property and equipment and
personal guarantees of the shareholders........................... $ 298 $299
Line of credit, to a maximum of $75,000 bearing interest at rate of
1% above prime 10% at June 30, 1997. The note is collateralized by
accounts receivable from residents and third-party payors,
estimated third-party payor settlements, and personal guarantees
of the shareholders............................................... 15 20
Note payable, bank -- interest at 10.5% with the principal due on
demand. The note is collateralized by a Company vehicle........... -- 4
Note payable, bank -- interest at 9.75% with the principal due on
demand. The note is collateralized by a Company vehicle........... -- 6
Note payable, bank -- interest at a rate of 1% above prime adjusted
annually (10.0% at June 30, 1997) with the principal due on
demand. The note is collateralized by a first lien on 19 acres of
land.............................................................. 63 65
------ ----
$ 376 $394
====== ====
</TABLE>
F-78
<PAGE> 181
GETHSEMANE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consisted of the following as of June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Fixed 6% third mortgage note requiring monthly principal and
interest payments of $2,867 through December 2002. The note is
collateralized by a third mortgage on substantially all property
and equipment and the personal guarantees of the shareholders..... $ 147 $169
Adjustable rate first mortgage note (current rate 8.37%) requiring
monthly principal and interest payments of $144 (as currently
calculated based on the 8.37% current rate) through November 1997.
Thereafter, the interest rate is adjustable every three years and
monthly payments will be adjusted to fully amortize the
indebtedness by October 2003. The note is collateralized by a
first mortgage on land and the personal guarantees of the
shareholders...................................................... 9 9
Adjustable rate first mortgage (current rate 8.75%) requiring
monthly principal interest payments of $17,990 (as currently
calculated on the 8.75% current rate) through March 2012. The note
is collateralized by a first lien position on the new nursing
facility; personal guarantees of the shareholders; a security
interest in stock of the company; a first lien on all inventory
and equipment; assignment of life insurance; and assignment of
rents............................................................. 1,786 482
Adjustable rate loan (current rate 9.0%) requiring monthly principal
and interest payments ($3,805 (as currently calculated on the 9.0%
current rate) through January 2000. Thereafter, the interest rate
is adjustable every three years and monthly payments will be
adjusted to fully amortize the indebtedness by January 2007. The
note is collateralized by a lien on the nursing home property; a
lien on the assisted living property; and the personal guarantees
of the shareholders............................................... 292 --
Fixed rate loan at 9.25% requiring monthly principal and interest
payments of $2,368 through November 2006.......................... 175 --
The note is collateralized by a lien on the assisted living
facility property and personal guarantees of the shareholders.
Capital lease -- monthly payments of $75 for 60 months with a lease
end buy out of $1. This lease is collateralized by a dishwasher... 4 --
------ ----
2,413 660
Less current maturities............................................. 120 23
------ ----
$2,293 $637
====== ====
</TABLE>
At June 30, 1997, the aggregate maturities of long-term debt for the next
five fiscal years ending June 30 are $120,000 in 1998, $117,000 in 1999,
$127,000 in 2000, $137,000 in 2001, $148,000 in 2002 and $1,601,000 thereafter.
5. NOTES PAYABLE -- SHAREHOLDER
The Company has received advances from shareholders for payments on the
Company's mortgage. These advances bear interest at 8% per annum and are due on
demand. The Company has received $390,000 and $380,000 from shareholders as of
June 30, 1997 and 1996, respectively.
6. PROFIT SHARING PLAN
The Company has a profit-sharing retirement plan covering substantially all
employees. Contributions are made to the plan at the matching contribution equal
to 50% of the employees' contributions
F-79
<PAGE> 182
GETHSEMANE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
with a maximum matching contribution of $350 per employee. Additional amounts
can be contributed at the discretion of the Company's Board of Directors.
Company policy is to fund currently the costs accrued. The profit-sharing
contribution amounted to $7,000, $7,000 and $4,000 for the years ended June 30,
1997, 1996 and 1995, respectively.
7. RELATED PARTY TRANSACTIONS
The Company had the following related party transactions:
Salary paid to shareholder as administrator
Salary paid to shareholder in operations
A summary of those transactions follows for the years ended June 30
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Salaries, wages, and benefits.......................... $65 $119 $65
Other operating costs.................................. $45 $ 0 $45
</TABLE>
In addition, a shareholder sold a parcel of land purchased in 1995 for
$90,000 to the Company in 1996 for $90,000.
8. COMMITMENTS AND CONTINGENCIES
(j) Medical Malpractice Claims Coverage
The Company's professional liability insurance provides for coverage with a
limit of $1 million per occurrence. The Company believes it has adequate
coverage for all asserted claims and it has no knowledge of unasserted claims
which would exceed its insurance coverage. The Company is not aware of
additional premiums, if any, it may be charged or credits it may receive under
the terms of the policy and it has, therefore, expensed only its billed premium
costs ratably over the term of the policy.
(k) Litigation
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are adequately covered by insurance or, if not so covered, are
without merit or are of such a kind, or involve such amounts, that their
unfavorable disposition would not have a material effect on the financial
position, results of operations or the liquidity of the Company.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair value of
each class of financial instruments for which is practicable to estimate that
value.
CASH AND EQUIVALENTS: The carrying amount approximates fair value because
of the short maturity of those instruments.
DEMAND NOTES PAYABLE -- BANK: The carrying amount approximate fair value
since the interest rate fluctuates with the lending bank's prime rate.
LONG-TERM DEBT: The fair value of long-term debt is estimated based on
interest rates for the same or similar debt offered to the Company having the
same or similar remaining maturity and collateral requirements.
F-80
<PAGE> 183
GETHSEMANE AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTES PAYABLE -- SHAREHOLDER: The fair value of notes
payable -- shareholder is estimated based on interest rates for the same or
similar debt offered to the Company by a lending institution having the same or
similar remaining maturities.
Estimated fair values of the Company's financial instruments are as follows
at June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- ------
<S> <C> <C>
Assets:
Cash............................................................ $ 3 $ 3
Restricted cash, resident funds................................. 19 19
Liabilities:
Demand notes payable, bank...................................... 376 376
Long-term debt.................................................. 2,413 2,395
Notes payable -- shareholder.................................... 390 390
</TABLE>
10. SUBSEQUENT EVENT
Pending Sale of the Company
On August 8, 1997, the Company signed a letter of intent for the sale of
the assets of GRCI and GALI to Balanced Care Corporation for $5.5 million plus
additional consideration of up to $1.2 million which is contingent upon the
Company achieving certain future targeted operating results. The Company expects
the sale to be completed in the fall of 1997.
11. SHAREHOLDERS' EQUITY
Outstanding Common Stock
Gethsemane Affiliates outstanding common stock at June 30, 1997 is
summarized below:
<TABLE>
<CAPTION>
PAR VALUE NUMBER OF SHARES NUMBER OF SHARES
PER SHARE AUTHORIZED ISSUED AND OUTSTANDING
--------- ---------------- ----------------------
<S> <C> <C> <C>
Gethsemane Retirement Community............. $1.00 100,000 10,000
Gethsemane Assisted Living Community........ $1.00 100 100
</TABLE>
F-81
<PAGE> 184
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of
Feltrop's Personal Care Home:
We have audited the accompanying balance sheets of Feltrop's Personal Care
Home (the Company) as of June 30, 1997 and 1996, and the related statements of
operations, owners' equity and cash flows for each of the three years in the
period ended June 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June 30,
1997 and 1996, and results of its operations and cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Pittsburgh, Pennsylvania
September 29, 1997
F-82
<PAGE> 185
FELTROP'S PERSONAL CARE HOME
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -----------------
1997 1997 1996
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 6 $ 24 $ 25
Accounts receivable......................................... 28 7 9
Inventories................................................. 14 14 15
Prepaid expenses............................................ 3 3 7
----- ----- ------
Total current assets................................ 51 48 56
Property and equipment, net................................... 1,232 1,245 1,278
----- ----- ------
Total assets................................................ $ 1,283 $1,293 $1,334
===== ===== ======
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 40 $ 47 $ 53
Accrued liabilities......................................... 39 42 40
Deferred revenue............................................ 44 72 81
Current portion of long-term debt........................... 117 117 106
----- ----- ------
Total current liabilities........................... 240 278 280
Long-term debt................................................ 944 976 1,050
----- ----- ------
Total liabilities................................... 1,184 1,254 1,330
----- ----- ------
Contingencies (Note 4)
Owners' equity................................................ 99 39 4
----- ----- ------
Total liabilities and owners' equity................ $ 1,283 $1,293 $1,334
===== ===== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-83
<PAGE> 186
FELTROP'S PERSONAL CARE HOME
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------- ----------------------------
1997 1996 1997 1996 1995
---- ---- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Resident services................................ $472 $490 $1,980 $1,812 $1,788
---- ---- ------ ------ ------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits.................. 237 253 1,041 1,049 920
Other operating expenses...................... 124 89 372 329 370
General and administrative....................... 56 25 119 115 124
Depreciation..................................... 14 18 73 68 71
---- ---- ------ ------ ------
Total operating expenses................. 431 385 1,605 1,561 1,485
---- ---- ------ ------ ------
Operating income................................. 41 105 375 251 303
Other income (expense):
Interest income.................................. -- -- 1 1 1
Interest expense................................. (29) (25) (119) (120) (83)
---- ---- ------ ------ ------
Net income............................... $ 12 $ 80 $ 257 $ 132 $ 221
==== ==== ====== ====== ======
Pro forma income tax data (unaudited):
Income before income taxes....................... $ 12 $ 80 $ 257 $ 132 $ 221
Pro forma income tax provision................... 5 32 103 53 88
---- ---- ------ ------ ------
Net income after pro forma tax
provision.............................. $ 7 $ 48 $ 154 $ 79 $ 133
==== ==== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
<PAGE> 187
FELTROP'S PERSONAL CARE HOME
STATEMENTS OF OWNERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
AND THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
-----
<S> <C>
Balance at June 30, 1994............................................................. $ 45
Capital contributions.............................................................. 136
Distributions paid to owners....................................................... (359)
Net income......................................................................... 221
-----
Balance at June 30, 1995............................................................. 43
Capital contributions.............................................................. 158
Distributions paid to owners....................................................... (329)
Net income......................................................................... 132
-----
Balance at June 30, 1996............................................................. 4
Capital contributions.............................................................. 35
Distributions paid to owners....................................................... (257)
Net income......................................................................... 257
-----
Balance at June 30, 1997............................................................. 39
Capital contributions (unaudited).................................................. 160
Distributions paid to owners (unaudited)........................................... (112)
Net income (unaudited)............................................................. 12
-----
Balance at September 30, 1997 (unaudited)............................................ $ 99
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-85
<PAGE> 188
FELTROP'S PERSONAL CARE HOME
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
--------------- -------------------------
1997 1996 1997 1996 1995
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 12 $ 80 $ 257 $ 132 $ 221
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................ 14 18 73 68 71
Increase (decrease) from changes in:
Accounts receivable......................... (21) (24) 2 1 (5)
Inventory................................... -- -- 1 (1) (2)
Prepaid expenses............................ -- 1 4 8 (6)
Accounts payable............................ (7) (27) 1(6) (21) 14
Accrued liabilities......................... (3) 23 2 (17) 2
Deferred revenues........................... (28) 4 (9) (9) 27
----- ----- ----- ----- -----
Cash provided by operating
activities........................... (33) 75 324 161 322
----- ----- ----- ----- -----
Cash flows from investing activities:
Proceeds from sale of property and equipment... -- -- 19 -- 37
Purchase of property and equipment............. (1) (26) (59) (103) (18)
----- ----- ----- ----- -----
Cash (used in) provided by investing
activities........................... (1) (26) (40) (103) 19
----- ----- ----- ----- -----
Cash flows from financing activities:
Proceeds from issuance of long-term debt....... -- 21 16 152 10
Repayment of long-term debt.................... (32) (20) (79) (78) (90)
Capital contributions from owners.............. 160 13 35 158 136
Distributions paid to owners................... (112) (44) (257) (329) (360)
----- ----- ----- ----- -----
Cash used in financing activities...... 16 (30) (285) (97) (304)
----- ----- ----- ----- -----
Net (decrease) increase in cash and cash
equivalents.................................... (18) 19 (1) (39) 37
Cash and cash equivalents at beginning of year... 24 25 25 64 27
----- ----- ----- ----- -----
Cash and cash equivalents at end of year......... $ 6 $ 44 $ 24 $ 25 $ 64
===== ===== ===== ===== =====
Supplemental disclosure of cash flow information:
Noncash investing activities:
Capital expenditures included in accounts
payable................................... $ -- $ -- $ -- $ -- $ 27
===== ===== ===== ===== =====
Other:
Cash paid for interest...................... $ 27 $ 23 $ 117 $ 107 $ 86
===== ===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-86
<PAGE> 189
FELTROP'S PERSONAL CARE HOME
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Background
Feltrop's Personal Care Home (the Company) is a 92-bed assisted living
facility located in Darlington, Pennsylvania.
(b) Use of Estimates
The preparation of the 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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
(c) Cash and Cash Equivalents
All unrestricted, highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents. The
Company maintains its cash and cash equivalents at financial institutions which
management believes are of high credit quality.
(d) Inventories
Inventories consist of fuel, food and supplies and are stated at the lower
of cost (first-in, first-out) or market value.
(e) Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Expenditures for
maintenance and repairs are expensed as incurred. The cost and related
accumulated depreciation applicable to property no longer in service are
eliminated from the accounts and any gain or loss thereon is included in
operations.
(f) Deferred Revenue
Deferred revenue represents amounts received from patients before services
have been performed. These amounts represent a liability of the Company until
the service has been provided.
(g) Revenue Recognition
Resident fees are recognized when services are rendered and consist of
resident fees and other ancillary services provided to residents of the
Company's personal care home.
(h) Income Tax Status
The Company is a pass-through entity and does not pay federal or state
corporate income taxes on its taxable income. Instead the owners are liable for
individual federal and state income taxes on the taxable income. Accordingly, no
provision has been made for federal or state income tax in the accompanying
statements of operations.
A pro forma provision for income taxes is presented as if the Company had
been subject to federal and state income taxes as a C-Corporation based on an
effective tax rate of 40%. The pro forma tax provision for the years ended June
30, 1997, 1996 and 1995 have been calculated using financial net income.
F-87
<PAGE> 190
FELTROP'S PERSONAL CARE HOME
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(i) Interim Financial Statements (unaudited)
The unaudited balance sheet as of September 30, 1997 and the unaudited
statements of operations, cash flows and changes in owners' equity for the three
months ended September 30, 1997 and 1996, in the opinion of management, have
been prepared on the same basis as the audited financial statements and include
all significant adjustments (consisting primarily of normal recurring
adjustments) considered necessary for a fair presentation of the results of
these interim periods. Operating results for the three month period ended
September 30, 1997, is not necessarily indicative of the results for the entire
year.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Land............................................................... $ 126 $ 126
Buildings and improvements (20 to 40 years)........................ 1,283 1,267
Fixed and movable equipment (5 to 10 years)........................ 437 428
------ ------
1,846 1,821
Less accumulated depreciation...................................... (601) (543)
------ ------
$1,245 $1,278
====== ======
</TABLE>
Depreciation expense was $73,000, $68,000 and $71,000 for the years ended
June 30, 1997, 1996 and 1995, respectively.
3. LONG-TERM DEBT
Long-term debt consisted of the following at June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Line of credit(a).................................................. $ 23 $ 21
Mortgage payable(b)................................................ 923 965
Construction loan(c)............................................... 121 142
Installment notes(d)............................................... 26 28
------ ------
1,093 1,156
Less current portion............................................... 117 106
------ ------
$ 976 $1,050
====== ======
</TABLE>
- ---------------
(a) In November 1994, the Company entered into an agreement for an
uncollateralized line of credit for $25,000. The line of credit requires
monthly interest payments with the outstanding borrowings due on demand. The
interest rate in effect on the line of credit was 8.5% and 8.25% at June 30,
1997 and 1996, respectively.
(b) On August 20, 1993, the Company entered into an agreement to borrow
$1,085,000, a portion of which was used to refinance $726,000 of previously
held debt. The mortgage note provides for monthly principal and interest
payments through July 2008. The interest rate is the bank's prime rate plus
2%, which was 8% on the date of the note. The interest rate is fixed and
adjusted every three years thereafter on the anniversary date to the then
existing bank's prime rate plus 2%, until
F-88
<PAGE> 191
FELTROP'S PERSONAL CARE HOME
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the next adjustment date. In no event will the interest rate change by more
than 2% at each adjustment date. The interest rate in effect at June 30,
1997, and 1996 was 10.25%. The note is collateralized by substantially all
real and personal property of the Company.
(c) On December 20, 1995, the Company entered into an agreement to borrow
$150,000 for construction purposes. The loan provides for monthly
installments of $3,192 including interest at the bank's prime rate plus 1%.
The interest rate in effect was 9.5% and 9.25% at June 30, 1997 and 1996,
respectively. The note is collateralized by real property and is guaranteed
by the owners of the Company.
(d) The installment notes are payable in monthly installments through June 2001.
Interest on these notes ranges from 6.50% to 8.25%. The notes are
collateralized by certain equipment.
Aggregate scheduled maturities of long-term debt for each of the five years
ending June 30 and thereafter are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998................................................ $ 117
1999................................................ 85
2000................................................ 89
2001................................................ 152
2002................................................ 74
Thereafter.......................................... 576
------
$1,093
======
</TABLE>
4. CONTINGENCIES
In the ordinary course of business, various lawsuits, claims and
proceedings have been or may be instituted or asserted against the Company.
Based on currently available facts, management is not aware of any matters that
are pending or asserted that would have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
determining the estimated fair value for financial instruments for which it is
practicable to estimate that value.
Cash and Cash Equivalents -- The carrying amount reported in the balance
sheets for cash and cash equivalents approximates its fair value.
Long-term Debt -- The fair value of long-term debt is estimated using
discounted cash flow analysis, based on the Company's current available
incremental borrowing rate.
The carrying amounts and the estimated fair values of the financial
instruments as of December 31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 24 $ 24 $ 25 $ 25
Long-term debt.................................... 1,093 1,025 1,156 1,108
</TABLE>
F-89
<PAGE> 192
FELTROP'S PERSONAL CARE HOME
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. RELATED PARTIES
The Company's owners received distributions earnings of approximately
$257,600, $328,600 and $360,000 in 1997, 1996 and 1995, respectively. One owner
of the Company was paid a salary for management services of approximately
$200,400, $201,900 and $114,300, and a related party of the owners was paid a
salary for management services of approximately $25,500, $25,400 and $32,500 in
1997, 1996 and 1995, respectively.
The Company paid ZAF Construction, a related entity of the owners,
approximately $71,900, $89,700 and $15,000 for construction and maintenance in
1997, 1996 and 1995, respectively.
7. SUBSEQUENT EVENTS
On September 3, 1997, the Company entered into an Asset Purchase Agreement
(Agreement), pursuant to which Balanced Care Corporation, a Delaware
Corporation, will acquire only the business, licenses and other intangibles and
the property and equipment of the Company as outlined in the Agreement, for
approximately $5.7 million, subject to certain terms and conditions.
F-90
<PAGE> 193
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Triangle Retirement Services, Inc.
We have audited the accompanying balance sheets of Triangle Retirement
Services d/b/a Northridge Retirement Center (an S Corporation) as of December
31, 1996 and 1995, and the related statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northridge Retirement Center
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The information for September 30,
1997 and 1996, is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has not been
subjected to the auditing procedures applied in the audit of the basic financial
statements and accordingly, we express no opinion on it.
HODGE, STEWARD & COMPANY, P.A.
Raleigh, North Carolina
October 20, 1997
F-91
<PAGE> 194
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a/ NORTHRIDGE RETIREMENT CENTER
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 210 $ 205 $ 150
Marketable securities, available for sale................. 302 63 42
Accounts receivable -- other.............................. 1 -- --
Inventory................................................. 5 6 3
Note receivable -- stockholder............................ 16 15 14
------ ------ ------
Total current assets.............................. 534 289 209
Properties and equipment, net............................... 3,044 3,158 1,243
Deposits.................................................... 4 4 1
Note receivable -- stockholder.............................. 132 144 158
Loan fees................................................... 20 23 26
Other investments........................................... 30 4 --
------ ------ ------
Total assets...................................... $ 3,764 $3,622 $1,637
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of installment notes payable........... $ 193 $ 178 $ 104
Short-term construction loan payable...................... -- -- 183
Accounts payable -- trade................................. 28 39 33
Accrued salaries and wages................................ 47 48 32
Other accrued expenses.................................... 40 32 13
------ ------ ------
Total current liabilities......................... 308 297 365
Long-term portion of installment notes payable.............. 2,819 2,999 1,041
------ ------ ------
Total liabilities................................. 3,127 3,296 1,406
------ ------ ------
Stockholders' equity:
Common stock, authorized 100,000 shares with $1 stated
value; 3,000 shares issued and outstanding............. 3 3 3
Paid-in capital........................................... 50 50 50
Unrealized gain on securities available for sale.......... 43 6 2
Retained earnings......................................... 541 267 176
------ ------ ------
Total stockholders' equity........................ 637 326 231
------ ------ ------
Total liabilities and stockholder's equity........ $ 3,764 $3,622 $1,637
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-92
<PAGE> 195
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a/ NORTHRIDGE RETIREMENT CENTER
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------
1997 1996 1996 1995
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Resident services revenue............................... $2,072 $1,334 $1,967 $1,536
------ ---- ------ ------
Expenses:
Facility operating expenses:
Salaries, wages and benefits....................... 955 664 983 766
Other operating expenses........................... 365 284 396 314
Depreciation and amortization......................... 110 68 97 66
------ ---- ------ ------
Total operating expenses...................... 1,430 1,015 1,476 1,146
------ ---- ------ ------
Income from operations........................ 642 320 491 390
Other income (expense):
Interest income....................................... 12 13 17 16
Interest expense...................................... (206) (95) (172) (94)
Other income.......................................... 11 11 22 17
------ ---- ------ ------
Net income.............................................. $ 459 $ 247 $ 358 $ 329
====== ==== ====== ======
PRO FORMA INCOME TAX DATA (UNAUDITED):
Net earnings before income taxes...................... $ 459 $ 247 $ 358 $ 329
Pro forma income tax provision........................ 169 84 127 127
------ ---- ------ ------
Net income after pro forma income tax provision....... $ 290 $ 163 $ 231 $ 202
====== ==== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-93
<PAGE> 196
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED GAIN ON
COMMON PAID-IN SECURITIES AVAILABLE RETAINED
STOCK CAPITAL FOR SALE EARNINGS
------ ------- -------------------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1994................. $3 $50 $ -- $ 55
Net income for 1995.......................... -- -- -- 329
Provision for unrealized gains on securities
available for sale......................... -- -- 2 --
Distributions to stockholders................ -- -- -- (208)
--- --- --- -----
Balance at December 31, 1995................. 3 50 2 176
Net income for 1996.......................... -- -- -- 358
Provision for unrealized gains on securities
available for sale......................... -- -- 4 --
Distributions to stockholders................ -- -- -- (267)
--- --- --- -----
Balance at December 31, 1996................. 3 50 6 267
Net income for 1997 (unaudited).............. -- -- -- 459
Provision for unrealized gains on securities
available for sale (unaudited)............. -- -- 37 --
Distributions to stockholders (unaudited).... -- -- -- (185)
--- --- --- -----
Balance at September 30, 1997................ $3 $50 $ 43 $ 541
=== === === =====
</TABLE>
See accompanying notes to financial statements.
F-94
<PAGE> 197
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------
1997 1996 1996 1995
----- ------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net cash flows from operating activities:
Net earnings......................................... $ 459 $ 247 $ 358 $ 329
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation...................................... 107 67 93 64
Amortization...................................... 3 1 3 1
Interest income not received in cash.............. (7) (8) (10) (11)
Gain on sale of properties and equipment.......... (5) (5) (5) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable -- other.......................... (1) (1) -- --
(Increase) decrease in inventory................ 1 -- (3) (1)
(Increase) decrease in prepaid expenses......... -- -- 1 --
Increase (decrease) in accounts payable and
accrued expenses............................. (4) 27 39 6
----- ------ ------ -----
Net cash provided by operating activities.... 553 329 476 388
----- ------ ------ -----
Cash flows from investing activities:
Purchases of properties and equipment................ (21) (1,920) (2,022) (204)
Proceeds from sale of properties and equipment....... 34 51 50 --
Investment in marketable securities, available for
sale.............................................. (204) (7) (17) (36)
Increase in deposits and loan fees................... -- (3) (3) (15)
Increase in other investments........................ (24) -- (4) --
----- ------ ------ -----
Net cash used in investing activities........ (215) (1,879) (1,996) (255)
----- ------ ------ -----
Cash flows from financing activities:
Increase in construction loan payable................ -- 1,963 -- 183
Increase in installment notes payable................ -- -- 1,967 --
Repayments on installment notes payable.............. (166) (101) (149) (98)
Distributions to stockholders........................ (167) (219) (243) (184)
----- ------ ------ -----
Net cash provided by (used in) financing
activities................................. (333) 1,643 1,575 (99)
----- ------ ------ -----
Increase (decrease) in cash and cash equivalents....... 5 93 55 34
Cash and cash equivalents, beginning of period......... 205 150 150 116
----- ------ ------ -----
Cash and cash equivalents, end of period............... $ 210 $ 243 $ 205 $ 150
===== ====== ====== =====
</TABLE>
See accompanying notes to financial statements.
F-95
<PAGE> 198
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- ---------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest..................... $205 $95 $183 $95
==== === ==== ===
Non-cash Investing and Financing Activities:
Property and equipment acquired through installment notes
payable............................................... $ -- $32 $ 32 $28
==== === ==== ===
Repayment of note receivable -- stockholder, funded by
distribution to stockholder........................... $ 11 $10 $ 14 $13
==== === ==== ===
Net change in unrealized holding gains on marketable
securities -- available for sale...................... $ 37 $-- $ 4 $ 2
==== === ==== ===
</TABLE>
See accompanying notes to financial statements.
F-96
<PAGE> 199
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies of the Corporation described below have been followed
consistently during the years.
(a) Nature of Business
Triangle Retirement Services, Inc. d/b/a Northridge Retirement Center is a
domiciliary care facility. The Company is a North Carolina corporation, which
was established in 1984.
(b) Interim Financial Information (unaudited)
The financial statements as of and for the nine month periods ended
September 30, 1997 and 1996, are unaudited, but, in the opinion of management,
have been prepared on the same basis as the audited financial statements and
reflect all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the information set forth therein. The results of
operations for the nine months ended September 30, 1997, are not necessarily
indicative of the operating results to be expected for the full year or any
other period.
(c) Cash and Cash Equivalents
The Company considers all checking accounts, sweep accounts and money
market accounts to be cash and cash equivalents.
The Company's checking and sweep accounts are located with various banking
institutions. The amount on hand at any one time in any of these institutions
may exceed the $100,000 federally insured limit.
(d) Inventory
Inventory, which consists of a food reserve, is stated at cost, with cost
determined using the average cost method.
(e) Properties and Equipment
Properties and equipment are stated at cost. Expenditures for maintenance,
repairs, and other renewals of items are expensed currently. When items are
disposed of or replaced, the cost and accumulated depreciation amounts are
removed from the accounts, and any gain or loss is included in other income.
(f) Depreciation
Depreciation is computed using the straight line method over the following
useful lives:
<TABLE>
<S> <C>
Vehicles....................................................... 5 years
Office furniture and equipment................................. 3 - 10 years
Buildings...................................................... 30 years
</TABLE>
Depreciation expense amounted to $93,000 and $64,000 for the years ended
December 31, 1996 and 1995, respectively.
F-97
<PAGE> 200
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) 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.
(h) Advertising
The Company expenses advertising costs as incurred. Advertising expense of
$30,000 and $15,000 has been included in the statement of income for the years
ended December 31, 1996 and 1995, respectively.
2. MARKETABLE SECURITIES -- AVAILABLE FOR SALE
The Company has elected to classify its investments in equity securities as
available-for-sale securities and report them at fair value, with unrealized
gain or loss excluded from earnings and reported as a separate component of
equity. The investments classified as available-for-sale securities are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Mutual funds at cost................................................... $34 $26
Other securities....................................................... 23 14
Net change in unrealized gains......................................... 6 2
--- ---
Marketable securities at fair value.................................... $63 $42
=== ===
</TABLE>
The change in the unrealized holding gains on marketable securities
available for sale during the years ended December 31, 1996 and 1995, are
reported as a separate component of stockholders' equity is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Beginning balance...................................................... $ 2 $--
Unrealized gains....................................................... 4 2
-- --
Ending balance......................................................... $ 6 $ 2
== ==
</TABLE>
3. NOTE RECEIVABLE -- STOCKHOLDER
Note receivable from stockholder of $158,000 (1996) and $172,000 (1995) is
an unsecured note dated February 24, 1994, payable in monthly installments of
$2,000 including interest at 6.17%, through October 2005.
During the year ended December 31, 1996, the stockholder repaid the Company
principal of $14,000 and also paid the Company interest of $10,000. During the
year ended December 31, 1995, the stockholder repaid the Company principal of
$13,000 and interest of $11,000.
F-98
<PAGE> 201
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT LEASE
Property and equipment consisted of the following as of December 31
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land............................................................... $ 181 $ 181
Buildings.......................................................... 3,222 1,356
Furniture and equipment............................................ 327 199
Vehicles........................................................... 44 40
------- -------
3,774 1,776
Less accumulated depreciation...................................... (616) (533)
------- -------
$3,158 $1,243
======= =======
</TABLE>
5. INSTALLMENT NOTES PAYABLE
The Company's installment notes payable as of December 31, 1996 and 1995,
consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Note payable to a bank in monthly installments of $524 including
interest at 9.10% through October 1998, collateralized by a
vehicle.......................................................... $ 31 $ --
Note payable to a bank in monthly installments of $522 including
interest at 9.25% through March 1998, collateralized by a
vehicle.......................................................... -- 25
Note payable to a bank in monthly installments of $15,572 plus
interest at 7.75% until February 2004, collateralized by
properties and equipment and personally guaranteed by the
stockholders of the Company...................................... 1,017 1,120
Note payable to a bank in average monthly principal payments of
$6,667 plus interest at the 30 day London Interbank offering rate
plus 2.00% through August 2001, collateralized by properties and
equipment and personally guaranteed by the stockholders of the
Company (See note 7 for information about an interest rate swap
agreement related to this note).................................. 2,129 --
------- -------
3,177 1,145
Less current portion............................................. 178 104
------- -------
Long-term portion................................................ $2,999 $1,041
======= =======
</TABLE>
F-99
<PAGE> 202
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled principal repayments of installment notes payable assuming no
changes in their terms are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
-------------------------------------------------------------------- ------
<S> <C>
1997................................................................ $ 178
1998................................................................ 218
1999................................................................ 207
2000................................................................ 226
2001................................................................ 1,954
Thereafter.......................................................... 394
------
$3,177
======
</TABLE>
6. CONSTRUCTION LOAN PAYABLE
In October 1995, the Company entered into a short term construction loan
agreement with a bank to finance an expansion of the existing facility. Under
the terms of this agreement, the Company borrowed funds as needed to pay
contractor's progress billings.
The total amount available to the Company under this construction loan
agreement was $2,150,000. Interest is payable monthly at the bank's prime rate.
As of December 31, 1995, the total amount borrowed under this construction loan
agreement was $183,000 and the total interest paid amounted to $1,000.
In 1996, the Company completed the construction project and this loan was
converted by a bank to a term loan (see note 5).
7. INTEREST RATE SWAP
In 1996, the Company began utilizing an interest rate swap agreement to
effectively convert a portion of its variable interest rate exposure to a fixed
rate basis. Under the agreement, the Company receives a fixed rate of 9.12% on
its $2,129,000 note payable to a bank.
This agreement which expires on August 15, 2001, effectively increased the
Company's interest expense on its long-term debt for the year ended December 31,
1996, by $17,000. The Company believes that future changes in interest rates
will not have a material impact on the Company's financial position or results
of operations. All gains or losses on interest rate swaps are recognized when
realized.
8. INCOME TAXES
The stockholders of the Company have elected for income tax purposes to be
taxed as an S Corporation under the of the Internal Revenue Code and laws of the
State of North Carolina. Accordingly, taxable income is passed through directly
to the shareholders rather than being taxed at the corporate level. Therefore,
no provision for federal or state income taxes has been recorded.
A pro forma provision for income taxes is presented as if the Company were
taxed as a C Corporation. The pro forma tax provisions for the years ended
December 31, 1996 and 1995, have been calculated using recorded taxable income.
F-100
<PAGE> 203
TRIANGLE RETIREMENT SERVICES, INC.
d/b/a NORTHRIDGE RETIREMENT CENTER
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. EQUIPMENT OPERATING LEASES
The Company leases properties and equipment under operating lease
agreements. Future minimum rental payments required under operating leases that
have an initial or remaining noncancellable lease term in excess of one year, as
of December 31, 1996, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD ENDING
DECEMBER 31
-----------------------------------------------------------------------
<S> <C>
1997................................................................... $ 10
1998................................................................... 9
1999................................................................... 3
---
$ 22
===
</TABLE>
Lease expenses for property and equipment operating leases of $8,000 and
$7,000 have been included in total operating expenses for the period ended
December 31, 1996 and 1995, respectively.
10. CAPITALIZED INTEREST
The Company has capitalized interest paid in connection with the
construction of a new facility as a part of the cost of the facility. All
interest paid after the facility was completed and placed in service has been
expensed to operations.
<TABLE>
<CAPTION>
1996 1995
---- ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Interest costs capitalized................................ $ 17 $ 1
Interest expense charged to operations.................... 172 94
---- ---
Total interest expense incurred........................... $189 $95
==== ===
</TABLE>
11. SUBSEQUENT EVENT
The Company has signed a letter of intent to sell its assets to an
unrelated third party.
F-101
<PAGE> 204
BALANCED CARE CORP LOGO
SENIOR CARE FOR LIFE
<PAGE> 205
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses expected to be incurred
in connection with the issuance and distribution of the securities being
registered.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................ $26,684
NASD Fee................................................................... *
Nasdaq National Market Listing Fee......................................... *
Printing and Engraving Expenses............................................ *
Accounting Fees and Expenses............................................... *
Legal Fees and Expenses.................................................... *
Blue Sky Qualification Fees and Expenses................................... *
Transfer Agent Fees and Expenses........................................... *
Miscellaneous.............................................................. *
-------
Total............................................................ $ *
=======
</TABLE>
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article Ninth of the
Company's Certificate of Incorporation provides that the personal liability of
directors of the Company is eliminated to the fullest extent permitted by
Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his being a director or officer of the
corporation if it is determined that he acted in accordance with the applicable
standard of conduct set forth in such statutory provision. Article V of the
Company's By-Laws provides that the Company will indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
entity, against certain liabilities, costs and expenses. Article V further
permits the Company to maintain insurance on behalf of any person who is or was
a director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
entity against any liability asserted against such person and incurred by such
person in any such capacity or arising out of his status as such, whether or not
the Company would have the power to indemnify such person against such liability
under the DGCL. The Company maintains directors' and officers' liability
insurance.
The Underwriting Agreement filed as an exhibit hereto contains provisions
pursuant to which each Underwriter severally agrees to indemnify the Company,
any person controlling the Company
II-1
<PAGE> 206
within the meaning of Section 15 of the Securities Act of 1933, as amended, or
Section 20 of the Securities Exchange Act of 1934, as amended, each director of
the Company, and each officer of the Company who signs this registration
statement with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter expressly for use in this
registration statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, the Company sold shares of its capital stock
in the following transactions, each of which was intended to be exempt from the
registration requirements of the Securities Act of 1933, as amended, by virtue
of Section 4(2) thereof.
Common Stock
On September 20, 1995, the Company issued 773,062 shares of Common Stock to
Brad E. Hollinger, 463,837 shares of Common Stock to Robert J. Sutton, 116,250
shares of Common Stock to Brian L. Barth, 640,538 shares of Common Stock to KD
Investment and 331,312 shares of Common Stock to SAE Partners, in each case at a
price of $.0129 per share.
From September 1995 through January 1996, the Company issued an aggregate
of 258,333 shares of Common Stock to John Brennan at a price of $.0129 per
share.
On or prior to September 11, 1996 the Company issued an aggregate of
767,412 shares of Common Stock to Billy Ray Foster, Trustee, the Inter Vivos
Trust of Billy Ray Foster, as partial consideration in connection with the
Company's acquisition of Foster Health Care Group.
On or prior to September 11, 1996, the Company issued an aggregate of
337,484 shares of Common Stock to John D. Foster as partial consideration in
connection with the Company's acquisition of Foster Health Care Group.
On September 11, 1996, the Company issued 95,104 shares of Common Stock to
Bill R. Foster, Jr. as partial consideration in connection with the Company's
acquisition of Foster Health Care Group.
On January 31, 1997, the Company issued 93,750 shares of Common Stock to
James J. Blumer, Jr. and 93,750 shares of Common Stock to Michael P. Kelly, in
each case at a price of $1.33 per share in connection with the Company's
acquisition of Keystone.
On March 26, 1997, the Company issued 26,250 shares of Common Stock at a
price of $1.33 per share and 11,250 shares of Common Stock at a price of $2.00
per share to George Strong.
On April 1, 1997, the Company issued 16,479 shares of Common Stock to Roger
Breed at a price of $3.33 per share.
Series A Convertible Preferred Stock
From September 1995 through September 1996, the Company issued an aggregate
of 1,150,958 shares of Series A Convertible Preferred Stock to John Brennan at a
price of $2.00 per share.
Series B Convertible Preferred Stock
From September 1996 through March 1997, the Company issued an aggregate of
5,009,750 shares of Series B Convertible Preferred Stock as follows: 441,750
shares to Meditrust Mortgage Investments, Inc., 671,794 shares to Omega Ventures
II, L.P., 173,344 shares to Omega Ventures II Cayman, L.P., 109,928 shares to
Bayview Investors, Ltd., 554,735 shares to Crossover Fund II, L.P., 163,699
shares to Crossover Fund IIA, L.P., 40,000 shares to David L. Goldsmith and
Diane D. Goldsmith, Trustees, Goldsmith Family Trust, 394,875 shares to Boston
Safe Deposit and Trust Company, Trustee, US WEST Pension Trust, 131,625 shares
to Boston Safe Deposit and Trust Company, Trustee, US WEST Benefit Assurance
Trust, 700,000 shares to Juliet Challenger, Inc., 210,000 shares to Henry L.
Hillman, Elsie Hilliard Hillman and C.G. Grefenstette, Trustees, Henry L.
Hillman Trust, 70,000 shares to Thomas G. Bigley and C.G. Grefenstette,
Trustees, Trust for the Children of Juliet Lea Hillman Simonds, 70 shares to
Thomas G. Bigley and C. G. Grefenstette, Trustees, Trust for the Children of
Audrey Hillman Fisher,
II-2
<PAGE> 207
70,000 shares to Thomas G. Bigley and C. G. Grefenstette, Trustees, the Trust
for the Children of William Talbott Hillman, 70,000 shares to Thomas G. Bigley
and C. G. Grefenstette, Trustees, the Trust for the Children of Henry L.
Hillman, Jr., 210,000 shares to DBH Sec IV, L.P., 400,000 shares to RS Pacific
Venture L.P., 480,000 shares to HCO Partners IV-BCC, 8,000 shares to Mal Serure,
8,000 shares to Stanley Cayre, 8,000 shares to Frieda Cayre, Trustee (Jack S.
Cayre), 8,000 shares to Frieda Cayre, Trustee (Amin Cayre), 8,000 shares to
Frieda Cayre, Trustee (David Cayre), and 8,000 shares to Frieda Cayre, Trustee
(Robert Cayre), in each case at a price of $2.50 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement (to be filed by amendment)
2.1 Stock Purchase Agreement, dated as of July 26, 1996, by and among Billy Ray Foster,
Sr., both individually and as Trustee of the Revocable Inter-Vivos Trust Agreement of
Billy Ray Foster dated February 4, 1988, John Douglas Foster, Billy Ray Foster, Jr.,
J. Kaye Foster-Gibson, Robert Anthony Foster, Mark Bradley Foster and Hawthorn Health
Properties, Inc.*
2.2 Stock Purchase Agreement, dated as of August 30, 1996, by and between Hawthorn Health
Properties, Inc. and Balanced Care Corporation*
2.3 Merger Agreement, dated as of July 26, 1996, by and among Billy Ray Foster, Sr., both
individually and as Trustee of the Revocable Inter-Vivos Trust Agreement of Billy Ray
Foster dated February 4, 1988, John Douglas Foster, Billy Ray Foster, Jr., J. Kaye
Foster-Gibson, Robert Anthony Foster, Mark Bradley Foster, Balanced Care Corporation,
BCC at Republic Park Center, Inc. and National Care Centers of Republic, Inc.*
2.4 Merger Agreement, dated as of July 26, 1996, by and among Billy Ray Foster, Sr., both
individually and as Trustee of the Revocable Inter-Vivos Trust Agreement of Billy Ray
Foster dated February 4, 1988, John Douglas Foster, Billy Ray Foster, Jr., J. Kaye
Foster-Gibson, Robert Anthony Foster, Mark Bradley Foster, National Care Centers of
Nevada, Inc., Balanced Care Corporation, BCC at Nevada Park Care Center, Inc. and
National Care Centers of Nevada, Inc.*
2.5 Agreement of Sale, dated as of February 23, 1996, by and between Balanced Care
Corporation and Mount Royal Pines, L.P.*
2.6 Asset Purchase Agreement, dated as of February 28, 1996, by and between Balanced Care
Corporation and Senior Care of Wisconsin, Inc.*
2.7 Asset Purchase Agreement, dated as of December 27, 1996, by and between Balanced Care
Corporation and Bloomsburg Manor Personal Care and Retirement Center, Inc.*
2.8 Asset Purchase Agreement, dated as of December 27, 1996, by and between Balanced Care
Corporation and Kingston Health Care Center, Inc.*
2.9 Asset Purchase Agreement, dated as of December 27, 1996, by and between Balanced Care
Corporation and Kingston Manor Personal Care and Retirement Center, Inc.*
2.10 Asset Purchase Agreement, dated as of December 27, 1996, by and between Balanced Care
Corporation and Keystone Health Ventures, Inc.*
2.11 Asset Purchase Agreement, dated as of December 27, 1996, by and between Balanced Care
Corporation and Blakely-Pine Health Care Center, Inc.*
2.12 Asset Purchase Agreement, dated as of December 27, 1996, by and between Balanced Care
Corporation and West Side Manor Personal Care and Retirement Center, Inc.*
</TABLE>
II-3
<PAGE> 208
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
2.13 Asset Purchase Agreement, dated as of December 27, 1996, by and between Balanced Care
Corporation and Old Forge Manor Personal Care and Retirement Center, Inc.*
2.14 Purchase and Sale Agreement, dated as of December 27, 1996, by and between Balanced
Care Corporation and Keystone Development Group, Inc.*
2.15 Agreement of Amendment, dated as of February 6, 1997, to Purchase and Sale Agreement
dated as of December 27, 1996 by and between Balanced Care Corporation and Keystone
Development Group, Inc.*
2.16 Asset Purchase Agreement, dated as of April 8, 1997, by and among Balanced Care
Corporation, Barry G. Clark and Karen R. Clark, husband and wife, and Heavenly Health
Care, Inc. d/b/a Joe Clark Residential Care Homes*
2.17 Asset Purchase Agreement, dated as of September 18, 1997, by and between Balanced
Care Corporation and Butler Senior Care, Inc.*
2.18 Asset Purchase Agreement, dated as of September 3, 1997, by and among Balanced Care
Corporation, Delores Feltrop Nahar, with the joinder of Albert L. Nahar and Kenneth
A. Feltrop, with the joinder of Lori L. Feltrop, individually and d/b/a Feltrop
Personal Care Home*
2.19 Asset Purchase Agreement by and among Managed Healthcare, Inc., Long Term
Pharmaceutical Care, Inc., Balanced Care Corporation and Omnicare, Inc. dated as of
October 16, 1997 (filed herewith)
2.20 Asset Purchase Agreement by and between Balanced Care Corporation and Triangle
Retirement Services, Inc. dated as of October 24, 1997 (filed herewith)
2.21 Asset Purchase Agreement by and between Balanced Care Corporation and Gethsemane
Retirement Community and Rehabilitation Center, Inc. dated as of November 26, 1997
(filed herewith)
2.22 Asset Purchase Agreement by and between Balanced Care Corporation and Gethsemane
Assisted Living, Inc. dated as of November 26, 1997 (filed herewith)
3.1 Amended and Restated Certificate of Incorporation of Balanced Care Corporation*
3.2 Bylaws of Balanced Care Corporation, as amended*
4.1 Commitment Letter, dated as of September 20, 1995, by and between Balanced Care
Corporation and John Brennan in connection with Convertible Series A Preferred Stock*
4.2 Series B Stock Purchase Agreement, dated as of September 20, 1996, by and among
Balanced Care Corporation and certain investors listed on Schedule 1.1 thereto*
4.3 Agreement of Amendment to Series B Stock Purchase Agreement, dated as of October 25,
1996, by and among Balanced Care Corporation and certain persons*
4.4 Stock Restriction Agreement, dated as of September 20, 1996, by and among Balanced
Care Corporation, Brad E. Hollinger, Robert Sutton, Brian Barth, Kurt Meyer, William
McCarthy and Russell DiGilio and certain other persons listed thereto*
4.5 Registration Rights Agreement, dated as of September 20, 1996, by and among Balanced
Care Corporation and certain holders of shares, or rights to purchase shares, of
various classes of Common Stock and Preferred Stock of Balanced Care Corporation*
4.6 Termination and Release Agreement, dated as of September 20, 1996, by and among the
holders of Common Stock or Preferred Stock of Balanced Care Corporation*
4.7 Waiver of John Brennan, dated as of August 30, 1996, in connection with that certain
Capital Stock Purchase Warrant to be executed in favor of Hawthorn Health Properties,
Inc.*
</TABLE>
II-4
<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
4.8 Waiver of John Brennan, dated as of August 30, 1996, in connection with that certain
Capital Stock Purchase Warrant to be executed in favor of Meditrust Mortgage
Investments, Inc.*
4.9 Form of Capital Stock Purchase Warrant, together with schedule*
4.10 Form of Capital Stock Purchase Warrant, together with schedule*
4.11 Form of Capital Stock Purchase Warrant, together with schedule*
4.12 First Amendment to Capital Stock Purchase Warrant, dated as of April 15, 1997, by and
between Balanced Care Corporation and Meditrust Acquisition Corporation II*
5.1 Opinion of Kirkpatrick & Lockhart LLP as to the legality of the securities being
registered (to be filed by amendment)
10.1 Balanced Care Corporation 1996 Stock Option Plan as Amended and Restated, effective
July 25, 1997*
10.2 Master Distribution Agreement, dated as of March 3, 1997, between Sysco Corporation
and Balanced Care Corporation*
10.3 Sublease, dated as of January 16, 1997, by and between Ryder Truck Rental, Inc. and
Balanced Care Corporation*
10.4 Sublease, dated as of June 26, 1996, by and between Liberty Mutual Insurance Company
and Balanced Care Corporation*
10.5 Lease, dated as of January 16, 1997, by and among Cherokee Assisted Living, L.L.C.,
Nevada Independent Living, L.L.C. and Balanced Care Corporation*
10.6 Lease, dated as of January 25, 1990, by and between Dixon Care Centre, Inc. and Dixon
Oaks Health Center, Inc.*
10.7 Amendment to Lease and Assignment, dated as of October 1, 1990, by and among Noble
House of Dixon, Inc., Dixon Management, Inc. and Dixon Oaks Health Center, Inc.*
10.8 Second Lease Amendment, dated as of July 1, 1997, by and between Noble House of
Dixon, Inc. and Dixon Management, Inc.*
10.9 Sublease, dated as of October 1, 1996, by and between BCC at Mt. Royal Pines, Inc.
and BCC Therapies of Pennsylvania, Inc.*
10.10 Sublease, dated as of June 1, 1997, by and between BCC at State College, Inc. and BCC
Therapies of Pennsylvania, Inc.*
10.11 Form of Meditrust Leasehold Improvement Agreement, together with schedule (filed
herewith)
10.12 Form of Meditrust Facility Lease Agreement, together with schedule (filed herewith)
10.13 Form of Meditrust Security Agreement, together with schedule (filed herewith)
10.14 Mortgage and Security Agreement, dated as of May 2, 1996, by BCC of Wisconsin, Inc.
and Meditrust Mortgage Investments, Inc.*
10.15 Form of Meditrust Deed of Trust and Security Agreement, together with schedule*
10.16 Form of Meditrust Guaranty, together with schedule (filed herewith)
10.17 Form of Meditrust Guaranty, together with schedule*
10.18 Form of Meditrust Guaranty (Development), together with schedule (filed herewith)
10.19 Form of Meditrust Loan Agreement, together with schedule*
10.20 Form of Meditrust Promissory Note, together with schedule*
10.21 Form of Meditrust Environmental Indemnity Agreement, together with schedule (filed
herewith)
</TABLE>
II-5
<PAGE> 210
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
10.22 Form of Capstone Lease, together with schedule (filed herewith)
10.23 Form of Capstone Assignment and Security Agreement, together with schedule (filed
herewith)
10.24 Form of Capstone Assignment Agreement, together with schedule (filed herewith)
10.25 Form of Capstone Assignment of Rents and Leases, together with schedule (filed
herewith)
10.26 Form of Capstone Guaranty, together with schedule (filed herewith)
10.27 Form of Capstone Guaranty, together with schedule*
10.28 Form of Capstone Indemnity Agreement, together with schedule (filed herewith)
10.29 Form of Capstone Management Agreement, together with schedule*
10.30 Form of Capstone Assignment and Pledge of Deposit Account, together with schedule*
10.31 Form of Capstone Loan Agreement, together with schedule (filed herewith)
10.32 Form of Capstone Promissory Note, together with schedule (filed herewith)
10.33 Form of Capstone Mortgage, Security Agreement and Fixture Filing, together with
schedule (filed herewith)
10.34 Lease, dated as of March 21, 1996, by and between HCPI Trust and BCC at Mt. Royal
Pines, Inc.*
10.35 First Amendment, dated as of March 31, 1997, to Lease dated as of March 21, 1996 by
and between HCPI Trust and BCC at Mt. Royal Pines, Inc.*
10.36 Guaranty of Obligations, dated as of March 21, 1996, by and between HCPI Trust and
Balanced Care Corporation (filed herewith)
10.37 Employment Agreement, dated as of August 1, 1996, by and between Balanced Care
Corporation and Brad E. Hollinger*
10.38 Employment Agreement, dated as of May 1, 1996, by and between Balanced Care
Corporation and William T. McCarthy*
10.39 Employment Agreement, dated as of September 20, 1995, by and between Balanced Care
Corporation and Robert J. Sutton*
10.40 Employment Agreement, dated as of September 20, 1995, by and between Balanced Care
Corporation and Brian L. Barth*
10.41 Employment Agreement, dated as of September 1, 1996, by and among Foster Health Care
Group, Inc., John D. Foster and Balanced Care Corporation*
10.42 Assignment, Assumption and Consent Agreement, dated as of June 30, 1997, by and among
Foster Health Care Group, Inc., BCC Management Company at Missouri, Inc. and John
Foster*
10.43 Employment Agreement, dated as of November 24, 1997, by and between Balanced Care
Corporation and Stephen G. Marcus (filed herewith)
10.44 Consulting Agreement, dated as of October 3, 1996, by and between Balanced Care
Corporation and Kenneth F. Barber*
10.45 First Amendment, dated as of March 13, 1997, to the Consulting Agreement dated as of
October 3, 1996 by and between Balanced Care Corporation and Kenneth F. Barber*
11.1 Statement Regarding Computation of Earnings Per Share*
11.2 Statement Regarding Computation of Supplementary Earnings Per Share (filed herewith)
21.1 Schedule of Subsidiaries (filed herewith)
23.1 Consent of Kirkpatrick & Lockhart LLP (to be included in opinion to be filed as
Exhibit 5.1)
</TABLE>
II-6
<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
23.2 Consent of KPMG Peat Marwick LLP**
23.3 Consents of Coopers & Lybrand LLP**
23.4 Consent of Baird, Kurtz & Dobson**
23.5 Consent of Snyder & Clemente**
23.6 Consent of Hodge, Steward & Company, P.A.**
24.1 Power of Attorney*
27.1 Financial Data Schedule (filed herewith)
</TABLE>
- ------------
* Previously filed.
** Previously filed. A current consent will be filed with an amendment to this
registration statement prior to its being declared effective.
The registrant hereby agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any of the agreements filed as
exhibits hereto.
(b) The following financial statement schedule has been filed as part of
this registration statement, accompanied by a report of independent accountants
on such schedule:
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
for the years ended June 30, 1997 and 1996 and the period
April 17, 1995 (date of inception) to June 30, 1997
Financial statement schedules not listed above have been omitted because
they are inapplicable, are not required under applicable provisions of
Regulation S-X, or the information that would otherwise be included in such
schedules is contained in the registrant's financial statements or accompanying
notes.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-7
<PAGE> 212
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Borough of Mechanicsburg, Commonwealth of
Pennsylvania, on December 8, 1997.
BALANCED CARE CORPORATION
By: /s/ BRAD E. HOLLINGER
------------------------------------
Brad E. Hollinger
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ----------------------------- -------------------
<C> <S> <C>
/s/ BRAD E. HOLLINGER Chairman of the Board, December 8, 1997
- ------------------------------------------ President and Chief Executive
Brad E. Hollinger Officer (Principal Executive
Officer) and a Director
/s/ PAUL A. KRUIS Chief Financial Officer December 8, 1997
- ------------------------------------------ (Principal Financial Officer)
Paul A. Kruis
* Vice President--Finance and
- ------------------------------------------ Treasurer (Principal
Mark S. Moore Accounting Officer)
* Director
- ------------------------------------------
Kenneth F. Barber
* Director
- ------------------------------------------
John M. Brennan
* Director
- ------------------------------------------
Bill R. Foster
* Director
- ------------------------------------------
David L. Goldsmith
* Director
- ------------------------------------------
Edward R. Stolman
* Director
- ------------------------------------------
George H. Strong
*By: /s/ MARK S. MOORE December 8, 1997
- ------------------------------------------
Mark S. Moore
Attorney-in-Fact
</TABLE>
<PAGE> 214
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<S> <C> <C>
2.19 Asset Purchase Agreement by and among Managed Healthcare, Inc., Long Term
Pharmaceutical Care, Inc., Balanced Care Corporation and Omnicare, Inc.
dated as of October 16, 1997
2.20 Asset Purchase Agreement by and between Balanced Care Corporation and
Triangle Retirement Services, Inc. dated as of October 24, 1997
2.21 Asset Purchase Agreement by and between Balanced Care Corporation and
Gethsemane Retirement Community and Rehabilitation Center, Inc. dated as
of November 26, 1997
2.22 Asset Purchase Agreement by and between Balanced Care Corporation and
Gethsemane Assisted Living, Inc. dated as of November 26, 1997
10.11 Form of Meditrust Leasehold Improvement Agreement, together with schedule
10.12 Form of Meditrust Facility Lease Agreement, together with schedule
10.13 Form of Meditrust Security Agreement, together with schedule
10.16 Form of Meditrust Guaranty, together with schedule
10.18 Form of Meditrust Guaranty (Development), together with schedule
10.21 Form of Meditrust Environmental Indemnity Agreement, together with
schedule
10.22 Form of Capstone Lease, together with schedule
10.23 Form of Capstone Assignment and Security Agreement, together with
schedule
10.24 Form of Capstone Assignment Agreement, together with schedule
10.25 Form of Capstone Assignment of Rents and Leases, together with schedule
10.26 Form of Capstone Guaranty, together with schedule
10.28 Form of Capstone Indemnity Agreement, together with schedule
10.31 Form of Capstone Loan Agreement, together with schedule
10.32 Form of Capstone Promissory Note, together with schedule
10.33 Form of Capstone Mortgage, Security Agreement and Fixture Filing,
together with schedule
10.36 Guaranty of Obligations, dated as of March 21, 1996, by and between HCPI
Trust and Balanced Care Corporation
10.43 Employment Agreement, dated as of November 24, 1997, by and between
Balanced Care Corporation and Stephen G. Marcus
11.1 Statement Regarding Computation of Earnings Per Share
11.2 Statement Regarding Computation of Supplementary Earnings Per Share
21.1 Schedule of Subsidiaries
27.1 Financial Data Schedule
</TABLE>
- ------------
* The registrant hereby agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any of the agreements contained
herein.
<PAGE> 1
EXHIBIT 2.19
----------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND AMONG
MANAGED HEALTHCARE, INC.
(PURCHASER);
LONG TERM PHARMACEUTICAL CARE, INC.
(SELLER);
BALANCED CARE CORPORATION
(THE SHAREHOLDER);
AND
OMNICARE, INC.
(OMNICARE)
DATED AS OF OCTOBER 16, 1997
----------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
RECITALS: 1
1. AGREEMENT TO SELL AND AGREEMENT TO PURCHASE. 1
1.1 Assets to be Conveyed 1
1.2 Excluded Assets 3
1.3 Further Assurances 4
1.4 Closing 4
1.5 Trust 4
2. CONSIDERATION TO BE PAID BY PURCHASER 4
2.1 Purchase Price for Acquisition Assets; Payment Thereof 4
2.2 Allocation of Purchase Price 5
2.3 Liabilities Assumed by Purchaser 5
2.4 Election to Assume Certain Liabilities 6
2.5 Liabilities Not Assumed by Purchaser 6
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND OMNICARE 8
3.1 Organization, Good Standing, Authority and Enforceability 8
3.2 Agreement Not in Breach of Other Instruments 8
3.3 Compliance with Laws 8
3.4 No Legal Bar 9
3.5 No Brokerage Fees 9
3.6 Other Information 9
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND
THE SHAREHOLDER 9
4.1 Organization, Good Standing and Authority 9
4.2 Authorization of Agreement; Capital Stock 10
4.3 Ownership of Acquisition Assets 10
4.4 Financial Statements 10
4.5 Absence of Certain Changes 11
4.6 [Reserved] 11
<PAGE> 3
4.7 Tangible Personal Property Other Than Inventory 11
4.8 Intangible Personal Property 12
4.9 Inventory 12
4.10 Accounts Receivable 13
4.11 Insurance 13
4.12 [Reserved] 13
4.13 Employment Matters 13
4.14 Employee Benefit Plans 13
4.15 Freedom to Deal; Agreement Not in Breach of
Other Instruments 14
4.16 Tax Returns 14
4.17 Litigation 15
4.18 Compliance with Law 15
4.19 Brokerage 15
4.20 Contracts 15
4.21 No Undisclosed Liabilities 16
4.22 Other Material Circumstances 16
4.23 Other Information 16
4.24 Necessary Assets 17
4.25 Conflicts of Interest 17
5. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF
THE PARTIES 17
5.1 Access; Due Diligence 17
5.2 Confidentiality 17
5.3 Conduct of Business 18
5.4 Preservation of Organization 19
5.5 Current Information 19
5.6 Change of Name 19
5.7 Covenant Not to Compete 19
5.8 [Reserved] 20
5.9 Compliance with Bulk Sales Laws 20
5.10 [Reserved] 20
5.11 Condition to Transfer of Certain Contracts 20
5.12 Satisfaction of Leases 20
5.13 Prorations and Sales Tax 20
5.14 [Reserved] 20
5.15 Collection of Accounts Receivable 20
5.16 Employees 21
5.17 Tail Insurance 21
5.18 Patient Records 21
<PAGE> 4
6. CONDITIONS TO CLOSING. 21
6.1 Conditions to Obligations of Each Party 21
6.2 Conditions to Obligations of Purchaser and Omnicare 22
6.3 Conditions to Obligations of Seller and the Shareholder. 24
7. INDEMNIFICATION 26
7.1 Indemnification by Seller and the Shareholder 26
7.2 Indemnification by Purchaser and Omnicare 26
7.3 Determination of Loss 27
7.4 Indemnification Payments 27
7.5 Limitations on Indemnification 28
7.6 Notification 28
8. ADDITIONAL COVENANTS AND AGREEMENTS 28
8.1 Expenses 28
8.2 Survival of Representations and Warranties 28
8.3 Public Releases 29
8.4 Other Transactions Prohibited 29
9. TERMINATION; REMEDIES 29
9.1 Termination 29
9.2 Liability in the Event of Termination; Remedies 30
10. MISCELLANEOUS 30
10.1 Entire Agreement 30
10.2 Amendments 31
10.3 Successors; Assignment 31
10.4 Notices 31
10.5 Waiver 32
10.6 Severability 32
10.7 No Third Party Beneficiary 32
10.8 Applicable Law 32
10.9 [Reserved] 32
10.10 References to Best Knowledge 32
10.11 Counterparts 32
10.12 Omnicare Guarantee 32
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated as of
October 16, 1997, by and among MANAGED HEALTHCARE, INC., a Delaware corporation
("Purchaser"); LONG TERM PHARMACEUTICAL CARE, INC., a Missouri corporation
("Seller"); BALANCED CARE CORPORATION, a Delaware corporation (the
"Shareholder"); and OMNICARE, INC., a Delaware corporation ("Omnicare").
RECITALS:
A. WHEREAS, Seller is engaged in the business of selling and
distributing oral prescription pharmaceutical products, and medical and
surgical supplies and providing consultant pharmacy services to nursing homes
and other institutional care facilities and to patients resident in such
facilities, provided, however, that Seller is not engaged in the business of
selling and distributing enteral, urological or intravenous products (the
"Business");
B. WHEREAS, Seller conducts the principal operations of the
Business at 514 Fremont Road, Lebanon, Missouri 65536 and 426 South Jefferson
Street, Springfield, Missouri 65805 (together, the "Operations Facilities") and
at various client facilities;
C. WHEREAS, Purchaser is a second tier wholly owned
subsidiary of Omnicare;
D. WHEREAS, the Shareholder owns all of the issued and
outstanding shares of the capital stock of Seller as specifically set forth on
Exhibit A attached hereto; and
E. WHEREAS, Purchaser desires to purchase on a going-concern
basis the Business and substantially all of the assets of Seller used or usable
in the Business, and Seller desires to sell such assets and the Business to
Purchaser, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual
promises and covenants herein contained and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE> 6
1. AGREEMENT TO SELL AND AGREEMENT TO PURCHASE.
1.1. Assets to be Conveyed. On the terms and subject to the
conditions set forth herein, and except as provided in Section 1.2 hereof, on
the Closing Date (as such term is defined in Section 1.4 hereof), Seller shall
convey, sell, transfer, assign and deliver to Purchaser, and Purchaser shall
purchase, acquire and accept from Seller, on a going-concern basis, the
Business and the goodwill of Seller and all of the assets, properties and
rights of Seller of every kind and description, wherever located, tangible or
intangible, used or usable in connection with the Business (hereinafter
collectively referred to as the "Acquisition Assets"), including, but not
limited to, all rights, title and interest of Seller in, to and under:
(a) Inventories (including, without limitation,
inventories of pharmaceutical products, intravenous products and solutions,
medical products and supplies, and containers and other packaging materials) of
Seller which exist at the Closing Date and are purchased by Purchaser as
determined in accordance with Section 2.1(b) hereof (the "Inventory");
(b) Prepaid items, deposits and other similar assets of
Seller (the "Prepaid Expenses") including, without limitation, those items
listed on Schedule 1.1(b);
(c) [Reserved];
(d) Customer lists, computer software, software in
progress, rights in software used, but not owned, pursuant to license or
otherwise (all as listed on Schedule 1.1(d)), medical and patient records (to
the extent legally transferable) and all correspondence relating thereto and
data bases relating to or arising out of the Business;
(e) All rights of Seller under express or implied
warranties, to the extent that such warranties are transferable, from the
suppliers of Seller with respect to the Acquisition Assets;
(f) Subject to Sections 1.2(b), 5.11 and 5.12 hereof,
all of Seller's rights, title and interest in and to each lease, license,
contract, agreement, employee secrecy, pharmacy provider or confidentiality
agreement (to the extent transferable), written or oral, to which Seller is a
party at the Closing Date, by which any of the Acquisition Assets is then bound
or from which Seller benefits, including, without limitation, each of such
items listed as being assigned to and assumed by Purchaser on Schedule 1.1(f)
hereto, with copies of each item so listed having been previously delivered to
Purchaser (all of the foregoing to be assigned to Purchaser
<PAGE> 7
pursuant hereto are hereinafter referred to collectively as the "Contracts" and
individually as a "Contract");
(g) [Reserved];
(h) Machinery, equipment, telecommunications devices,
computers, tools, furniture, medication carts, medical equipment and other
similar items, whether or not located at the Operations Facility owned by
Seller and used exclusively in the Business, including, without limitation,
those assets set forth on Schedule 1.1(h) hereto (the assets to be conveyed to
Purchaser pursuant to this Section 1.1(h) are hereinafter referred to
collectively as the "Fixed Assets");
(i) To the extent transferable, licenses, trademarks and
trademark registrations (whether registered or to be registered in the United
States of America or elsewhere) applied for, issued to or owned by Seller, and
each trade name (including the "Long Term Pharmaceutical Care" name and all
goodwill of the Seller therein) and computer program owned by Seller or which
Seller has the right to use and assign to Purchaser, and which is used by the
Business, including those items listed on Schedule 1.1(i) hereto; and
(j) All other assets and property of Seller used in the
conduct of the Business which exist at the Closing Date, whether tangible,
intangible, real or personal.
1.2. Excluded Assets. Notwithstanding anything contained in
Section 1.1 hereof to the contrary, Seller is not selling, and Purchaser is not
purchasing, pursuant to this Agreement, any of the following, all of which
shall be retained by Seller (hereinafter referred to collectively as the
"Excluded Assets"):
(a) all cash or cash equivalents of Seller, subject to
the transfer of accrued payroll-related liabilities at the Closing Date for
which offsetting cash balances will be left on hand or deducted from the
Closing Date Payment (as defined in Section 2.1 hereof) pursuant to Section 2.4
hereof;
(b) Accounts and accounts receivable of the Business
existing at the Closing Date payable to Seller (including, without limitation,
all accounts and accounts receivable which have been "written off" or charged
against or to any bad debt reserve of Seller), and any security held by Seller
for the payment thereof (the accounts and accounts receivable to be retained by
Seller pursuant hereto are hereinafter called the "Accounts Receivable");
(c) all of Seller's right, title and interest in and to
the Operations Facilities (except as described in Section 1.1(h) hereof) and
the leases of the
2
<PAGE> 8
real property and improvements relating to the Operations Facilities (the
"Operations Facilities Leases");
(d) Seller's minute books, tax returns and other
corporate documents, and Seller's financial records and employment records;
provided, however, that Purchaser shall have reasonable access to such
employment records upon notice and the right to review and copy such records at
Purchaser's cost for as long as Seller maintains such records, which shall in
no event be less than three years from the Closing Date;
(e) all books, records, correspondence and other
information which relate exclusively to the assets and other interests of
Seller to be retained by it pursuant to the terms hereof;
(f) assets of Seller and the Shareholder unrelated to or
not utilized in the Business;
(g) loans to Seller's employees and other affiliated and
non- affiliated persons or entities and deferred charges relating to interest
on loan payments, as identified on Schedule 1.2(g) hereto;
(h) any tax refunds, prepaid taxes, insurance refunds
from prepaid insurance, insurance deposits or recoveries from claims with
respect to periods prior to the Closing Date;
(i) any insurance policies as identified on Schedule
1.2(i) hereto; and
(j) any property owned by the Shareholder which has been
used by Seller in the operation of the Business, as listed on Schedule 1.2(j)
hereto.
1.3. Further Assurances. From time to time after the Closing
(as hereinafter defined), Seller will execute and deliver to Purchaser such
instruments of sale, transfer, conveyance, assignment and delivery, consents,
assurances, powers of attorney and other similar instruments as may be
reasonably requested by Purchaser or its counsel in order to vest in Purchaser
all rights, title and interest of Seller in and to the Acquisition Assets and
otherwise in order to carry out the purposes and intent of this Agreement.
Notwithstanding any provision of this Agreement to the contrary, neither Seller
nor the Shareholder prior to the Closing shall (i) take any action that would
cause a material decrease in the value of the goodwill of the Business,
including but not limited to Seller's relationships with each of its customers,
or (ii) fail to take any action of which either Seller or the Shareholder
becomes aware that would prevent a material decrease in such value.
3
<PAGE> 9
1.4. Closing. The closing of the transactions herein
contemplated (the "Closing") shall, unless another date, time or place is
agreed to by the parties hereto, take place via facsimile transmissions,
overnight courier services and wire transfers of funds on October 16, 1997 (the
"Closing Date").
1.5 Trust. Seller shall hold in trust for the benefit of
Purchaser any of the Acquisition Assets that may not be transferred on the
Closing Date until such time as such transfer is legally permissible, subject
to the provisions of Section 5.10 hereof.
2. CONSIDERATION TO BE PAID BY PURCHASER.
2.1. Purchase Price for Acquisition Assets; Payment Thereof.
(a) The purchase price for the Acquisition Assets (the
"Purchase Price") shall be Four Million Eight Hundred Thousand Dollars
($4,800,000), plus the value of the Inventory as of the Closing Date, as
determined in accordance with Section 2.1(b) hereof. The Purchase Price shall
be paid as follows:
(i) At the Closing, Purchaser shall pay to Seller
Four Million Three Hundred Thousand Dollars ($4,300,000) (the "Closing Date
Payment") in cash, by certified check or by wire transfer ("Immediately
Available Funds").
(ii) At the Closing, Purchaser shall deliver to The
Fifth Third Bank (the "Escrow Agent"), as escrow agent, the sum of Five Hundred
Thousand Dollars ($500,000) in Immediately Available Funds (the "Holdback
Payment"), pursuant to the terms of an Escrow Agreement by and among Omnicare,
Purchaser, Seller and the Escrow Agent, substantially in the form of Exhibit B,
attached hereto (the "Escrow Agreement").
(iii) Within ten (10) days after the completion of
the taking and pricing of the Inventory, Purchaser shall pay to Seller in
Immediately Available Funds an amount equal to the aggregate value of the
Inventory determined in accordance with Section 2.1(b) hereof.
(b) Within ten (10) days after the Closing Date,
Purchaser and Seller shall cause an independent third party inventory counting
firm selected by them to take a physical count of the inventory of Seller as of
the Closing Date, and, thereafter, the Inventory shall be valued as follows:
(i) each item of usable and saleable Inventory shall
be valued at Omnicare's "acquisition" cost (i.e. purchase price, net of any
applicable rebates); and
4
<PAGE> 10
(ii) each item of nonsaleable inventory shall be
retained by Seller and not acquired by Purchaser hereunder.
2.2. Allocation of Purchase Price. The Purchase Price shall
be allocated among the Acquisition Assets as set forth on Schedule 2.2 hereto.
Seller and Purchaser jointly shall complete and separately file Form 8594 with
their respective federal income tax returns for the tax year in which the
Closing Date occurs in accordance with such agreed procedures and guidelines,
and neither Seller nor Purchaser shall, without the written consent of the
other, take a position on any tax return before any governmental agency charged
with the collection of any such tax, or in any judicial proceeding, that is in
any manner inconsistent with the terms of any such allocation.
2.3. Liabilities Assumed by Purchaser. As further
consideration for the consummation of the transactions contemplated hereby, on
the Closing Date, Purchaser and Seller shall execute an Assignment and
Assumption Agreement in form and substance substantially identical to Exhibit C
attached hereto, pursuant to which Purchaser shall assume, and agree thereafter
to pay or perform when due, the executory liabilities and obligations of Seller
under each Contract to be assumed as provided herein to the extent such
liabilities and obligations are required to be paid or performed after the
Closing Date (the "Assignment and Assumption Agreement").
2.4. Election to Assume Certain Liabilities. On the Closing
Date, if the parties mutually agree, Purchaser shall assume those accrued
payroll, accrued vacation and accrued sick pay liabilities (and related payroll
taxes) as of the Closing Date, as set forth on Schedule 2.4 hereto, so long as
either (i) Seller pays to Purchaser on the Closing Date, in Immediately
Available Funds, an amount equal to the liabilities assumed by Purchaser
pursuant to this Section 2.4, or (ii) Purchaser subtracts from the Closing Date
Payment an amount equal to the liabilities assumed pursuant to this Section
2.4. Purchaser agrees to refund any such amount to Seller that subsequently
may be found to have been an overpayment of, and Seller agrees to pay any
additional amount that subsequently may be required to compensate Purchaser
for, any liabilities assumed by Purchaser pursuant to this Section 2.4.
2.5. Liabilities Not Assumed by Purchaser. Purchaser shall
not be deemed by anything contained in this Agreement to have assumed any
liabilities, obligations, expenses or indebtedness (including any principal,
interest or other amount owing in respect of any such indebtedness) of Seller
of any nature whatsoever, whether absolute, accrued, contingent or otherwise,
unless specifically assumed by Purchaser pursuant to Sections 2.3 and 2.4
hereof, including but not limited to:
5
<PAGE> 11
(a) Any liability of Seller to any person or entity the
existence of which constitutes a breach of any covenant, agreement,
representation or warranty of Seller contained in this Agreement;
(b) Any liability of Seller for any federal, state,
local or foreign income, franchise, sales, use, withholding or property taxes
or other taxes of any kind or description (and any fine, penalty or interest
with respect thereto);
(c) Except as provided pursuant to Section 2.4 hereof,
any and all employee compensation, employee benefit, vacation, severance,
pension, profit sharing and other retirement obligations, and tax liabilities
incurred in connection therewith, that have accrued during the course of
Seller's employment of each of its employees (each, an "Employee") or each
person who in the past has worked for Seller (each, a "Former Employee"),
including, without limitation, any accrued or other liability for contributions
or payments to be made in respect of participation by any Employee or Former
Employee in any employee pension benefit plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
employee welfare benefit plan (as defined in Section 3(1) of ERISA) or any
other employee benefit plan maintained for the employees of Seller
(collectively, the "ERISA Plans"). Purchaser expressly assumes no liabilities
or obligations with respect to any of the ERISA Plans, whether or not described
or listed on Schedule 4.14 attached hereto and whether or not such liabilities
arise from the transactions contemplated herein, including, without limitation,
(i) health care continuation liability under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), and (ii) ERISA pension
liability. Except as provided in Section 2.4 hereof, Seller shall remain liable
and responsible for and pay all taxes, as such term is used in Section 4.16
hereof, for all time periods prior to and including the Closing Date, relating
to employee wages, salaries and benefits. Seller, to the extent required by
law, regulations or interpretations, shall be liable and responsible for all
obligations to give notice of and to provide health care continuation coverage
for Employees, Former Employees and their respective dependents and qualified
beneficiaries, in accordance with the requirements of COBRA (hereinafter
referred to as "COBRA Coverage"), including, without limitation, all
liabilities, taxes, sanctions, interest and penalties imposed upon, incurred by
or assessed against Purchaser or any affiliated corporation within a controlled
group relationship with Purchaser (as determined under Section 414 of the
Internal Revenue Code of 1986, as amended (the "Code")), and any of their
employees, arising by reason of or relating to any failure to provide the COBRA
Coverage, including, but not limited to, Purchaser's failure to provide COBRA
Coverage to Employees or Former Employees who are receiving COBRA Coverage
under Seller's plans at the Closing Date as well as any of Seller's Employees
who are not hired by Purchaser. In addition, to the extent required by law,
regulations or interpretations, Seller shall be responsible for providing
notice of the availability of COBRA Coverage to all of its Employees and Former
Employees, including any Employees of Seller who will not be employed by
Purchaser
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immediately after the Closing Date, and all such employees' dependents,
entitled to such notice because of a qualifying event occurring before or on
the Closing Date or as a result of the Closing, and for providing COBRA
Coverage for all such employees or their dependents, who elect or have elected
such coverage;
(d) Any liability or obligation (contingent or
otherwise) of Seller arising out of any threatened or pending litigation,
whether or not set forth on Schedule 4.17 attached hereto;
(e) Any liability, obligation or damage to persons or
property arising out of defects in products sold or services provided by Seller
prior to the Closing Date;
(f) Any other liability or obligation of Seller under
any Contract which is required to be paid or performed prior to the Closing
Date;
(g) Any liability for any account, account payable,
note, note payable or other amount payable by Seller to the Shareholder;
(h) Any liability for any account, account payable,
Contract, note or note payable, whether due or to become due, of Seller of any
nature whatsoever, other than those liabilities specifically assumed by
Purchaser pursuant to Sections 2.3 and 2.4 hereof;
(i) Any negative cash balances, book overdrafts, held
checks or similar liabilities of Seller; and
(j) Any liability or obligation (contingent or
otherwise) of Seller arising out of or in connection with any federal, state,
local or foreign laws which relate to protection of human health, public
welfare or the environment.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND OMNICARE.
Purchaser and Omnicare, jointly and severally, represent and
warrant to Seller and the Shareholder that:
3.1. Organization, Good Standing, Authority and
Enforceability. Each of Purchaser and Omnicare is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each has full authority and power to carry on its business as it is now
conducted, and to own, lease and operate the assets owned, leased or operated
by it. On or before the Closing Date, Purchaser shall be qualified to do
business in the State of Missouri. Each of Purchaser and Omnicare
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has all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby, subject to the approval
of the sole shareholder and the board of directors of Purchaser and the board
of directors of Omnicare. Such approvals will not be obtained prior to the
signing of this Agreement; Purchaser shall promptly advise Seller in writing
when such approvals have been obtained. This Agreement and each other agreement
herein contemplated to be executed in connection herewith by Purchaser or
Omnicare have been (or upon execution will have been) duly executed and
delivered by Purchaser or Omnicare, as the case may be, and constitute (or upon
execution will constitute) legal, valid and binding obligations of Purchaser or
Omnicare, as the case may be, enforceable against Purchaser or Omnicare, as the
case may be (subject to the approval of the sole shareholder of Purchaser and
the respective boards of directors of Purchaser and Omnicare as provided
above), in accordance with their respective terms.
3.2. Agreement Not in Breach of Other Instruments. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof will not violate or
result in a breach of any of the terms or provisions of, or constitute a
default (or any event which, with notice or the passage of time, or both, would
constitute a default) under, or conflict with or result in the termination of,
or accelerate the performance required by, (i) any agreement, indenture or
other instrument to which Purchaser or Omnicare is a party or by which either
of them is bound, (ii) the Certificates of Incorporation or Bylaws of Purchaser
or Omnicare, (iii) any judgment, decree, order or award of any court,
governmental body or arbitrator by which Purchaser or Omnicare is bound, or
(iv) any law, rule or regulation applicable to Purchaser or Omnicare.
3.3. Compliance with Laws. All consents, approvals and
authorizations and all other requirements prescribed by any law, rule or
regulation which must be obtained or satisfied by Purchaser and which are
necessary for the execution and delivery by Purchaser of this Agreement and the
documents to be executed and delivered by Purchaser in connection herewith and
in order to permit the consummation of the transactions contemplated by this
Agreement have been obtained and satisfied or shall be obtained and satisfied
by Closing.
3.4. No Legal Bar. Neither Purchaser nor Omnicare is
prohibited by any order, writ, injunction or decree of any body of competent
jurisdiction from consummating the transactions contemplated by this Agreement
and all other agreements referenced herein, and no such action or proceeding is
pending against Purchaser or Omnicare which questions the validity of this
Agreement or any such other agreements, any of the transactions contemplated
hereby or thereby or any action which has been taken by any of the parties in
connection herewith or therewith or in connection with any of the transactions
contemplated hereby or thereby.
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3.5. No Brokerage Fees. No broker or finder has acted for
Purchaser or Omnicare in connection with this Agreement or the transactions
contemplated hereby, and no broker or finder is entitled to any brokerage or
finder's fees or other commission in respect of such transactions based in any
way on agreements, arrangements or understandings made by or on behalf of
Purchaser or Omnicare.
3.6 Other Information. The information concerning Purchaser
and Omnicare set forth in this Agreement, the Schedules hereto and any document
to be delivered by Purchaser or Omnicare at the Closing to Seller pursuant
hereto, does not and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein, in
light of the circumstances under which they are made, not false or misleading.
Copies of all documents heretofore or hereafter delivered or made available to
Seller pursuant hereto were or will be complete and accurate copies of such
documents.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDER.
Seller and the Shareholder, jointly and severally, represent
and warrant to Purchaser and Omnicare that:
4.1. Organization, Good Standing and Authority. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Missouri. Seller has full authority and power to carry on
its business as it is now conducted, and to own or lease, and operate, the
Acquisition Assets. Seller is qualified to do business and is in good standing
and has all required and appropriate licenses in each jurisdiction in which its
failure to obtain or maintain such qualification, good standing or licensing
would have a material and adverse effect on the condition (financial or
otherwise), assets, properties or prospects of the Business.
4.2. Authorization of Agreement; Capital Stock. Seller has
all requisite power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, subject to the approval of the
sole shareholder and the board of directors of Seller and the board of
directors of the Shareholder. Such approvals may not be obtained prior to the
signing of this Agreement; Seller shall promptly advise Purchaser in writing
when such approvals have been obtained. This Agreement and each other agreement
and instrument to be executed by Seller and the Shareholder in connection
herewith have been (or upon execution will have been) duly executed and
delivered by Seller and the Shareholder, as the case may be, have been
effectively authorized by all necessary corporate action and constitute (or
upon execution will constitute) legal, valid and binding obligations of Seller
and the
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<PAGE> 15
Shareholder, enforceable against each of them (subject to the approval of the
sole shareholder of Seller and the respective boards of directors of Seller and
the Shareholder) in accordance with their respective terms. The Shareholder
owns all of the shares of the capital stock of Seller as set forth on Exhibit A
attached hereto, which shares constitute all of the issued and outstanding
shares of the capital stock of Seller.
4.3. Ownership of Acquisition Assets. Seller is the lawful
owner of or has the right to use and shall at Closing have the right to
transfer to Purchaser each of the Acquisition Assets, and, except as disclosed
on Schedule 4.3 attached hereto, the Acquisition Assets are free and clear of
all liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances and claims of any kind or nature whatsoever. The
delivery to Purchaser of the instruments of transfer of ownership contemplated
by this Agreement will:
(a) with respect to the Acquisition Assets other than
those listed on Schedule 1.1(f), vest good and marketable title to such assets
in Purchaser on the Closing Date, free and clear of all liens, mortgages,
pledges, security interests, restrictions, prior assignments, encumbrances and
claims of any kind or nature whatsoever; and
(b) with respect to the Acquisition Assets described in
Sections 1.1(e) and 1.1(f) hereof, provide Purchaser with all rights of
possession and/or enforcement to allow Purchaser the opportunity to realize the
full benefits of such items in accordance with the terms of any written or oral
agreements underlying such assets.
4.4. Financial Statements.
(a) Annual Financial Statements. Included with Schedule
4.4(a) attached hereto are the balance sheets of the Business as of June 30,
1997, and the related statements of income for the fiscal year then ended, as
prepared by Seller (collectively, the "Annual Financial Statements"). Except as
disclosed on Schedule 4.4(a), the Annual Financial Statements (i) have been
prepared in accordance with the books and records of Seller, (ii) have been
prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods covered thereby, (iii) fairly
present in all material respects the financial condition and the results of
operations of the Business as of the relevant dates thereof and for the periods
covered therein, and (iv) contain and reflect all necessary adjustments and
accruals, including, without limitation, contractual allowances related to
Medicaid and Medicare revenues, for a fair presentation of the financial
condition and results of operations of the Business as of the relevant dates
thereof and for the periods covered by the Annual Financial Statements.
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(b) Interim Financial Statements. Included with Schedule
4.4(b) attached hereto is an unaudited balance sheet and the related statement
of income of the Business as of and for the two-month period ended August 31,
1997 prepared by Seller (collectively, the "Interim Financial Statements").
Except as disclosed on Schedule 4.4(b), such Interim Financial Statements (i)
have been prepared in accordance with the books and records of Seller; (ii)
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the period covered thereby; (iii) fairly
present in all material respects the financial condition and results of
operations of the Business as of the date thereof and for the period covered
therein; and (iv) contain and reflect all necessary adjustments and accruals,
subject to normal year-end adjustments and including, without limitation,
contractual allowances related to Medicaid and Medicare revenues, for a fair
presentation of the financial condition and the results of operations of the
Business as of the date thereof and for the period covered by the Interim
Financial Statements.
4.5. Absence of Certain Changes. Except as disclosed on
Schedule 4.5 attached hereto or as otherwise provided for or contemplated in
this Agreement, since the date of the Interim Financial Statements, there has
not been any (i) transaction or occurrence relating to the Business or the
Acquisition Assets other than in the ordinary course of business, (ii) sale or
disposition of any Fixed Assets of Seller, (iii) sale or disposition of
Inventory other than in the ordinary course of business, or (iv) event or
condition of any character which could have or has had a material and adverse
effect on the condition (financial or otherwise), assets, properties, customer
or employee relations, or prospects of the Business.
4.6. [Reserved].
4.7. Tangible Personal Property Other Than Inventory. Except
as indicated on Schedule 4.7:
(a) Seller has good and marketable title to each item of
tangible personal property included in the Acquisition Assets, each of which it
owns free and clear of all liens, leases, encumbrances, claims under bailment
and storage agreements, equities, conditional sales contracts, security
interests, charges and restrictions except for liens, if any, for personal
property taxes not yet due and payable;
(b) To the best knowledge of Seller and the Shareholder,
each item of tangible personal property not owned by Seller, but subject to a
lease agreement being assigned to Purchaser as a part of the Acquisition
Assets, is currently in such condition that, upon the return of such property
to its owner in its present condition at the end of the relevant lease term or
as otherwise contemplated by the applicable agreement between Seller and the
owner or lessor thereof, the obligations of
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<PAGE> 17
Seller to such owner or lessor would be discharged without further obligation
or the payment of any termination fee, penalty or other fees;
(c) The tangible personal property included in the
Acquisition Assets and considered in the aggregate is, and as of the Closing
Date shall be, in all material respects in good operating condition and repair,
ordinary wear and tear excepted; and
(d) Seller owns or otherwise has the right to use all of
the tangible personal property now used by it in the operation of the Business
or the use of which is necessary for the performance of any contract or
proposal to which Seller is a party.
4.8. Intangible Personal Property. Schedules 1.1(d) and
1.1(i) hereto include (i) a list and description of all intangible personal
property owned by Seller or used in the Business, including, but not limited
to, computer software and programs, software in progress, computer operating
systems and applications, United States and foreign patents, patent
applications, trade names, trademarks, trade name and trademark registrations,
copyright registrations and applications for any of the foregoing, and (ii) a
true and complete list of all licenses or similar agreements or arrangements to
which Seller is a party either as licensee or licensor for each such item of
intangible personal property. Except as indicated on Schedule 4.8:
(a) Seller owns or has the right to use such intangible
personal property, free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims;
(b) No interference actions or other judicial or
adversary proceedings concerning any of such items of intangible personal
property are pending, and, to the best knowledge of Seller and the Shareholder,
no such action or proceeding is threatened;
(c) Seller has the right and authority to use such items
of intangible personal property in connection with the conduct of the Business
in the manner presently conducted, and, to the best knowledge of Seller and the
Shareholder, such use does not conflict with, infringe upon or violate any
rights of any other person, firm or corporation;
(d) There are no outstanding or, to the best knowledge
of Seller and the Shareholder, threatened disputes or other disagreements with
respect to any licenses or similar agreements or arrangements described on
Schedule 1.1(d) or 1.1(i); and
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(e) There is no intangible personal property currently
used in the operations of the Business as presently conducted which is not
owned by or licensed to Seller.
4.9. Inventory. The Inventory is used in the ordinary course
of the Business, and the quantities of all Inventory items are justified in
light of the present and anticipated volume of the Business. The Inventory is
good, usable, merchantable and saleable in the ordinary course of the Business.
4.10. Accounts Receivable. Schedule 4.10 attached hereto sets
forth a true and complete list of the Accounts Receivable.
4.11. Insurance. Schedule 4.11 attached hereto sets forth a
true and correct list of all insurance policies (including binders, declaration
pages and endorsements) of any nature whatsoever maintained by Seller on the
date of this Agreement and describes the annual or other premiums payable from
time to time thereunder. Complete copies of all such policies have been
furnished to Purchaser. Except as disclosed on Schedule 4.11, to the best
knowledge of Seller and the Shareholder, there are no outstanding requirements
or recommendations by any insurance company or by any Board of Fire
Underwriters or other similar body exercising similar functions or by any
governmental authority exercising similar functions which require or recommend
any changes in the conduct of the Business, or any repairs or other work to be
done on or with respect to any of the properties, vehicles or assets of Seller.
Except as set forth on Schedule 4.11, Seller has received no written notice or
other written communication from any such insurance company within the three
(3) years preceding the date hereof canceling or materially amending any
insurance policies or materially increasing the annual or other premiums
payable under any of such insurance policies and no such cancellation,
amendment or material increase of premiums is or has been threatened.
4.12. [Reserved].
4.13. Employment Matters. Except as set forth on Schedule
4.13 attached hereto (i) there are no pending claims by any Employee or Former
Employee against Seller other than for compensation and benefits due in the
ordinary course of employment, (ii) there are no pending claims against Seller
arising out of any statute, ordinance or regulation relating to employment
practices or occupational or safety and health standards, (iii) there are no
pending or, to the best knowledge of Seller and the Shareholder, threatened
labor disputes, strikes or work stoppages against Seller, and (iv) there are no
union organizing activities in process or contemplated with respect to the
Business. Schedule 4.13 identifies all collective bargaining units which have
been certified or recognized by Seller, and Purchaser has been supplied with
all collective bargaining agreements covering the Employees. Schedule 4.13 also
identifies all
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Employees on leave of absence and all Employees and Former Employees and their
dependents receiving health benefits, or eligible to receive health benefits,
as required by COBRA. Notice of the availability of healthcare continuation
coverage for Employees, Former Employees and their respective dependents, in
accordance with the requirements of COBRA will have been provided to all
persons entitled thereto, and all persons electing such coverage are being (or
have been, if applicable) provided such coverage.
4.14. Employee Benefit Plans. Schedule 4.14 attached hereto
lists all plans, programs, agreements, commitments and arrangements maintained
by or on behalf of Seller that provide benefits or compensation to, or for the
benefit of, any Employee or Former Employee of Seller (the "Plans"). Except as
set forth on Schedule 4.14, only Employees and Former Employees (and eligible
dependents and beneficiaries of such Employees and Former Employees)
participate in the Plans. All of the Plans covered thereby are in compliance in
all respects with ERISA and the Code. All of the Plans which are intended to
meet the requirements of Section 401(a) of the Code have been determined by the
Internal Revenue Service to be "qualified" within the meaning of Section 401(a)
of the Code, and, to the best knowledge of Seller and the Shareholder, there
are no facts which would adversely affect the qualified status of any of the
Plans. Except as set forth on Schedule 4.14, (i) there is no accumulated
funding deficiency, within the meaning of Section 412(a) of the Code or Section
302(a)(2) of ERISA, in connection with the Plans; (ii) no reportable event, as
defined in Section 4043(b) of ERISA, has occurred in connection with the Plans;
(iii) the Plans have not, nor has any trustee or administrator of the Plans,
engaged in any prohibited transaction as defined in Sections 406 and 407 of
ERISA or Section 4975 of the Code; (iv) Seller is not contributing to, and has
not, since January 1, 1974, contributed to, any multi-employer plan, as defined
in Section 4001(a)(3) of ERISA; and (v) Seller has not, since January 1, 1974,
terminated a single-employer plan, as defined in Section 4001(a)(15) of ERISA.
4.15. Freedom to Deal; Agreement Not in Breach of Other
Instruments. Seller and the Shareholder are free to deal with Purchaser and
Omnicare, and to sell the Business and Acquisition Assets to Purchaser. Except
as set forth on Schedule 4.20 attached hereto, the execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and
the fulfillment of the terms hereof will not violate or result in a breach of
any of the terms and provisions of, or constitute a default (or an event which,
with notice or the passage of time, or both, would constitute a default) under,
or conflict with or result in the termination of, or accelerate the performance
required by, any (i) agreement, indenture or other instrument to which Seller
is a party or by which Seller is bound, (ii) Seller's Articles of
Incorporation, Bylaws or similar organizational documents, (iii) any judgment,
decree, order or award of any court, governmental body or arbitrator by which
Seller is bound, or (iv) any law, rule or regulation applicable to Seller.
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4.16. Tax Returns. Except as disclosed on Schedule 4.16
attached hereto:
(a) Within the times and in the manner prescribed by
law, Seller has filed all federal, state and local tax returns (including
information returns) and all tax returns for foreign countries, provinces and
other governing bodies having jurisdiction to levy taxes upon Seller, and has
paid all taxes shown to be due to any taxing authority with respect to all
periods ending prior to or on the Closing Date;
(b) All tax returns filed by Seller through the Closing
Date constitute complete and accurate representations of the tax liabilities of
Seller as appropriate (and any predecessor or subsidiary entity) for such years
and accurately set forth all items (to the extent required to be included or
reflected in such returns) relevant to its future tax liabilities, including
the tax bases of its properties and assets; and
(c) All deposits and payment of taxes required to be
made have been fully paid and deposited in a timely manner.
As used in this Section 4.16, the term "taxes" shall
include all federal, state, local, foreign or other income, gross profits,
payroll, workers' compensation, unemployment, withholding, excise, sales, use,
property, ad valorem or other taxes of any kind or nature whatsoever, together
with any penalties or interest applicable thereto.
4.17. Litigation. Except as listed on Schedule 4.17 attached
hereto, there is no action, suit, proceeding or investigation to which Seller
is a party (either as a plaintiff or defendant) presently pending, nor has any
such action, suit, proceeding or investigation been pending at any time since
[September 1, 1996], before any court or governmental agency, authority or body
or arbitrator; to the best knowledge of Seller and the Shareholder, (i) there
is no action, suit, proceeding or investigation threatened against Seller, and
(ii) there has been no such action, suit, proceeding or investigation pending
involving the Business between January 1, 1995 and September 1, 1996; and, to
the best knowledge of Seller and the Shareholder, there is no basis for any
such action, suit, proceeding or investigation.
4.18. Compliance with Law. Seller now and at all times since
[September 1, 1996], holds and has held all licenses and permits in all
applicable jurisdictions necessary or appropriate to conduct the Business, and
the Business is being and has been conducted in compliance in all material
respects with all applicable laws and regulations, including, without
limitation, Medicare and Medicaid fraud and abuse laws and regulations. To the
best knowledge of Seller and the Shareholder, between January 1, 1995 and
September 1, 1996, the Business has been conducted in compliance in all
material respects with all applicable laws and regulations.
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4.19. Brokerage. Neither Seller nor the Shareholder has dealt
with, or is obligated to make any payment to, any finder, broker, investment
banker or financial advisor in connection with any of the transactions
contemplated by this Agreement or the negotiations looking toward the
consummation of such transactions.
4.20. Contracts. Schedule 1.1(f) hereto sets forth a true and
correct list of each Contract including, without limitation, pharmacy vending
and consulting pharmacist agreements. True, complete and correct copies of each
of the Contracts, or where they are oral, true and complete written summaries
thereof, have been delivered to Purchaser by Seller. Except as expressly
described on Schedule 4.20 attached hereto:
(a) Seller has fulfilled all material obligations
required pursuant to each Contract to have been performed by Seller, and there
is no reason to believe that Seller through the Closing Date will not be able
to fulfill, when due, all of its obligations under the Contracts which remain
to be performed after the date hereof and prior to the Closing Date;
(b) There has not occurred any default under any of the
Contracts on the part of Seller or, to the best knowledge of Seller and the
Shareholder, any other party thereto, nor has Seller received notice of default
under any of the Contracts from any other party thereto or sent notice of
default under any of the Contracts to any other party thereto; to the best
knowledge of Seller and the Shareholder, no event has occurred which, with the
giving of notice or the lapse of time, or both, would constitute a default on
the part of Seller under any of the Contracts, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any other party to any of the Contracts;
and
(c) No consent of any party to any of the Contracts is
required for the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby or the assignment of any
Contract to Purchaser.
4.21. No Undisclosed Liabilities. Except as and only to the
only extent specifically reflected or reserved against in the Annual Financial
Statements or Interim Financial Statements, and except for ongoing operating
expenses incurred in the ordinary course of the Business, to the best knowledge
of Seller and the Shareholder, Seller has no liabilities or obligations of a
material nature, whether absolute, accrued, contingent or otherwise, or whether
due or to become due (including, without limitation, any liability for taxes,
interest, penalties or other charges payable with respect to any such
liability), except as specifically set forth elsewhere in this Agreement or in
the Schedules attached hereto.
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4.22. Other Material Circumstances. There is no material fact
or circumstance related to the Business, Acquisition Assets or liabilities of
Seller which constitutes or would constitute a serious threat to the viability
or survival of the Business as an asset owned and operated by Purchaser. To the
best knowledge of Seller and the Shareholder, no customer or supplier of the
Business intends to reduce materially the level of business which it currently
does with the Business after the Business is acquired by Purchaser as
contemplated herein. To the best knowledge of Seller and the Shareholder, no
current employee of the Purchaser intends not to accept Purchaser's offer of
employment or to terminate such employment within 90 days after the Closing.
4.23. Other Information. The information concerning Seller
set forth in this Agreement, the Schedules hereto and any document to be
delivered by Seller or the Shareholder at the Closing to Purchaser pursuant
hereto, does not and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein, in
light of the circumstances under which they are made, not false or misleading.
Seller has provided to Buyer all material information related to the Business
and the Acquisition Assets. Copies of all documents heretofore or hereafter
delivered or made available to Purchaser pursuant hereto were or will be
complete and accurate copies of such documents.
4.24. Necessary Assets.The Acquisition Assets include
substantially all of the assets that have been used by Seller in the operation
of the Business and neither Seller nor the Shareholder has any reason to
believe that the Acquisition Assets do not constitute all the assets necessary
for Purchaser to operate the Business after Closing, in the same manner Seller
has operated the Business prior to Closing.
4.25. Conflicts of Interest. To the best knowledge of Seller
and the Shareholder, except as disclosed in Schedule 4.25 hereto, no officer,
director or employee of Seller, now has, or within the past three (3) years has
had, a majority or controlling interest in any corporation, partnership, joint
venture, association, organization or other entity which (a) furnishes or
sells, or during such period furnished or sold, any services or products used
by Seller in the Business, or purchases, or during such period purchased, any
products or services relating to the Business from Seller, or (b) owns or
operates any one or more nursing homes or other institutional long-term care
facilities within the geographic area described in the Non-competition
Agreements referred to in Section 5.7 hereof, which receives, or during such
period received, any supplies or services from Seller relating to the Business.
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5. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
5.1. Access; Due Diligence. Between the date hereof and the
Closing Date, (i) authorized representatives of Purchaser shall have reasonable
access to all properties, books, records, Contracts and documents of Seller,
(ii) Seller and the Shareholder will furnish to Purchaser all information with
respect to Seller's affairs and the Business that Purchaser may reasonably
request, and (iii) Purchaser shall have the right to discuss the affairs and
the Business of Seller with the Employees; provided, however, that Purchaser
shall not contact any Employee, customer or supplier of Seller unless such
Employee, customer or supplier previously has been designated in writing by the
Shareholder, or Purchaser receives the prior authorization of the President of
Seller. The President of Seller shall have the right to be present during any
such discussions and, to the extent practical, Purchaser will conduct its
review at a site other than either of the Operations Facilities.
5.2. Confidentiality.
(a) All information relating to the Shareholder which
Purchaser and its authorized representatives obtain prior to the Closing in
connection with the transactions contemplated by this Agreement shall be kept
confidential by Purchaser prior to the Closing and shall not be used by it for
any purpose other than to evaluate the proposed purchase of the Business and
the Acquisition Assets and, if applicable, in connection with the transactions
contemplated hereby; provided, however, that the foregoing shall not apply to
(i) any information generally available to the public on the date hereof or
which becomes generally available to the public through no fault of Purchaser,
but only from and after the date such information becomes so available, (ii)
any information obtained by Purchaser from a third party having the right to
disclose the same, (iii) any information not first given to Purchaser by
Seller, the Shareholder or their agents, that was known to Purchaser as of the
date of this Agreement or developed independently by Purchaser after the date
hereof, or (iv) any information Purchaser is required by law to disclose. In
the event no Closing occurs, at the request of the Shareholder, Purchaser shall
promptly return all such written information, and all copies thereof, to the
Shareholder.
(b) All information relating to Seller obtained prior to
the Closing by Purchaser and its authorized representatives pursuant to Section
5.1 hereof or otherwise in connection with the transactions contemplated hereby
shall be kept confidential by Purchaser prior to the Closing and shall not be
used by it for any purpose other than to evaluate the proposed purchase of the
Business and the Acquisition Assets and, if applicable, in connection with the
transactions contemplated hereby; provided, however, that the foregoing shall
not apply to (i) any information generally available to the public on the date
hereof or which becomes generally
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available to the public through no fault of Purchaser, but only from and after
the date such information becomes so available, (ii) any information obtained
by Purchaser from a third party having the right to disclose such information,
(iii) any information not first given to Purchaser by Seller, the Shareholder,
or their agents, that was known to Purchaser as of the date of this Agreement
or developed independently by Purchaser after the date hereof, or (iv) any
information Purchaser is required by law to disclose; and provided further that
Purchaser shall have no obligation with respect to, or be restricted in its use
of, any such information after the Closing. In the event no Closing occurs,
upon the request of Seller, Purchaser shall promptly return all such written
information, and all copies thereof, to Seller.
5.3. Conduct of Business. Seller shall conduct the Business
from the date of this Agreement through the Closing in accordance with prior
practice and only in the ordinary course of the Business, and, without limiting
the generality of the foregoing, Seller shall not (except with the prior
written consent of Purchaser): (i) enter into any material transaction not in
the ordinary course of the Business; (ii) sell or transfer any of its assets,
including, without limitation, any Fixed Assets, except for sales of Inventory
in the ordinary course of the Business or immaterial amounts of other tangible
personal property not required in the Business; (iii) mortgage, pledge or
encumber any of the properties or assets of Seller, except liens for taxes not
yet due and payable, and existing bank indebtedness; (iv) amend, modify or
terminate any material Contract other than in the ordinary course of the
Business; (v) make any increase in, or any commitment to increase, the benefits
or compensation payable to any of its officers, directors, shareholders,
employees or agents; (vi) reduce the amount of its Inventory or other assets
other than in the ordinary course of the Business; (vii) alter the manner of
keeping its books, accounts, or records or the accounting practices therein
reflected; (viii) make any changes in its capital or corporate structure; (ix)
delay the payment of any account payable to the extent such delay may adversely
affect Purchaser's ability to conduct business with the payee thereof; (x) make
any material changes in its methods of business operations; (xi) make, enter
into any agreement to make or become obligated to make, any capital expenditure
in excess of Five Thousand Dollars ($5,000); (xii) make, enter into or renew
any agreement for services to be provided to Seller, or permit the automatic
renewal of any such agreement; or (xiii) fail to maintain the condition of the
Acquisition Assets until the Closing.
5.4. Preservation of Organization. Prior to the Closing,
Seller shall use its commercially reasonable efforts to preserve the Business,
to keep available to Purchaser the services of Seller's Employees, and to
preserve for Purchaser Seller's favorable business relationships with its
suppliers, customers and others with whom business relationships exist.
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5.5. Current Information.
(a) Each of Seller and Purchaser will advise the other
in writing immediately, but in any event prior to the Closing, of:
(i) the occurrence of any event which renders any of
the representations or warranties set forth herein materially inaccurate or the
awareness of either Purchaser or Seller that any representation or warranty set
forth herein was not materially accurate when made;
(ii) any fact that, if existing or known on the date
hereof, would have been required to be set forth or disclosed in or pursuant to
this Agreement; and
(iii) the failure of any party hereto to comply with
or accomplish any of the covenants or agreements set forth herein.
(b) Seller shall provide to Purchaser copies of all
operating and financial reports prepared by or for Seller prior to the Closing
Date as soon as such reports become available.
5.6. Change of Name. On the Closing Date Seller will
discontinue any business operations under, and any use of, the name "Long Term
Pharmaceutical Care" (or any similar name). Seller agrees that it will not
conduct any business after the Closing Date under the name "Long Term
Pharmaceutical Care" (or any similar name), other than such business as is in
furtherance of the terms and provisions of this Agreement and as is for the
benefit of, or at the express request of, Purchaser.
5.7. Covenant Not to Compete. At the Closing, each of Seller,
the Shareholder and Brad __. Hollinger ("Hollinger") shall enter into a
Non-competition Agreement with Purchaser, substantially in the forms attached
hereto as Exhibits D, E and F, respectively.
5.8. [Reserved].
5.9. Compliance with Bulk Sales Laws. Purchaser hereby waives
compliance with the provisions of Missouri law governing the bulk sale or
transfer of assets. Notwithstanding the foregoing, Seller agrees, pursuant to
Section 7.1(a) hereto, to indemnify Purchaser and Omnicare for any loss either
sustains as a consequence of any claim by a third party that such provisions do
apply.
5.10. [Reserved].
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5.11. Condition to Transfer of Certain Contracts. Seller and
Purchaser shall use their respective reasonable best efforts and work
cooperatively to timely procure all permits, consents, approvals,
authorizations, waivers and all other requirements which must be obtained or
satisfied by Seller or Purchaser for the completion of the transactions
contemplated hereby, including all required consents from third parties under
the Contracts or otherwise so that the Business may continue to be operated by
Purchaser without interruption or any material adverse effect following the
Closing. All Contracts requiring consent to the assignment thereof to Purchaser
and which Purchaser has agreed to assume are listed on Schedule 4.20 attached
hereto (individually, a "Contract Requiring Consent" and collectively, the
"Contracts Requiring Consent"); all such required consents shall be obtained by
Seller prior to the Closing Date.
5.12. Satisfaction of Leases. Prior to the Closing, Seller
shall present to Purchaser written statements prepared by the owner of any
equipment and other personal property (but not any real property) governed by
any capital lease, providing the full amount to be paid to satisfy all
liabilities and obtain good and marketable title to such equipment and property
(the "Payoff Amount"). Purchaser, in its sole discretion, either may (i) reduce
the Closing Date Payment by the Payoff Amount, or (ii) demand and receive
payment of the Payoff Amount from Seller at the Closing in Immediately
Available Funds.
5.13. Prorations and Sales Tax. Any personal property taxes
with respect to the Acquisition Assets which shall be based on the immediately
prior year's tax bills and adjusted post-Closing after the current tax year's
tax bills are issued and received (if such current tax year's bills are not
issued before the Closing) and any charges for utilities, telephone, rents or
similar costs of the Business shall be prorated through the Closing Date. In
the event any amount is due from Seller to Purchaser as a result of any such
proration, the resulting amount payable by Seller shall be paid to Purchaser
within ten (10) business days after Purchaser has submitted to Seller
satisfactory written evidence of such proration, including the basis therefor.
5.14. [Reserved].
5.15. Collection of Accounts Receivable. On and after the
Closing Date, Purchaser agrees that it will, within five (5) days after the
receipt thereof, forward to Seller any monies, checks or negotiable instruments
received by Purchaser after the Closing Date relating to any Accounts
Receivable, and Seller agrees that it will, within five (5) days after the
receipt thereof, forward to Purchaser any monies, checks or negotiable
instruments received by Seller after the Closing Date relating to any accounts
receivable generated by Purchaser in the operation of the Business or
otherwise. Each
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of Purchaser and Seller agree to fully cooperate with the other in the
collection of their respective accounts receivable.
5.16. Employees. Except as otherwise specifically agreed to
pursuant to Section 2.4, Seller shall be responsible for any severance
payments, accrued payroll, vacation, sick pay and associated payroll tax
liabilities, pension or other retirement plan obligations, COBRA rights, WARN
Act liability and any other liabilities associated with the Employees' and
Former Employees' employment by Seller.
5.17. Tail Insurance. If any of Seller's liability insurance
policies are "claims made" policies, Seller shall purchase and maintain a tail
insurance policy relating to the Acquisition Assets and the Business naming
Purchaser and Omnicare as additional insureds, with such tail insurance being
in effect as of the Closing.
5.18. Patient Records. Purchaser agrees to maintain all
medical records transferred by Seller pursuant to this Agreement for a period
of time equal to the longer of (a) the period of time required by applicable
law and (b) five (5) years from the last day on which a patient to whom any
such medical record applies has received services or supplies from Purchaser in
connection with the Business.
6. CONDITIONS TO CLOSING.
6.1. Conditions to Obligations of Each Party. The obligations
of Purchaser, Omnicare, Seller and the Shareholder to consummate the
transactions contemplated hereby shall be subject to the fulfillment, on or
prior to the Closing Date, of the following conditions:
(a) Compliance with Law. There shall have been obtained
all permits, approvals, consents and authorizations of all governmental bodies
or agencies necessary or appropriate so that consummation of the transactions
contemplated by this Agreement will be in compliance with applicable laws, and
so that Purchaser will be eligible to operate the Business and qualify for
reimbursement by all applicable federal and state regulatory agencies,
including, but not limited to, Medicaid and Medicare, for services and goods
rendered.
(b) IRS Form 8594. Purchaser and Seller shall have
agreed on the procedure for determining the figures that shall be entered to
complete Form 8594, and completed drafts of Forms 8594 of both Purchaser and
Seller shall be delivered at the Closing in form satisfactory to Purchaser,
Seller and their respective advisors and consultants.
(c) No Action or Proceeding. No claim, action, suit,
investigation or other proceeding brought by any governmental agency or other
third
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party shall be pending or threatened before any court or governmental agency
which presents a substantial risk of the restraining or prohibition of the
transactions contemplated by this Agreement or the obtaining of material
damages from Purchaser, Omnicare, Seller or the Shareholder or other relief in
connection therewith.
6.2. Conditions to Obligations of Purchaser and Omnicare. The
obligations of Purchaser and Omnicare to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to the
Closing, of the following additional conditions:
(a) Representations and Warranties True.
(i) The representations and warranties of Seller and
the Shareholder contained in this Agreement or in any other document delivered
by Seller or the Shareholder pursuant hereto shall have been true and correct
in all material respects as of the date of this Agreement or when otherwise
given and shall be true and correct in all material respects on the Closing
Date with the same effect as if made on the Closing Date, and at the Closing
Seller shall have delivered to Purchaser certificates to such effect signed by
two (2) duly authorized officers of Seller and the Shareholder.
(ii) This Agreement may be executed and delivered by
Purchaser and Omnicare prior to their receipt of the Schedules to be prepared
and delivered to them by Seller and the Shareholder pursuant to Articles 1, 4
and 5 hereof and prior to the completion of their due diligence investigation
of Seller, the Business and the Acquisition Assets. In such event, if, upon
receipt and review of the Schedules Purchaser determines, in its reasonable
discretion, that any of Seller's or the Shareholder's representations and
warranties contained in this Agreement or in any other document delivered by
Seller or the Shareholder pursuant hereto, disclose facts or information not
previously known to Purchaser that could have a material adverse effect on the
Business or the Acquisition Assets, Purchaser for itself and also on behalf of
Omnicare shall have the right to terminate this Agreement pursuant to Article 9
hereof. Likewise, if after Purchaser completes its due diligence investigation
of Seller, the Business and the Acquisition Assets, Purchaser determines, in
its reasonable discretion, that any of Seller's or the Shareholder's
representations and warranties contained in this Agreement or in any other
document delivered by Seller or the Shareholder pursuant hereto are not true
and correct in any material respect, or if Purchaser or Omnicare become aware
of any information not previously disclosed that could have a material adverse
effect on the Business or Purchaser's operation thereof, Purchaser, for itself
and also on behalf of Omnicare, shall have the right to terminate this
Agreement pursuant to Article 9 hereof. Purchaser shall promptly notify Seller
in writing if it intends to terminate this Agreement in accordance with this
subparagraph.
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(iii) Performance of Covenants. Each of the
obligations of Seller and the Shareholder to be performed by them on or before
the Closing Date pursuant to the terms of this Agreement shall have been duly
performed in all material respects on or before the Closing Date, and at the
Closing Seller shall have delivered to Purchaser certificates to such effect
signed by the two (2) duly authorized officers of Seller and the Shareholder.
(iv) Authority. All actions required to be taken by,
or on the part of, Seller and the Shareholder to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby shall have been duly and validly taken by the
board of directors of Seller and the Shareholder.
(v) Opinion of Seller's and the Shareholder's
Counsel. Purchaser shall have been furnished at the Closing with an opinion of
Hearne, Nickolaus, Green & Beetem, counsel to Seller and the Shareholder, dated
the Closing Date, substantially in the form of Exhibit G hereto.
(vi) Additional Closing Documents of Seller and the
Shareholder. Purchaser shall have received at the Closing the following
documents, dated the Closing Date:
(a) A copy, certified by the Secretary of
Seller, of resolutions of the board of directors of Seller authorizing the
execution, delivery and performance of this Agreement and all other agreements,
documents and instruments relating hereto and the consummation of the
transactions contemplated hereby;
(b) Bills of sale and assignments, in form and
substance reasonably satisfactory to counsel for Purchaser, covering the items
of tangible and intangible personal property included in the Acquisition
Assets;
(c) The Non-competition Agreements, duly
executed by Seller, the Shareholder and Hollinger, pursuant to Section 5.7
hereof;
(d) The Escrow Agreement, duly executed by
Seller, pursuant to Section 2.1(a)(ii) hereof;
(e) A blanket assignment by Seller and any
other document or certificate necessary for Purchaser to use the name "Long
Term Pharmaceutical Care" and any derivative thereof and individual assignments
to use such name valid for each state in which Seller currently conducts its
Business, in connection with the conduct of the Business from and after the
Closing Date;
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(f) A good standing certificate, certificate of
existence or certificate of valid qualification as a foreign corporation, as
the case may be, from the state of Seller's incorporation and each state in
which Seller conducts its businesses;
(g) Incumbency Certificates of Seller's and the
Shareholder's officers executing any documents or instruments delivered to
Purchaser hereunder;
(h) The Assignment and Assumption Agreement
duly executed by Seller pursuant to Section 2.3 hereof; and
(i) Such further documents and instruments of
sale, transfer, conveyance, assignment or delivery covering the Acquisition
Assets or any part thereof as Purchaser may reasonably require to assure the
full and effective sale, transfer, conveyance, assignment or delivery to it of
all the Acquisition Assets to be transferred to Purchaser pursuant to this
Agreement.
(vii) Due Diligence; No Material Adverse Changes.
Purchaser shall have satisfactorily completed its due diligence investigation
as contemplated by Section 5.1. Between the date of this Agreement and the
Closing Date there shall not have occurred any damage or destruction of, or
loss to, any of the assets of Seller, whether or not covered by insurance,
which has had or may reasonably be expected to have a material and adverse
effect on the Business or any prospects of Seller, nor shall there have
occurred any other event or condition which has had or which reasonably may be
expected to have a material and adverse effect on the results of operations,
condition (financial or otherwise), assets, properties or prospects of the
Business, including, without limitation, any material adverse change in
Medicare or Medicaid reimbursement laws, proposed legislation, regulations or
practices in any state in which Seller transacts business, which would have a
material adverse effect on the Business.
(viii) Consents to Assignments of Contracts. All
necessary consents to the assignment of any Contracts Requiring Consent which
Purchaser has agreed to assume shall have been obtained in written instruments
reasonably satisfactory to Purchaser.
6.3. Conditions to Obligations of Seller and the Shareholder.
The obligation of Seller and the Shareholder to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to the
Closing Date, of the following additional conditions:
(a) Representations and Warranties True. The
representations and warranties of Purchaser and Omnicare contained in this
Agreement
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or in any other document delivered by Purchaser and Omnicare to Seller pursuant
hereto shall have been true and correct in all material respects as of the date
of this Agreement or when otherwise given and shall be true and correct in all
material respects on the Closing Date with the same effect as if made on the
Closing Date, and at the Closing Purchaser shall have delivered to Seller a
certificate to such effect, signed by two (2) duly authorized officers of
Purchaser and Omnicare.
(b) Performance of Covenants. Each of the obligations of
Purchaser and Omnicare to be performed on or before the Closing Date pursuant
to the terms of this Agreement shall have been duly performed on or before the
Closing Date, and at the Closing Purchaser shall have delivered to Seller a
certificate to such effect signed by two (2) duly authorized officers of
Purchaser and Omnicare.
(c) Authority. All actions required to be taken by, or
on the part of, Purchaser and Omnicare to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the sole
shareholder and the board of directors of Purchaser and the board of directors
of Omnicare.
(d) Opinion of Purchaser's and Omnicare's Counsel. The
Seller and the Shareholder shall have been furnished with an opinion of
Thompson Hine & Flory LLP, counsel to Purchaser and Omnicare, dated the Closing
Date, substantially in the form of Exhibit H hereto.
(e) Additional Closing Documents of Purchaser. Seller
and the Shareholder shall have received at the Closing the following documents,
each dated the Closing Date:
(i) Copies, certified by the Secretary of Purchaser
and Omnicare, of resolutions of the sole shareholder of Purchaser and the
respective boards of directors of Purchaser and Omnicare authorizing the
execution and delivery of this Agreement and all other agreements, documents or
instruments relating hereto and the consummation of the transactions
contemplated hereby;
(ii) The Closing Date Payment in Immediately
Available Funds from Purchaser at the Closing pursuant to Section 2.1(a);
(iii) The Non-competition Agreements, duly executed
by Purchaser, pursuant to Section 5.7 hereof;
(iv) The Escrow Agreement, duly executed by
Purchaser, pursuant to Section 2.1(a)(ii) hereof;
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(v) Incumbency Certificates of Purchaser's and
Omnicare's officers executing any documents or instruments delivered to Seller
hereunder;
(vi) The Assignment and Assumption Agreement, duly
executed by Purchaser, pursuant to Section 2.3 hereof; and
(vii) Such other Closing documents as Seller or the
Shareholder may reasonably request.
7. INDEMNIFICATION.
7.1. Indemnification by Seller and the Shareholder. Seller
and the Shareholder, jointly and severally, agree to defend, indemnify and hold
Omnicare and Purchaser, their respective officers, directors, agents,
representatives, subsidiary and parent entities and affiliates and their
successors and assigns, harmless from and against any claim, liability,
expense, loss or other damage (including, without limitation, reasonable
attorneys' fees and expenses) ("Claims") in respect of:
(a) any and all Claims resulting from an unappealable
judicial determination that the sale of the Acquisition Assets hereunder is
ineffective against any creditor of Seller or the Shareholder or any taxing
authority or other entity asserting any similar claim against Seller or the
Shareholder, including, without limitation, any and all liabilities imposed on
Purchaser or Omnicare contrary to Section 2.5 hereof, including, without
limitation, any liability arising out of the failure to comply with applicable
bulk sales laws, as provided in Section 5.9 hereof;
(b) any and all Claims resulting from any
misrepresentation or breach of warranty or violation of any covenant made by
Seller or the Shareholder hereunder, or in any Schedule or certificate
furnished or to be furnished by Seller or the Shareholder hereunder, except to
the extent of any waiver by Purchaser or Omnicare with respect thereto;
(c) any and all Claims relating to the transactions
contemplated hereby or Seller's conduct of the Business or otherwise prior to
the Closing Date, including, without limitation, any Claims arising from any
act, occurrence, event or failure to act which occurs prior to or on the
Closing Date, including, without limitation, any Claims arising in connection
with any failure to satisfy or pay any sales or use taxes to any governmental
authority or with any products sold or services provided by the Business prior
to the Closing Date;
(d) any and all Claims arising from or in connection
with any act, omission or status of Seller or the Shareholder creating
liability under any
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federal, state or local environmental laws, including, but not limited to,
liability for violations of law and for the investigation or cleanup of any
real property; and
(e) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses incident to any item to
which the foregoing indemnity relates.
7.2. Indemnification by Purchaser and Omnicare. Purchaser and
Omnicare, jointly and severally, agree to defend, indemnify and hold Seller and
the Shareholder, and their successors and assigns, harmless from and against
any claim, liability, expense, loss or other damage (including, without
limitation, reasonable attorneys' fees and expenses) ("Claims") in respect of:
(a) any and all Claims resulting from any liabilities,
obligations, contracts, commitments and other undertakings of Seller assumed
hereunder by Purchaser and any claims, losses, liabilities or other damages,
obligations or liabilities relating to the conduct of the Business by Purchaser
or Omnicare or any affiliate after the Closing Date;
(b) any and all Claims resulting from any
misrepresentation or breach of warranty or violation of any covenant made by
Purchaser hereunder or in any Schedule or certificate furnished or to be
furnished by Purchaser hereunder, except to the extent of any waiver by Seller
or the Shareholder with respect thereto;
(c) any act, omission or status of Purchaser or Omnicare
creating liability under any federal, state or local environmental laws,
including, but not limited to, liability for violations of law and for the
investigation or cleanup of any real property; and
(d) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses incident to any item to
which the foregoing indemnity relates.
7.3. Determination of Loss. Indemnification pursuant to this
Article 7 shall be payable with respect to any Claim described herein as
subject to indemnification upon the happening of the earlier of the following:
(a) Resolution of such Claim by mutual agreement between
Seller or the Shareholder and Purchaser or Omnicare; or
(b) The issuance of a final judgment, award, order or
other ruling by a court of competent jurisdiction.
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7.4. Indemnification Payments. All amounts payable by one
party to the other pursuant to the provisions of this Article 7 (each, an
"Indemnification Payment") shall be payable within ten (10) days after final
determination thereof in accordance with the provisions hereof. In the event
that Seller or the Shareholder fails to pay any amounts to Purchaser or
Omnicare that are finally determined to be owed to Purchaser or Omnicare
pursuant to this Article 7 within such ten (10) day period, Purchaser may
set-off any such amounts against the amount owed to Seller by Purchaser
pursuant to Section 2.1(a)(iii) hereof. Further, in the event that litigation
has been instituted which could give rise to an indemnification payment to
Purchaser or Omnicare, payment of the amount owed to Seller by Purchaser
pursuant to Section 2.1(a)(iii) hereof may be withheld by Purchaser, in such
amount determined by Omnicare to be reasonably necessary to cover the estimated
amount of such indemnification payment, until such litigation with respect to
any of Seller's or the Shareholder's obligations to indemnify Purchaser or
Omnicare, is finally resolved. In the event that any amount withheld pursuant
to the preceding sentence is determined to be owed to Seller, Purchaser shall
pay such amount, together with interest at the per annum rate of 5% for the
period commencing on the date that the withheld amount was originally due to be
paid and ending on the date such amount was actually paid. In the event that it
is determined that payment is due to Purchaser or Omnicare, Purchaser may
set-off such amount against any amount owed to Seller pursuant to Section
2.1(a)(iii).
7.5 Limitations on Indemnification. Any amounts which any
party hereto may be obligated to pay another party hereto pursuant to Section
7.4 will be reduced by an amount equal to: (i) the tax benefit, if any,
realized as a result of such losses (for purposes of determining the "tax
benefit", if any, the reasonable determination by Purchaser's outside
accountants will be binding and conclusive as to all parties hereto); and (ii)
any insurance recovery with respect to such losses received by the indemnified
party.
7.6 Notification. Purchaser and Omnicare, or Seller and the
Shareholder, as the case may be, will promptly notify the other of the
existence or occurrence of any facts or events which give rise to the assertion
of any claim under the provisions of this Article 7. If such claims are due to
the claims of third parties, the indemnifying parties shall promptly and
diligently take such actions as may be reasonably required to defend or settle
such claims and shall keep the indemnified parties advised of the current
status thereof. The indemnified parties shall, at the indemnifying parties'
expense, reasonably cooperate with the indemnifying parties' defense and the
indemnifying parties shall reasonably consider the indemnified parties' advice.
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8. ADDITIONAL COVENANTS AND AGREEMENTS.
8.1. Expenses.
(a) Each party hereto shall bear and pay all costs and
expenses incurred by it in connection with the transactions contemplated by
this Agreement including, without limitation, fees, costs and expenses of its
own financial consultants, accountants and counsel. Seller shall be responsible
for payment of any sales, use or transfer taxes arising out of the conveyance
of the Acquisition Assets along with the filing of any required return or
report.
(b) Each of Purchaser and Seller shall bear one-half the
expense of the inventory counting firm retained pursuant to Section 2.1(b)
hereof. Each of Purchaser and Seller shall bear the expense of any other
adviser it retains in connection with the procedures set forth in Section
2.1(b).
8.2. Survival of Representations and Warranties. Except as
otherwise provided herein, the representations and warranties contained in
Articles 3 and 4 of this Agreement shall survive the Closing for a period of
[eighteen (18) months] after the Closing Date; provided however, that: (i) the
representations and warranties contained in Section 4.16 hereof shall survive
the Closing until 60 days after the expiration of the applicable statutes of
limitation; (ii) if any representation or warranty contained in Articles 3 and
4 is fraudulently given, it shall survive the Closing for a period of five (5)
years; and (iii) any specific claim or action of which specific written notice
is given to the party which made such representation or warranty prior to the
date on which such representation or warranty otherwise terminates as provided
herein, may continue to be asserted and shall be indemnified against pursuant
to Article 7.
8.3. Public Releases. Purchaser and Seller shall agree with
each other as to the form and substance of any press release related to this
Agreement or the transactions contemplated hereby, and shall consult with each
other as to the form and substance of other public disclosures related thereto;
provided, however, that nothing contained herein shall prohibit any party
hereto from making any disclosure which it deems necessary in light of
applicable laws or regulations, after notice to the other party with the
opportunity to comment to the extent that delay of the disclosure is permitted
under such laws or regulations.
8.4. Other Transactions Prohibited. During the period from
the date of this Agreement to the Closing Date, or termination hereof, neither
Seller nor the Shareholder shall, and shall not permit their representatives
to, directly or indirectly, initiate, solicit, negotiate with, encourage
discussions with, provide information to, or agree to a transaction with, any
corporation, partnership, person or other entity or
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group concerning any merger or any sale of Seller's assets, sale of shares of
capital stock (or securities convertible or exchangeable into or otherwise
evidencing, or any agreement or instrument evidencing, the right to acquire
capital stock) or similar transaction involving Seller (any such transaction
being referred to herein as an "Acquisition Transaction"). Seller and the
Shareholder shall promptly communicate to Purchaser the terms of any proposal
which they may receive in respect of an Acquisition Transaction and any request
by or indication of interest on the part of any third party with respect to
initiation of any Acquisition Transaction or discussions with respect thereto
in which Seller or the Shareholder may have an interest that might affect the
consummation of the transactions contemplated by this Agreement.
9. TERMINATION; REMEDIES.
9.1. Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to Closing by written
notice delivered by Seller to Purchaser or by Purchaser to Seller, as the case
may be, in the following instances:
(a) By Purchaser pursuant to Section 6.2(a)(ii) hereof
or if there has been a material misrepresentation, a material breach of
warranty or a material failure to comply on the part of Seller or the
Shareholder with respect to any of the representations, warranties, covenants
or provisions set forth herein (or delivered in any other document pursuant
hereto), including without limitation, any misrepresentation, breach or failure
to comply that is evidenced in any Schedule delivered by Seller, and such
misrepresentation, breach or failure has or may reasonably be expected to have
a material adverse effect on the condition (financial or otherwise), assets or
properties of the Business in the hands of Purchaser and has not been cured, if
capable of cure, in full within twenty (20) days of receipt by Seller of notice
from Purchaser.
(b) By Seller if there has been a material
misrepresentation, a material breach of warranty or a material failure to
comply with any covenant on the part of Purchaser with respect to the
representations, warranties or covenants set forth herein (or delivered in any
other document pursuant hereto) and such misrepresentation, breach or failure
to comply has not been cured, if capable of cure, within twenty (20) days of
receipt by Purchaser of notice from Seller.
(c) At any time prior to Closing by the mutual consent
in writing of Seller, the Shareholder, Purchaser and Omnicare.
(d) By Purchaser, if board approvals are not obtained as
provided in Section 3.1 hereof.
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(e) By Seller, if board approvals are not obtained as
provided in Section 4.2 hereof.
(f) By Purchaser, if Purchaser determines not to proceed
with the transactions contemplated hereby after completing its due diligence
investigation.
9.2. Liability in the Event of Termination; Remedies.
(a) In the event of termination of this Agreement and
the transactions contemplated hereby pursuant to Sections 9.1(a) or (b) hereof,
the non-breaching party may avail itself of all rights, power and remedies now
or hereafter existing at law or in equity or by statute or otherwise.
(b) In the event of termination of this Agreement and
the transactions contemplated hereby pursuant to Section 9.1(c) through (f)
hereof, this Agreement shall, with the exception of Sections 5.2, 8.1 and 8.3
hereof, become void and have no further effect, without any liability on the
part of any party hereto.
(c) Section 5.2 hereof shall survive the termination of
this Agreement regardless of the reason for such termination.
10. MISCELLANEOUS.
10.1. Entire Agreement. This Agreement (including all
Exhibits and Schedules hereto) supersedes any and all other agreements, oral or
written, between the parties hereto with respect to the subject matter hereof,
including that certain letter of intent dated August 21, 1997 from Omnicare to
the Shareholder, and contains the entire agreement between such parties with
respect to the transactions contemplated hereby. No party to this Agreement
shall be entitled to rely on any representation, warranty or agreement not set
forth in this Agreement (including all Exhibits and Schedules thereto).
10.2. Amendments. This Agreement shall not be modified or
amended except by an instrument in writing signed by or on behalf of all of the
parties hereto.
10.3. Successors; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted transferees and assignees.
Neither this Agreement nor any interest herein may directly or indirectly be
transferred or assigned by any party, in whole or in part, without the written
consent of the other parties, except that Purchaser may effect any such
assignment to any affiliated company, but
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any such assignment shall not relieve Purchaser or Omnicare of its duties and
obligations contained in this Agreement.
10.4. Notices. All notices, requests, demands, and other
communications to be delivered hereunder shall be in writing and shall be
delivered by hand or mailed, by fax (receipt confirmed), by express mail
services, by registered or certified mail, postage prepaid, at or to the
following addresses:
(a) If to Seller or the Shareholder:
Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Mr. William McCarthy
with a copy to:
McDermott, Will & Emery
50 Rockefeller Plaza
New York, New York 10020-1605
Attention: Harvey Z. Werblowsky, Esq.
(b) If to Purchaser or Omnicare:
Omnicare, Inc.
50 East RiverCenter Boulevard, Suite 1530
Covington, Kentucky 41011
Attention: Mr. David W. Froesel
with a copy to:
Thompson Hine & Flory LLP
312 Walnut Street, Suite 1400
Cincinnati, Ohio 45202-4029
Attention: William H. Cordes, Esq.
or to such other address or to such other person as any party shall have last
designated by written notice to the other parties. Notices, requests, demands,
and other communications so delivered shall be deemed given upon receipt.
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10.5. Waiver. If any party expressly waives in writing an
unsatisfied condition, representation, warranty, undertaking, covenant or
agreement (or portion thereof) set forth herein, the waiving party shall
thereafter be barred from recovering, and thereafter shall not seek to recover,
any damages, claims, losses, liabilities or expenses, including, without
limitation, legal and other expenses, from the other parties in respect of the
matter or matters so waived. Except as expressly stated therein, any such
waiver shall not constitute a covenant to waive any such matter or matters in
the future.
10.6. Severability. If any term or provision of this Agreement
or any application thereof shall be invalid or unenforceable, the remainder of
this Agreement and any other application of such term or provision shall not be
affected thereby.
10.7. No Third Party Beneficiary. This Agreement is for the
benefit of, and may be enforced only by, Seller, the Shareholder, Purchaser and
Omnicare, and their respective successors and permitted transferees and
assignees, and is not for the benefit of, and may not be enforced by, any third
party.
10.8. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with, the laws of the State of Missouri.
10.9. [Reserved].
10/10. References to Best Knowledge. All references in this
Agreement to the best knowledge of any party hereto shall mean that such party
has made a diligent investigation and inquiry with respect to the correctness
of the statement being made.
10.11. Counterparts. This Agreement may be executed in two or
more counterparts and by the parties on separate counterparts, all of which
shall be considered one and the same agreement, and each of which shall be
deemed an original.
10.12. Omnicare Guarantee. Omnicare hereby unconditionally
guarantees the payment and performance of any and all of Purchaser's
liabilities and obligations hereunder and those under any ancillary agreements
or documents executed and delivered in connection with this Agreement. Seller
and the Shareholder may seek remedies directly from Omnicare without first
exhausting their remedies against Purchaser.
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<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this
Asset Purchase Agreement as of the date first hereinabove set forth.
Purchaser: MANAGED HEALTHCARE, INC.
By: /s/ JANICE M. RICE
----------------------
Janice M. Rice
Secretary
Omnicare: OMNICARE, INC.
By: /s/ PATRICK E. KEEFE
----------------------
Patrick E. Keefe
Executive Vice President - Operations
Seller: LONG TERM PHARMACEUTICAL CARE, INC.
By: /s/ BRAD E. HOLLINGER
------------------------
Name: BRAD E. HOLLINGER
Title: President
Shareholder: BALANCED CARE CORPORATION
By: /s/ BRAD E. HOLLINGER
------------------------
Name: BRAD E. HOLLINGER
Title: President
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<PAGE> 41
EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
A Share Ownership
B Form of Escrow Agreement
C Form of Assignment and Assumption Agreement
D Form of Non-competition Agreement (Seller)
E Form of Non-competition Agreement (the Shareholder)
F Form of Non-competition Agreement (Hollinger)
G Form of Opinion of Counsel to Seller and the Shareholder
H Form of Opinion of Counsel to Purchaser and Omnicare
<PAGE> 42
SCHEDULES
SCHEDULE DESCRIPTION
- -------- -----------
1.1(b) Prepaid Items
1.1(d) Intangibles
1.1(f) Contracts
1.1(h) Fixed Assets
1.1(i) Licenses, Trademarks and Trade Names
1.2(g) Employee Loans and Deferred Charges
1.2(i) Insurance Policies
1.2(j) Excluded Assets Owned by the Shareholder
2.2 Allocation of Purchase Price
2.4 Certain Liabilities Assumed
4.3 Encumbrances on Acquisition Assets
4.4(a) Annual Financial Statements
4.4(b) Interim Financial Statements
4.5 Changes in Business
4.7 Tangible Personal Property
4.8 Intangible Personal Property
4.10 Accounts Receivable
4.11 Insurance
4.13 Employment Matters
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4.14 Employee Benefit Plans
4.16 Tax Matters
4.17 Litigation
4.20 Contractual Matters
4.25 Conflicts of Interest
<PAGE> 1
EXHIBIT 2.20
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into and is effective this
24th day of October, 1997 by and between Balanced Care Corporation, a Delaware
corporation ("Purchaser"), with offices at 5021 Louise Drive, Suite 200,
Mechanicsburg, Pennsylvania, 17055, and Triangle Retirement Services, Inc., a
North Carolina corporation ("Seller"), with offices at 6928 Slade Hill Drive,
Raleigh, North Carolina, 27615.
RECITALS:
Seller owns an 87-room, 117-bed assisted living facility with an
Alzheimer's care unit located at 600 Newton Road, Raleigh, North Carolina that
is licensed as a "Home for the Aged" by the North Carolina Department of Human
Resources, Division of Facility Services for 161 residents (the "Facility").
Purchaser desires to purchase substantially all of the assets of Seller and the
Business (as hereinafter defined) related thereto and Seller desires to sell
such assets to Purchaser.
This Agreement sets forth the terms and conditions upon which
Purchaser is purchasing the assets (other than Excluded Assets, as hereinafter
defined) owned by Seller and used in the conduct of its Business, and Seller is
selling to Purchaser such assets (other than Excluded Assets).
In consideration of the mutual agreements, covenants, representations
and warranties contained herein, and in reliance thereon, Purchaser and Seller
hereby agree as follows:
ARTICLE I. CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "Accounts Receivable" shall mean as of any date any trade accounts
receivable (including, without limitation, any third party receivables arising
in connection with any Third Party Payor Programs) notes receivable, bid or
performance deposits, employee advances and other miscellaneous receivables
associated with the Business through and as of such date.
1.2 "Accreditation Body" shall mean CARF, JCAHO, the Department of
Human Resources, and all other Persons having jurisdiction over the
accreditation, certification, evaluation or operation of the Business.
1.3 "Accrued Expenses" shall mean as of any date accrued rents,
insurance premiums, payroll and benefits, and other accrued expenses set forth
in Schedule 1.3.
1.4 "Affiliate" shall mean any company or other entity which controls,
is controlled by or is under common control with the designated Party. For the
purpose of the foregoing,
<PAGE> 2
ownership, directly or indirectly, of 20% or more of the voting stock or other
equity interest shall be deemed to constitute control.
1.5 "Agreement" shall mean this Asset Purchase Agreement.
1.6 "Ancillary Agreements" shall mean the real property conveyances
described in Section 5.2.1, the bill of sale, assignment and assumption
described in Section 5.2.2 and the Escrow Agreement attached as Exhibit 1.28.
1.7 "Annual Financial Statements" shall have the meaning given to it
in Section 6.4.1.
1.8 "Assumed Liabilities" shall have the meaning given to it in
Section 4.2.
1.9 "Books and Records" shall have the meaning given to it in Section
6.14.
1.10 "Business" shall mean the operation of the Facility as an
assisted living facility/home for the aged and an Alzheimer's care unit and any
other ancillary health care services owned, operated, delivered, managed,
developed, constructed, maintained, used, occupied or possessed by Seller in
connection therewith (including, without limitation, any outpatient and
contract rehab therapy services).
1.11 "CARF" shall mean the Commission on Accreditation of
Rehabilitation Facilities.
1.12 "Champus" shall mean the Civilian Health and Medical Program of
the Uniform Service, a program of medical benefits covering retirees and
dependents of members or former members of a uniformed service provided,
financed and supervised by the United States Department of Defense and
established by 10 U.S.C. Sections 1071 et seq.
1.13 "Closing" shall have the meaning given to it in Section 5.1.
1.14 "Closing Date" shall have the meaning given to it in Section 5.1.
1.15 "Closing Inventory" shall mean all Inventory relating to the
Business on the Closing Date.
1.16 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time, and any successor thereto. Any reference herein to a
specific section or sections of the Code shall be deemed to include a reference
to any corresponding provision of future law.
1.17 "Contract" shall mean all alliance agreements, transfer
agreements, other agreements (including, without limitation, Resident's
Agreements, Management Agreements and Provider Agreements), contracts, contract
rights, commitments, customer accounts, orders, leases, guaranties, warranties
and representations, and franchises relating to the Purchased
2
<PAGE> 3
Assets or the operation of the Business or the ownership, construction,
development, maintenance, repair, management, use, occupancy, possession or
operation thereof, or the operation of any of the programs or services in
conjunction with the Business and all renewals, replacements and substitutions
therefor, issued by any Governmental Authority, Accreditation Body or Third
Party Payor or maintained or used by Seller with any third Person, but shall
not include any of the Excluded Assets.
1.18 "Current Liabilities" shall mean all liabilities classified as
current liabilities in accordance with GAAP.
1.19 "Damages" shall have the meaning given to it in Section 14.4.
1.20 "Department of Human Resources" shall mean the North Carolina
Department of Human Resources, Division of Facility Services.
1.21 "Due Diligence Date" shall mean October 13, 1997.
1.22 "Employee" shall mean any individual employed by Seller in the
conduct of the Business as listed on Schedule 1.22 (such Schedule being subject
to change between the date hereof and the Closing Date as a result of employee
changes in the ordinary course of Seller's Business consistent with past
practices) other than E. Lee Barham, Jr. and Diane J. Barham.
1.23 "Encumbrance" shall mean any right to, or interest in, property,
which subsists in a third-party and which constitutes a claim, lien, charge or
liability attached to and binding upon the Purchased Assets, including, but not
limited to, a mortgage, judgment lien, mechanic's lien, lease, security
interest, easement and right-of-way.
1.24 "Environmental Law" shall mean any (a) federal statute [including
but not limited to the Federal Water Pollution Control Act (33 U.S.C. Sections
1251 et seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et
seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Sections
9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sections
6901 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Sections
1801 et seq.), and the Federal Insecticide Fungicide and Rodenticide Act (7
U.S.C. Sections 136 et seq.)]; (b) other Legal Requirements; (c) any common
law doctrine; and (d) any provision or condition of any permit, license or
other operating authorization relating to (i) the protection of the environment
or the public welfare from actual or potential exposure (or the effects of
exposure) to any actual or potential release, discharge, disposal or emission
(whether past or present) of any Regulated Substance or (ii) the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of any Regulated Substance.
1.25 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
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1.26 "ERISA Plans" shall mean defined benefit pension plans and
defined contribution pension plans qualified under Section 401(a) of the Code.
1.27 "Escrow Agent" shall mean The Title Company of North Carolina,
Agent for First American Title Insurance Company.
1.28 "Escrow Agreement" shall mean the escrow agreement entered into
between Escrow Agent, Seller and Purchaser in substantially the form of Exhibit
1.28.
1.29 "Escrow Fund" shall mean $150,000 to be held by the Escrow Agent
in Raleigh, North Carolina pursuant to the terms and conditions of the Escrow
Agreement.
1.30 "Excluded Assets" shall mean those assets that are not included
in the sale contemplated hereby and as are further defined in Section 2.2.
1.31 "Facility" shall have the meaning given to it in the Recitals of
this Agreement.
1.32 "Financial Statements" shall mean the Annual Financial Statements
and the Interim Financial Statements, collectively.
1.33 "GAAP" shall mean generally accepted accounting principles in
the United States of America.
1.34 "Governmental Authorities" shall mean all agencies, authorities,
bodies, boards, commissions, courts, instrumentalities, legislatures and
offices of any nature whatsoever of any government, quasi-governmental unit or
political subdivision, whether with a federal, state, county, district,
municipal, city or otherwise.
1.35 "Indemnifying Party" shall have the meaning given to it in
Section 14.4.
1.36 "Indemnified Party" shall have the meaning given to it in Section
14.4.
1.37 "Interim Financial Statements" shall have the meaning given to it
in Section 6.4.2.
1.38 "Inventory" shall mean the inventory of Seller, including,
without limitation, dry storage goods, janitorial supplies, food and beverage
supplies, office supplies, medical supplies and pharmaceutical supplies.
1.39 "JCAHO" shall mean the Joint Commission on Accreditation of
Healthcare Organization.
1.40 "Knowledge" and words of similar import shall mean, with respect
to any Party, actual knowledge of a particular fact or other matter being
possessed by an individual, and the
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<PAGE> 5
knowledge that reasonably could be expected to be obtained in the course of the
Party's relationship to the subject matter.
1.41 "Legal Requirements" shall mean all statutes, ordinances,
by-laws, codes, rules, regulations, restrictions, orders, judgments, decrees
and injunctions (including, without limitation, all applicable building,
health code, zoning, subdivision and other land use and health care licensing
statutes, ordinances, by-laws, codes, rules and regulations), promulgated or
issued by any Governmental Authority, Accreditation Body or Third Party Payor
other than Environmental Laws. Without limiting the foregoing, the term Legal
Requirements includes all Permits and Contracts issued or entered into by any
Governmental Authority, any Accreditation Body and/or any Third Party Payor and
all Permitted Encumbrances.
1.42 "Managed Care Plans" shall mean all health maintenance
organizations, preferred provider organizations, individual practice
associations, competitive medical plans and similar arrangements.
1.43 "Management Agreement" shall mean any agreement, whether written
or oral, between Seller and any other Person pursuant to which Seller provides
any payment, fee or other consideration to any other Person to operate or
manage the Business (except any employment agreements).
1.44 "Medicaid" shall mean the medical assistance program established
by Title XIX of the Social Security Act (42 U.S.C. Sections 1396 et seq.) and
any statute succeeding thereto.
1.45 "Medicare" shall mean the health insurance program for the aged
and disabled established by Title XVIII of the Social Security Act (42 U.S.C.
Sections 1395 et seq.) and any statute succeeding thereto.
1.46 "Party" shall mean either Seller or Purchaser, individually, as
the context so requires, and the term "Parties" shall mean Seller and Purchaser
together.
1.47 "Payables" as of any date shall mean any of the trade accounts
payable associated with the Business as of such date in accordance with GAAP
consistently applied.
1.48 "Payroll Practice/Employee Arrangement" shall have the meaning
given to it in Section 6.18.
1.49 "Permits" shall mean all permits, licenses, approvals,
qualifications, rights, variances, permissive uses, accreditations,
certificates, certifications, consents, contracts, interim licenses, permits
and other authorizations of every nature whatsoever required by, or issued to
or on behalf of Seller under, any Legal Requirements benefiting, relating or
effecting the Business or the construction, development, maintenance,
management, use or operation thereof, or the operation of any programs or
services in conjunction with the Business and all
5
<PAGE> 6
renewals, replacements and substitutions therefor, now or hereafter required or
issued by any Governmental Authority, Accreditation Body or Third Party Payor.
1.50 "Permitted Encumbrances" shall mean those Encumbrances as
specifically set forth on Schedule 1.50 hereto.
1.51 "Person" shall mean any individual, corporation, company, limited
or general partnership, trust or estate, joint venture, association or other
entity.
1.52 "Prepaid Expenses" as of any date shall mean payments made by
Seller with respect to the Business which constitute prepaid expenses of the
Business in accordance with GAAP consistently applied.
1.53 "Proprietary Rights" shall have the meaning given to it in
Section 6.8.1.
1.54 "Provider Agreements" shall mean all participation, provider and
reimbursement agreements or arrangements for the benefit of Seller in
connection with the operation of the Business relating to any right to payment
or other claim arising out of or in connection with Seller's participation in
any Third Party Payor Program.
1.55 "Purchase Price" shall have the meaning given to it in Section
3.1.1.
1.56 "Purchased Assets" shall have the meaning given to it in Section
2.1.
1.57 "Purchaser" shall have the meaning given to it in the preamble of
this Agreement.
1.58 "Purchaser Damages" shall have the meaning given to it in Section
14.2.
1.59 "Purchaser Indemnitees" shall have the meaning given to it in
Section 14.2.
1.60 "Real Property" shall mean the real property owned by Seller in
connection with the Business as more fully described in Schedule 1.60 hereto.
1.61 "Regulated Substance" shall mean petroleum, petroleum
hydrocarbons or petroleum products and any other chemical, material, substance
or waste that is identified (by listing or characteristic) and regulated (or
the clean-up of which can be required) by any Legal Requirement intended to
protect the environment or the public health or welfare, including but not
limited to Legal Requirements relating to clean air, clean water, hazardous and
solid waste disposal, safe drinking water, endangered species, occupational
safety and health, oil spill prevention, groundwater protection, and toxic
substances control.
1.62 "Related Party" means (i) Seller, (ii) any Affiliate of Seller,
(iii) any officer, director, shareholder or partner of any Person identified in
clauses (i) or (ii) preceding, and (iv)
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<PAGE> 7
any spouse, sibling, ancestor or lineal descendant of any natural Person
identified in any one of the preceding clauses.
1.63 "Resident Agreements" shall mean all contracts, agreements and
consents executed by or on behalf of any resident or other Person seeking
services at the Facility as more fully described in Schedule 1.63 hereto,
including, without limitation, assignments of benefits and guarantees, and such
resident's related medical and/or other records.
1.64 "Retained Liabilities" shall have the meaning given to it in
Section 4.2.
1.65 "Security Right" means, with respect to any security, any option,
warrant, subscription right, preemptive right, other right, proxy, put, call,
demand, plan, commitment, agreement, understanding or arrangement of any kind
relating to such security, whether issued or unissued, or any other security
convertible into or exchangeable for any such security. "Security Right"
includes any right relating to issuance, sale, assignment, transfer, purchase,
redemption, conversion, exchange, registration or voting and includes rights
conferred by statute, by the issuer's governing documents or by agreement.
1.66 "Seller" shall have the meaning given to it in the preamble of
this Agreement, individually and collectively, as the context may require.
1.67 "Seller Damages" shall have the meaning given to it in Section
14.3.
1.68 "Seller Indemnitees" shall have the meaning given to it in
Section 14.3.
1.69 "Survival Date" shall have the meaning given to it in Section
14.1.
1.70 "Taxes" shall mean all taxes, duties, charges, fees, levies or
other assessments imposed by any Governmental Authority, including, without
limitation, income, gross receipts, value-added, excise, withholding, personal
property, real estate, sales, use, ad valorem, license, lease, service,
severance, stamp, transfer, payroll, employment, customs, duties, alternative,
add-on minimum, estimated and franchise taxes (including any interest,
penalties or additions attributable to or imposed on or with respect to day
such assessment).
1.71 "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
1.72 "Third Party Payor Programs" shall mean all third party payor
programs which Seller participates, including, without limitation, Medicare,
Medicaid, Champus, Blue Cross and/or Blue Shield, Managed Care Plans, other
private insurance plans and employee assistance programs.
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1.73 "Third Party Payors" shall mean Medicare, Medicaid, Blue Cross
and/or Blue Shield, private insurers and any other Person which maintains Third
Party Payor Programs.
ARTICLE II. TRANSFER OF ASSETS AND PROPERTIES
2.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, Seller shall sell and convey to Purchaser, free and clear of all
Encumbrances whatsoever (other than Permitted Encumbrances and except as
expressly provided herein), and Purchaser shall purchase from Seller, the
Business as a going concern and all Seller's rights, title and interest in and
to the assets, properties and rights of every kind and description, real,
personal and mixed, tangible and intangible, wherever situated owned by Seller
and used in the Business (the "Purchased Assets") as the same shall exist on
the Closing Date (other than the Excluded Assets), including, without
limitation, the following:
2.1.1 Real Property. The Real Property, together with the
buildings, structures, improvements and fixtures located thereon, and all
rights, privileges, easements, licenses, hereditaments and other appurtenances
relating thereto;
2.1.2 Equipment, Machinery and Other Tangible Personal
Property. All machinery, equipment, leasehold improvements, automobiles,
supplies, office furniture and office equipment, computing and
telecommunications equipment and other items of personal property that are
owned by Seller and used in connection with the Business, including those
described in Schedule 2.1.2 hereto;
2.1.3 Contracts Relating to the Business. All of the interest
of Seller in all Contracts relating to the acquisition or ownership by Seller
of any of the Purchased Assets or the operation of the Business and the
Resident Agreements listed on Schedule 1.63 hereto, all as listed on Schedule
2.1.3 hereto, together with those Contracts not required to be listed on
Schedule 2.1.3 by reason of the provisions of Section 6.10.
2.1.4 Sales, Rental and Marketing Materials, Manuals. All
sales data, rental data, catalogs, brochures, reference sources, suppliers'
names, mailing lists, art work, photographs, public relations material and
advertising material used in the Business, whether in electronic form or
otherwise;
2.1.5 Permits, Licenses. All of Seller's interest in Permits
relating to the Business, including those listed in Schedule 2.1.5 hereto, to
the extent such Permits are transferable to Purchaser;
2.1.6 Trade Secrets. All policies and procedures, methods of
delivery of services, trade secrets, designs, drawings and specifications,
market studies, consultants' reports, prototypes, and all similar property of
any nature, tangible or intangible, of Seller used in the Business;
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2.1.7 Intellectual Property. All right, title and interest of
Seller in the patents, trademarks, trademark registrations, trade names,
service marks, copyrights and copyright registrations described in Schedule
2.1.7;
2.1.8 Goodwill. All of the interest of Seller in and to the
goodwill incident to the Business, including but not limited to the value of
the Facility name associated with the Business and the value of good customer
relations;
2.1.9 Inventory. All Closing Inventory;
2.1.10 Resident Funds. All deposits and escrow accounts of,
or for the benefit of, any of Seller's residents at the Closing Date which are
transferred to Purchaser subject to the rights of such residents;
2.1.11 Prepaid Expenses. Certain of Seller's Prepaid
Expenses and rents of, or for the benefit of, the Business at the Closing Date,
as described in Schedule 2.1.11, to the extent the benefits thereof are
transferable to Purchaser;
2.1.12 Computer Software. All computer applications software,
owned or licensed, whether for general business usage (e.g., accounting, word
processing, graphics, spread-sheet analysis, etc.), or specific,
unique-to-the-business usage, and all computer operating, security or
programming software, owned or licensed by Seller and used in the operation of
the Business; and
2.1.13 Other Intangible Assets. All other intangible assets
(including all causes of action, rights of action, contract rights and
warranty and product liability claims against third parties) relating to the
Purchased Assets or the Business.
2.2 Excluded Assets. Notwithstanding Section 2.1, the
following assets (collectively, the "Excluded Assets") shall be excluded from
this Agreement, and shall not be assigned or transferred to Purchaser:
2.2.1 Accounts Receivable. All Accounts Receivable of Seller
existing on the Closing Date;
2.2.2 Cash. All other cash, cash equivalents on hand or in
bank accounts, short-term notes receivable and unbilled costs and fees up
through and including the Closing Date;
2.2.3 Pensions. Assets constituting any pension or other
funds for the benefit of Employees existing on the Closing Date;
2.2.4 Corporate Books, Books and Records. Corporate minute
books and stock books of Seller and the Books and Records of Seller;
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2.2.5 Third Party Claims. Any claims and rights against third
parties (including, without limitation, insurance carriers) to the extent they
relate to liabilities or obligations that are not assumed by Purchaser
hereunder (except the amount of costs and expenses Purchaser shall have
incurred with respect to such claims and rights);
2.2.7 Taxes. Claims for refunds of Taxes and other charges
imposed by any Governmental Authority; and
2.2.8 Vehicle Lease. Seller's lease agreement with respect to
a 1997 528i BMW automobile, such automobile, and the cash deposit held by the
lessor in the amount of $600.00, shall be retained by Seller.
2.2.9 Other Assets. Assets listed on Schedule 2.2.9.
ARTICLE III. CONSIDERATION AND TERMS
3.1 Consideration for Purchased Assets.
3.1.1 Purchase Price. The aggregate consideration to be paid
by Purchaser to Seller for the Purchased Assets and the Business (the "Purchase
Price") shall be $8,300,000 plus the amount, if any, of the Prepaid Expenses at
the Closing Date, to be paid by certified or cashier's check drawn on a
national bank or by wire transfer as follows:
(i) $150,000 (the "Escrow Fund"), to be paid to Escrow Agent
upon execution of this Agreement, and applied to the Purchase Price at Closing
or, if Closing fails to occur, to be distributed in accordance with the terms
of this Agreement and the Escrow Agreement; and
(ii) the Purchase Price less the amount of the Escrow Fund to
Seller at the time of Closing.
3.1.2 Other Consideration. As additional consideration, Purchaser
shall also assume the Assumed Liabilities at the time of Closing.
3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets, the covenant-not-to-compete referred to
in Section 12.2, and the Business in accordance with the allocation set forth
in Schedule 3.3. Purchaser and Seller shall report the federal, state and local
income and other tax consequences of the purchase and sale contemplated hereby
in a manner consistent with such allocation.
ARTICLE IV. ASSUMPTION OF LIABILITIES; EMPLOYEE MATTERS
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4.1 General Limitation on Assumption of Liabilities. Except for
Permitted Encumbrances and as otherwise provided in Sections 4.2, 4.3 and 4.4
below, Seller shall transfer the Purchased Assets to Purchaser free and clear
of all Encumbrances, and without any assumption of liabilities and obligations,
and Purchaser shall not, by virtue of its purchase of the Purchased Assets,
assume or become responsible for any liabilities or obligations of Seller or
any other Person. For purposes of this Section 4.1 the phrase "liabilities and
obligations" shall include, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured
or unsecured.
4.2 Assumed Liabilities and Obligations. On the Closing Date,
Purchaser shall acquire the Purchased Assets subject only to, and shall
undertake, assume, perform and otherwise pay, satisfy and discharge, and hold
Seller harmless from the following liabilities and obligations, excluding any
liabilities and obligations to Affiliates of Seller (collectively, the "Assumed
Liabilities"):
(i) all obligations of Seller accruing after the Closing Date under
the Contracts contemplated by Section 2.1.3, including, without limitation,
those set forth in Schedule 1.63 and Schedule 2.1.3, provided that the rights
thereunder have been duly and effectively assigned to Purchaser;
(ii) all obligations of Seller accruing after the Closing Date under
the Permits described in Section 2.1.5, provided that the rights thereunder
have been duly and effectively assigned to Purchaser; and
(iii) all obligations of Seller to its Employees for vacation accrued
or earned as of the Closing Date.
Except for the Assumed Liabilities, Purchaser does not and shall not
assume or in any way undertake to pay, perform, satisfy or discharge any other
liability of Seller existing on the Closing Date or arising out of any
transactions entered into, or any state of facts existing, prior to the Closing
Date (the "Retained Liabilities"), and Seller agrees to pay and satisfy when
due all Retained Liabilities. Except for the obligations and liabilities
included in the Assumed Liabilities, the term "Retained Liabilities" shall
include, without limitation, liabilities:
(i) for or in connection with any dividends, distributions,
redemptions, or Security Rights with respect to any security of Seller;
(ii) obligations incurred by Seller after Closing;
(iii) for expenses or fees incident to or arising out of the
negotiation, preparation, approval or authorization of this Agreement and the
consummation of the transactions
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contemplated hereby, including, without limitation, all legal and accounting
fees and all brokers or finders fees or commissions payable by Seller;
(iv) under or arising out of this Agreement;
(v) obligations of Seller with respect to matters occurring prior to
the Closing Date and against which Seller is insured or otherwise indemnified
or which would have been covered by insurance (or indemnification) but for a
claim by the insurer (or their indemnitor) that the insured (or the
indemnities) had breached its obligations under the policy of insurance (or the
contract of indemnity) or had committed fraud in the insurance application;
(vi) to any Related Party;
(vii) to indemnify Seller's officers, directors, shareholders,
Employees or agents;
(viii) Federal, state or local tax liabilities or tax obligations of
Seller in respect to periods prior to Closing, and the transactions
contemplated hereunder, including, without limitation, income taxes payable
under the Code, any income tax, any franchise tax, any tax recapture, any
FICA, workers' compensation, and all other taxes due or payable for a period
prior to Closing; notwithstanding the foregoing, all sales and use taxes,
transfer taxes, and all other impositions of tax (but not any license or fee
(or similar charge, however characterized) payable by Purchaser with respect to
its conduct of the Business, which shall be the sole liability of Purchaser)
arising solely by reason of the transfers contemplated by this Agreement
(excluding all federal, state and local income and gross receipt taxes on the
earnings or gross receipts of Seller prior to the Closing Date, which shall
remain the sole responsibility of Seller) shall be the responsibility of and
shall be borne equally by Seller and Purchaser (any real estate and personal
property taxes for the year in which Closing occurs shall be prorated to the
Closing Date (based on a calendar year or fiscal year for which such taxes are
levied basis), if the tax rates for the year in which Closing occurs shall not
be fixed prior to the Closing Date for a particular item of the Purchased
Assets, the proration of taxes thereon shall be based upon the tax rate for
the year prior to Closing applied to the latest assessment valuation; however,
in the event that any such taxes are increased or decreased for the year in
which Closing occurs, Seller or Purchaser shall then reimburse the other party
for amounts in excess of or less than the proration as determined as of the
Closing Date);
(ix) for long term indebtedness and other obligations or guarantees of
Seller;
(x) for Current Liabilities reflected on the books of Seller at the
Closing Date;
(xi) for Accrued Expenses and Payables reflected on the books of
Seller at the Closing Date; and
(xii) if applicable, for or in connection with any cost reports
required to be filed by Seller in connection with the Facility with respect to
periods prior to Closing.
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4.3 Offer of Employment. Purchaser shall offer employment on and as of
Closing, on an at-will basis, to all Employees actively at work in
substantially similar jobs, at substantially the same base salaries or wages
and substantially the same benefits as were paid or provided by Seller
immediately prior to the Closing Date.
4.4 Vacation, Workers' Compensation and Disability Claims.
4.4.1 Seller's Liability. Seller shall remain liable for all
workers' compensation, disability and occupational diseases of or with respect
to all of Seller's Employees attributable to entitlements, injuries, claims,
conditions, events and occurrences occurring on or before the Closing Date.
4.4.2 Purchaser's Liability. Purchaser shall be liable for
all vacation entitlements, workers' compensation, disability and occupational
diseases of or with respect to all Employees of Seller hired by Purchaser,
attributable to entitlements, injuries, claims, conditions, events and
occurrences occurring after the Closing Date and vacation taken after the
Closing Date earned prior to such date.
4.4.3 Workers' Compensation; Unemployment Compensation.
Schedule 4.4.3 attached hereto sets forth a true and correct summary of the
following with respect to the Employees:
(i) a listing of all workers' compensation contracts;
(ii) the workers' compensation loss experience for the past
three years;
(iii) a summary report and experience rating for unemployment
compensation; and
(iv) the turnover rate for the Facility (to the extent known
to Seller).
ARTICLE V. CLOSING
5.1 Time; Location. The Parties shall consummate the purchase and sale
of the Purchased Assets on or before November 30, 1997 (the "Closing"). The
date of the Closing shall be referred to as the "Closing Date." The Closing
shall take place at the offices of Seller's counsel, Kennedy Covington Lobdell
& Hickman, L.L.P., Suite 1900, 434 Fayetteville Street Mall, Raleigh, North
Carolina, 27601 (or at such other place as the parties shall mutually
determine), at such time and date on or before November 30, 1997 as may be
mutually agreed upon by the Parties.
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5.2 Documents. At Closing, Seller shall execute and deliver the
following instruments of transfer and assignment:
5.2.1 Deed. A duly executed special warranty deed, in
recordable form, transferring good and marketable fee simple title to the Real
Property, subject only to Permitted Encumbrances, and such affidavits or other
instruments as Purchaser's title insurance company may reasonably request,
including but not limited to affidavits relating to (i) exceptions for (A)
judgments, bankruptcies, taxes and municipal claims, (B) parties in possession
other than current occupants pursuant to agreements with Seller, (C) mechanics'
or materialmen's liens and (D) encroachments or survey discrepancies of any
nature; (ii) payoff letters, lien releases and satisfaction pieces and (iii)
gap indemnities;
5.2.2 Bill of Sale. A general bill of sale, assignment and
assumption substantially in the form of Exhibit 5.2.2 hereto, transferring to
Purchaser good and indefeasible title to all of the tangible personal property
included in the Purchased Assets, subject only to Permitted Encumbrances and
the Assumed Liabilities and assigning to Purchaser, to the extent assignable,
Seller's right, title and interest in each of the Contracts, Permits and other
agreements included in the Purchased Assets, together with all consents of
third parties that are required to make each such assignment effective to such
third parties;
5.2.3 Title Certificates. Certificates of title to all
vehicles included in the Purchased Assets, if any, with assignments to
Purchaser;
5.2.4 Property Tax Statements. All real estate and personal
property tax statements or bills for or relating to the Real Property or any of
the other Purchased Assets for the applicable current tax year or years, and
all tax assessments or notices thereof upon which such taxes are based;
5.2.5 Plans and Specifications. To the extent not delivered
prior to Closing, all plans, specifications and other drawings in Seller's
possession or reasonably obtainable by Seller and used in the construction of
the Facility or any renovations thereof (including, without limitation, any
as-built plans and architectural specifications) and all guarantees and
warranties made by third parties with respect to the improvements, buildings,
personalty, the property under the Contracts or any of the other Purchased
Assets;
5.2.6 Building Permits. To the extent not delivered prior to
Closing, all building permits, zoning permits, occupancy permits and
subdivision plans and, to the extent the following are in Seller's possession
or reasonably obtainable by Seller, surveys and hazardous waste studies
prepared within 36 months before the date hereof, for or relating to the
Purchased Assets;
5.2.7 Contracts and Other Permits. To the extent not
delivered prior to Closing, all Contracts, Permits, or other instruments or
agreements relating to the ownership, operation, use, occupancy, licensure,
accreditation or maintenance of the Business;
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5.2.8 Occupancy; Rent Roll; Surveys. To the extent not
delivered prior to Closing:
(i) occupancy reports for the Facility for the last year
(which reports shall be prepared based on the number of operational beds);
(ii) the current rent roll for the Facility listing all of
the residents and their respective rent payments; and
(iii) federal and/or state surveys or inspections and any
plans of correction for the Facility for the current year and the two
immediately preceding years;
5.2.9 Other Documents. The Ancillary Agreements, and such
additional instruments of conveyance and transfer as Purchaser may reasonably
require in order to more effectively vest in it, and put it in possession of,
the Purchased Assets.
5.3 Reasonable Steps. Seller shall make such reasonable efforts as may
be appropriate so that on the Closing Date, Purchaser shall be placed in actual
possession and control of all of the Purchased Assets.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller represents and warrants
to Purchaser, that each of the following representations and warranties is true
and correct as of the date hereof:
6.1 Organization, Good Standing and Power. Seller is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, and has all requisite corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is
a party, to consummate the transactions contemplated hereby and thereby and to
perform all the terms and conditions hereof and thereof and to be performed by
it.
6.2 Authorization of Agreement and Enforceability. Seller has taken
all necessary corporate action to authorize the execution and delivery of this
Agreement and the Ancillary Agreements to which it is a party, the performance
by it of all terms and conditions hereof and thereof to be performed by it and
the consummation of the transactions contemplated hereby and thereby,
including, without limitation, obtaining such shareholder's consents as is
required under the North Carolina Business Corporation Act. This Agreement
constitutes, and the Ancillary Agreements to which Seller is party, upon
Seller's execution and delivery thereof, will constitute the legal, valid and
binding obligations of Seller, enforceable in accordance with their terms
except to the extent that enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws presently or hereafter in effect
relating to or affecting the enforcement of
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creditors' rights generally and by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
6.3 No Violation; Consents. The execution, delivery and performance by
Seller of this Agreement and the Ancillary Agreements to which it is a party,
and the consummation of the transactions contemplated hereby and thereby will
not (with or without the giving of notice or the lapse of time, or both) (i)
violate any provision of the charter or bylaws of Seller, (ii) except with
respect to notices and consents required to be given by Seller to any
Accreditation Body or Governmental Authority in connection with the sale and
change of ownership of the Purchased Assets and the Business, violate or
require any consent, authorization or approval of, or exemption by, or filing
under any provision of any law, statute, rule or regulation to which Seller,
the Business or the Purchased Assets are subject, (iii) violate any judgment,
order, writ or decree of any court applicable to Seller, the Business or the
Purchased Assets, (iv) except as identified on Schedule 2.1.3, conflict with,
result in a breach of, constitute a default under, or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under any agreement, Contract, commitment, lease or
other instrument, document or undertaking to which Seller is a party or any of
the Purchased Assets is bound or (v) result in the creation or imposition of
any Encumbrances upon the Purchased Assets.
6.4 Financial Statements.
6.4.1 Annual Financial Statements. Included with Schedule
6.4.1 attached hereto are the audited balance sheets of the Business at
December 31, 1996 and 1995, and the related statements of income and cash
flows for the years then ended, as prepared by Seller (collectively, the
"Annual Financial Statements"). Except as disclosed on Schedule 6.4.1, the
Annual Financial Statements (i) have been prepared in accordance with the
Books and Records of Seller; (ii) have been prepared in accordance with GAAP,
consistently applied throughout the periods covered thereby; (iii) fairly
present in all material respects the financial condition and the results of
operations of the Business as of the relevant dates thereof and for the periods
covered therein and (iv) contain and reflect all necessary adjustments and
accruals for a fair presentation of the financial condition and results of
operations of the Business as of the relevant dates thereof and for the periods
covered by the Annual Financial Statements.
6.4.2 Interim Financial Statements. Included with Schedule
6.4.2 attached hereto is an unaudited balance sheet as of June 30, 1997 and the
statements of income and cash flows of the Business for the six-month periods
ended June 30, 1997 and 1996 prepared by Seller (collectively, the "Interim
Financial Statements"). Except as disclosed on Schedule 6.4.2, such Interim
Financial Statements (i) have been prepared in accordance with the Books and
Records of Seller; (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby; (iii) fairly present in all
material respects the financial condition and results of operations of the
Business as of the date thereof and for the periods covered therein and (iv)
contain and reflect all necessary adjustments and accruals, subject to normal
year-end adjustments for a fair presentation of the financial condition and the
results of operations of the Business as of the date thereof and for the
periods covered by the Interim Financial Statements.
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6.5 Inventory. The level of Inventory maintained by Seller and
included in the Purchased Assets is sufficient to carry on the Business as
historically conducted. The Inventory is good, usable, merchantable and
saleable in the ordinary course of Seller's Business.
6.6 Absence of Certain Changes or Events. Except as set forth in
Schedule 6.6 hereto, since the date of the Interim Financial Statements, in
connection with the Business, Seller has not:
(i) amended in any material respect or terminated any
Contract or Permit other than in the ordinary course of Seller's Business
consistent with past practice;
(ii) suffered the occurrence of any events that,
individually or in the aggregate, have had, or could reasonably be expected to
have, a material adverse effect on the Purchased Assets or the results of
operations of the Business;
(iii) incurred any damage or destruction having a material
adverse effect on the Purchased Assets or the results of operations of the
Business by fire, storm or similar casualty, whether or not covered by
insurance;
(iv) sold, transferred, replaced or leased any of the
Purchased Assets or sold any Inventory at a discount, except for transactions
in the ordinary course of Seller's Business consistent with past practice;
(v) waived or released any material rights with respect to
the Purchased Assets or the Business;
(vi) transferred or granted any rights to any Proprietary
Rights;
(vii) entered into any transaction or made any commitments
(for capital expenditures or otherwise) other than in the ordinary course of
Seller's Business consistent with past practice;
(viii) changed its methods of accounting;
(ix) increased the compensation of Employees, except
following normal review procedures or as reasonably deemed necessary in the
ordinary course of Seller's Business consistent with past practice;
(x) suffered any major or key personnel changes;
(xi) materially altered its conduct in its relations with
suppliers and residents;
(xii) materially altered its marketing efforts with respect
to the Business; or
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(xiii) received any notice nor gained any knowledge that its
Permits to operate the Facility have been or will be suspended, revoked, or
restricted in any manner.
6.7 Real Property.
6.7.1 Title to Properties; Absence of Liens and Encumbrances.
Seller owns and will transfer to Purchaser at Closing good, marketable and
indefeasible title to all of the Purchased Assets, including, without
limitation, the Real Property, free and clear of all Encumbrances, other than
Permitted Encumbrances. Copies of all title insurance policies and surveys
written in favor of Seller relating to the Real Property have been delivered to
Purchaser.
6.7.2 Structures and Improvements. All structures and other
improvements on the Real Property (i) are located within the lot lines of the
Real Property and (ii) do not encroach on the properties of any other Person.
All structures and improvements located upon the Real Property and all elements
thereof, including but not limited to the landscaping, fixtures, and equipment
associated therewith, shall be sold, transferred and conveyed to Purchaser
hereunder, AS IS, WHERE IS, AND SUBJECT TO ALL FAULTS. Seller makes no
warranties or representations, express or implied, with respect to the state of
condition and repair of the structures and improvements located upon the Real
Property including, but not limited to, the fixtures and mechanical equipment
used with respect to such structures and improvements.
6.7.3 Location. The Real Property is considered a separate
parcel or parcels of land for taxing and conveyancing purposes and the Real
Property is not located in a flood plain, flood hazard area or designated
wetlands area.
6.7.4 Use and Operation. To the extent known to Seller, the
use and operation of the Real Property conforms to all applicable building,
zoning, safety and subdivision laws, other Legal Requirements, and all
restrictive covenants and restrictions and conditions affecting title. Seller
has received no written notice that the use and operation of the Real Property
violates any Legal Requirement.
6.7.5 Utilities. To the extent known to Seller, all utilities
(including water, electric, storm and sanitary sewage and telephone utilities)
required to operate the Facility are available to the Facility and such
utilities enter the boundaries of such Facility through adjoining public
streets, permanent easements or rights of way of record in favor of Seller.
Such utilities are all connected pursuant to valid permits, are all in good
working order and are adequate to service the operations of the Facility as
currently conducted and permit full compliance with all Legal Requirements.
Seller has not received any written notice of any proposed, planned or actual
curtailment of service of any utility supplied to the Facility.
6.7.6 Assessments; Notices. Seller has not received any
written notice of assessments for public improvements against the Real Property
or any written notice or order by any Governmental Authority, any insurance
company that has issued a policy with respect to any
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of such properties or any board of fire underwriters or other body exercising
similar functions that relates to violations of building, safety or fire
ordinances or regulations, that claims any defect or deficiency with respect
to any of such properties or requests the performance of any repairs,
alterations or other work to or in any of such properties or in the streets
bounding the same.
6.7.7 Condemnation. To the extent known to Seller, there is
no pending condemnation, expropriation, eminent domain or similar proceeding
affecting all or any portion of the Real Property. Seller has received no
written notice of any such proceeding.
6.7.8 Access. All present driveways and other access routes
to the Real Property are from public streets and no other Person has any right
to use any such driveways or other access routes.
6.8 Proprietary Rights.
6.8.1 Logos and Tradenames. Schedule 2.1.7 hereto sets forth
a correct and complete list of all patents, logos, trademarks, trade names,
service marks, copyrights and applications or registrations therefor used in
and material to the Business (collectively, the "Proprietary Rights").
6.8.2 Licenses. Except as disclosed in Schedule 2.1.7.: (i)
Seller owns or possesses adequate licenses or other valid rights to use
(without the making of any payment to others or the obligation or grant rights
to others in exchange) all the Proprietary Rights material to the Business;
(ii) the Proprietary Rights included in the Purchased Assets constitute all the
material rights necessary to conduct the Business in accordance with past
practice and are being conveyed to Purchaser together with the other Purchased
Assets; (iii) the validity of the Proprietary Rights and the rights therein of
Seller have not been questioned in any litigation to which Seller is a party,
nor, to Seller's Knowledge, is any such litigation threatened; and (iv) to the
best of Seller's Knowledge, the conduct of the Business does not conflict with
patent rights, licenses, trademark rights, trade name rights, copyrights or
other intellectual property rights of others.
6.9 Contracts and Commitments. Except as listed and described on
Schedule 1.63 and Schedule 2.1.3, neither Seller nor any party acting on behalf
of Seller with Seller's Knowledge and consent is a party to any written or oral
(for which Purchaser shall be bound following the Closing Date):
(i) Contract for the future purchase of, or payment for,
supplies or products, or for the performance of services by another party,
involving in any one case $10,000 or more;
(ii) Contract to sell or supply products or to perform
services, involving in any one case $10,000 or more (except for any Resident's
Agreement);
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(iii) Contract continuing over a period of more than six
months from the date hereof or exceeding $10,000 in value (except for any
Resident's Agreement);
(iv) representative, sales agency, dealer or distributor
Contract;
(v) lease under which Seller is either lessor or lessee;
(vi) note, debenture, bond, conditional sale agreement,
equipment trust agreement, letter of credit agreement, loan agreement or other
Contract or for the borrowing or lending of money (including without limitation
loans to or from Employees) or guarantee, pledge or undertaking of the
indebtedness of any other Person;
(vii) Contract for any charitable or political contribution;
(viii) Contract limiting or restraining Seller or any
successor or assign from engaging or competing in any likeness of business with
any Person;
(ix) license, franchise, distributorship or other agreement,
including those that relate in whole or in part to any patent, trademark, trade
name, service mark or copyright or to any ideas, technical assistance or other
know-how of or used by the Business;
(x) Contract or commitment to assign, option, sell, transfer
or otherwise convey any right, title or interest of Seller in and to all or any
portion of the Business or the Purchased Assets; or
(xi) any other material Contract not made in the ordinary
course of Seller's Business consistent with past practice.
Each of the Contracts and other instruments, documents and
undertakings listed on Schedule 1.63 and Schedule 2.1.3 is valid and
enforceable in accordance with its terms, Seller is in compliance with the
provisions thereof, Seller is not in default in the performance, observance or
fulfillment of any material obligation, covenant or condition contained
therein, and no event has occurred that with or without the giving of notice or
lapse of time, or both, would constitute a default by Seller thereunder or a
default by any other party thereto. Except as set forth on Schedule 1.63 and
Schedule 2.1.3, no advance payments have been received by Seller by or on
behalf of any party to any of the Contracts, commitments, leases and other
instruments listed on Schedule 1.63 and Schedule 2.1.3 for services to be
rendered or products to be delivered to such party after the Closing Date.
Except as set forth on Schedule 1.63 and Schedule 2.13, no consent or approval
of any party to any Contract, commitment, lease or other instrument, document
or undertaking is required for the execution of this Agreement or the
consummation of the transactions contemplated hereby.
6.10 Permits, Licenses. To the extent known to Seller, Seller has all
Permits that are required to operate the Business; and, Seller is in material
compliance with the terms and
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conditions of the Permits. Schedule 2.1.5 hereto sets forth a correct and
complete list of all Permits, each one of which is in full force and effect. To
Seller's Knowledge, no suspension or cancellation of any of the Permits is
threatened and no cause exists for such suspension or cancellation. Any Permits
that cannot be transferred or require consent or approval for the transfer
thereof are specifically identified on Schedule 2.1.5 hereto as nontransferable
or requiring such consent or approval.
6.11 Compliance with Laws. To the extent known to Seller, except as
described in Schedule 6.11 hereto, Seller has at all times conducted, and is
presently conducting, the Business so as to comply in all material respects
with all Legal Requirements applicable to the conduct of operation of the
Business or the ownership or use of the Purchased Assets.
6.12 Legal Proceedings. Except as described in Schedule 6.12 hereto,
there is no claim, action, suit, proceeding, investigation or inquiry pending
before any Governmental Authority or, to Seller's Knowledge, threatened against
Seller with respect to the Business or any of the Purchased Assets, or relating
to the transactions contemplated by this Agreement, nor to Seller's Knowledge
is there any basis for any such claim, action, suit, proceeding, investigation,
or inquiry. Except as set forth on Schedule 6.12 hereto, Seller is not a party
to or subject to the provisions of any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental, regulatory or
administrative official, body or authority that relates to the Purchased Assets
or the Business or that might affect the transactions contemplated by this
Agreement.
6.13 Absence of Undisclosed Liabilities. Except as set forth in
Schedule 6.13, Seller has no material liabilities or obligations (as defined in
Section 4.1) relating to the Business except (i) those liabilities and
obligations set forth on the Financial Statements of Seller previously provided
to Purchaser and not heretofore paid or discharged; (ii) those liabilities and
obligations arising in the ordinary course of Seller's Business consistent with
past practice under any Contract or commitment specifically disclosed on
Schedule 2.1.3 hereto or not required to be disclosed because of the term or
amount involved; and (iii) those liabilities and obligations incurred in the
ordinary course of Seller's Business consistent with past practice since the
date of the Interim Financial Statements provided to Purchaser.
6.14 Books and Records. All books of account and other financial
records of Seller directly relating to the Business (the "Books and Records")
are materially complete and correct and have been made available to Purchaser.
All of the Books and Records have been maintained in accordance with good
business practices and, where applicable, in accordance with GAAP.
6.15 Employees. Schedule 1.22 sets forth a true and correct list of
all individuals currently employed by Seller in the conduct of the Business and
their present position and rate of compensation and date of hire. Except as set
forth on Schedule 1.22, none of the individuals employed by Seller have been
given any credit for service under any Payroll Practice/Employee Arrangement
prior to their respective dates of hire.
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6.16 Labor Relations. No Employee of Seller is represented by any
union or other labor organization. No representation election, arbitration
proceeding, grievance, labor strike, dispute, slowdown, stoppage or other labor
trouble is pending or, to Seller's Knowledge, threatened against, involving,
affecting or potentially affecting Seller. No complaint against Seller is
pending or, to Seller's Knowledge, threatened before the National Labor
Relations Board, the Equal Employment Opportunity Commission or any similar
state or local agency, by or on behalf of any Employee of Seller. Two days
prior to the Closing Date, Seller shall provide Purchaser with a compilation of
any existing liability for Employee sick leave, vacation time, severance pay or
any similar item. To Seller's Knowledge, except as set forth on Schedule 1.22,
Seller has no liability for any occupational disease of any of its Employees,
former Employees or others. Neither the execution and delivery of this
Agreement, the performance of the provisions hereof nor the consummation of
the transactions contemplated hereby will trigger any severance pay obligation
under any Contract or under any law.
6.17 Payroll Practice/Employee Arrangement.
6.17.1 Benefit Plans. Schedule 6.17 contains a complete list
of each employee benefit plan subject to ERISA, and/or holiday, vacation or
other bonus practice or any other employee pay practice, arrangement, agreement
or commitment (the "Payroll Practice/Employee Arrangement") and maintained by
or with respect to which Seller has any liability or obligation, whether
actual or contingent, with respect to the Employees or their respective
beneficiaries.
6.17.2 Plan Liability. Seller has not taken any action that
may result in Purchaser being a party to, or bound by, an ERISA Plan, and
Purchaser shall have no liability under, or be subject to any liability on
account of, any ERISA Plan or Payroll Practice/Employee Arrangement following
the consummation of the transaction contemplated hereby.
6.17.3 Retirement Benefits. No ERISA Plan or other employee
arrangement has provided for the payment of retiree benefits by Purchaser.
6.18 No Finder. With the exception of Fred H. Beck & Associates, LLC,
Seller has not taken any action that would give to any Person a right to a
finder's fee or any type of brokerage commission in relation to, or in
connection with, the transactions contemplated by this Agreement.
6.19 Interest in Business. Seller has not granted, and there is not
outstanding, any option, right, agreement or other obligation pursuant to which
any Person could claim a right to acquire in any way all or any part of, or
interest in, the Business.
6.20 [RESERVED].
6.21 Condition of Assets. All buildings, structures and equipment that
are part of the Purchased Assets, as well as all other tangible personal
property comprising the Purchased Assets, shall be sold, transferred, and
conveyed to Purchaser hereunder AS IS, WHERE IS, AND
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SUBJECT TO ALL FAULTS, and Seller makes no warranties or representations,
express or implied, with respect to the state of condition and repair thereof.
It is provided, however, that this disclaimer shall not affect any warranties
which Seller may make to Purchaser in the Deed referenced in the foregoing
Section 5.2.1.
6.22 Affiliate Transactions. Except as set forth in Schedule 6.22
hereto, Seller and its Affiliates provide no services or products to the
Business.
6.23 Insurance. Schedule 6.23 sets forth a complete list of all
insurance policies maintained with respect to the Business for the past three
years and all insurance policies known by Seller to have been maintained by any
other Person which may provide any coverage for liabilities relating in any
manner to any Environmental Law. Schedule 6.23 also sets forth a true and
correct summary of the loss experiences for the past three years under each
such policy. Subject to policy deductibles and exclusions, Seller's policies of
liability insurance provide coverage for occurrences prior to the Closing Date.
6.24 No Significant Items Excluded. Except for Excluded Assets, there
are no assets or properties of Seller or any Related Party that are of material
importance to the ongoing operation of the Business by Purchaser in
substantially the same manner in which the Business has been conducted by
Seller prior to the date of this Agreement.
6.25 Surveys. Seller has provided Purchaser with copies of Seller's
federal and/or state surveys or inspections and any plans of correction for the
current year and the two immediately preceding years for the Facility. Each
such survey or inspection was prepared in material compliance with all
applicable Legal Requirements.
6.26 Occupancy Reports. Seller has provided Purchaser with copies of
Seller's occupancy reports for the Facility for the last year. Each such
occupancy report was prepared based on the number of operational beds (i.e.,
double occupancy rooms were only counted as such when both beds were occupied).
6.27 Tax Returns. Seller has filed or caused to be filed, or will file
or cause to be filed, all Tax Returns that are required to be filed by it prior
to or on the Closing Date, pursuant to all Legal Requirements of each
Governmental Authority with taxing power over it. All such Tax Returns were or
will be, as the case may be, correct and complete in all material respects.
Seller has paid or will pay all Taxes that have or will become due as shown on
such Tax Returns or pursuant to any assessment received as an adjustment to
such Tax Returns, except (i) such Taxes, if any, as are being contested in good
faith and disclosed on Schedule 6.27, (ii) such Taxes that are fully reserved
against on the Financial Statements of Seller previously provided to Purchaser,
and Taxes accruing that are not yet due. Except as set forth on Schedule 6.27,
Seller is not currently the beneficiary of any extension of time within which
to file any Tax Return. No claim has been made by a taxing authority of a
jurisdiction other than one in which the Facility is located. Seller has paid,
or will withhold and pay, all Taxes required to have been withheld in
connection with amounts paid or owing to any Employee, independent contractor,
creditor,
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stockholder or other third party.
6.28 Completeness and Accuracy. To the extent known to Seller, all
information set forth on any Schedule hereto is true, correct and complete. No
representation or warranty of Seller contained in this Agreement contains or
will contain any untrue statement of material fact, or omits or will omit to
state any material fact necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading. All Contracts,
Permits and other documents and instruments furnished or made available to
Purchaser by Seller are or will be true, complete and accurate originals or
copies of originals and include all amendments, supplements, waivers and
modifications thereto.
6.29 Seller's Assets. Neither Seller nor Seller's "ultimate parent
entity" (as such term is defined in 16 CFR, Chapter 1, Subchapter H, Sections
801.1 et seq) had: (i) annual net sales of $100,000,000 or more as stated on
its last regularly prepared statement of income and expenses; or (ii) total
assets of $100,000,000 or more as stated on its last regularly prepared
balance sheet.
6.30 Discounted Rates; Rate Limitations; Free Care. Attached hereto
is Schedule 6.30 that sets forth a true and complete list of the following for
the Facility: (i) any services that are provided based on a discount factor
from the rates regularly charged at the Facility; (ii) any restrictions or
limitations on rates which may be charged to private pay residents for
services provided at the Facility; (iii) any percentage of beds or slots in any
program at the Facility that must be reserved for Medicare or Medicaid eligible
residents and (iv) any amount of welfare, free or charity care or discounted
government assisted resident care provided at the Facility.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement and
to consummate the transactions contemplated hereby, Purchaser represents and
warrants to Seller, that each of the following representations and warranties
is true and correct as of the date hereof:
7.1 Organization, Good Standing, Power. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation and has all requisite corporate power and authority to
own and lease the Purchased Assets, to carry on the Business and to execute and
deliver this Agreement and the Ancillary Agreements to which Purchaser is a
party, to consummate the transactions contemplated hereby and thereby and to
perform all the terms and conditions hereof and thereof to be performed by it.
7.2 Authorization of Agreement and Enforceability. Purchaser has
taken all necessary corporate action to authorize the execution and delivery of
this Agreement and the Ancillary Agreements to which Purchaser is a party, the
performance by it of all terms and conditions hereof and thereof to be
performed by it and the consummation of the transactions contemplated hereby
and thereby. This Agreement constitutes, and the Ancillary Agreements, upon
Purchaser's execution and delivery thereof, will constitute, the legal, valid
and binding
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obligations of Purchaser, enforceable in accordance with their terms except to
the extent that enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws presently or hereafter in effect relating to
or affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
7.3 No Violations; Consents. Except as set forth on Schedule 7.3, the
execution, delivery and performance by Purchaser of this Agreement and the
Ancillary Agreements to which Purchaser is a party and the consummation of the
transactions contemplated hereby and thereby will not (with or without the
giving of notice or the lapse of time, or both) (i) violate any provision of
the charter or bylaws of Purchaser, (ii) except with respect to notices and
consents required to be given by Purchaser to any Accreditation Body or
Governmental Authority in connection with the sale and change of ownership of
the Purchased Assets and the Business, violate, or require any consent,
authorization or approval of, or exemption by, or filing under any provision of
any contract, law, statute, rule or regulation to which Purchaser is subject,
(iii) violate any judgment, order, writ or decree of any court applicable to
Purchaser, (vi) conflict with, result in a breach of, constitute a default
under, or accelerate or permit the acceleration of the performance required by,
or require any consent, authorization or approval under any agreement,
contract, commitment, lease or other instrument, document or undertaking to
which Purchaser is a party or (v) result in the creation or imposition of any
Encumbrance upon its assets.
7.4. Legal Proceedings. There is no claim, action, suit, proceeding,
investigation or inquiry pending before any Governmental Authority or, to
Purchaser's Knowledge, threatened against Purchaser or any of Purchaser's
properties, assets, operations or businesses that might prevent or delay the
consummation of the transactions contemplated hereby.
7.5 No Finder. Purchaser has not taken any action which would give to
any Person a right to a finder's fee or any type of brokerage commission in
relation to, or in connection with, the transactions contemplated by this
Agreement.
7.6 Purchaser's Assets. Neither purchaser nor Purchaser's "ultimate
parent entity" (as such term is defined in 16 CFR, Chapter 1, Subchapter H, ss.
801.1 et seq) had: (i) annual net sales of $100,000,000 or more as stated on
its last regularly prepared statement of income and expenses; or (ii) total
assets of $100,000,000 or more as stated on its last regularly prepared balance
sheet.
ARTICLE VIII. COVENANTS OF SELLER PRIOR TO CLOSING DATE
8.1 Required Actions. Between the date of this Agreement and the
Closing Date, Seller covenants that it will, in its conduct of the Business,
except as otherwise agreed by Purchaser in writing:
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8.1.1 Access to Information. Give to Purchaser and its
counsel, accountants, consultants and other representatives, for the purpose
of audit, review and copying, reasonable access to such of the books,
accounts, Contracts and records of Seller as are relevant to the Purchased
Assets and the Business, and furnish or otherwise make available to Purchaser
all such information concerning the Purchased Assets and the Business as
Purchaser may reasonably request. Accordingly, Seller shall provide Purchaser
with the following:
(i) Seller's occupancy reports for the Facility, as soon as
the same become available through the Closing Date, but no later than the last
day of any given week (which reports shall be prepared based on the number of
operational beds);
(ii) rent rolls for the Facility, as soon as the same become
available through the Closing Date, but no later than five days after the end
of any given month;
(iii) Seller's federal and/or state surveys or inspections
and any plans of correction for the Facility, as soon as the same become
available through the Closing Date, but no later than fifteen days after
received by Seller;
(iv) if applicable, Seller's cost reports for the Facility
for the current year and the two immediately preceding years, together with
the current rate schedule for the Facility;
(v) monthly statements of profit and loss of Seller for the
Facility, as soon as the same become available through the Closing Date, but no
later than fifteen days after the last day of each month.
8.1.2 Conduct of Business. Operate the Business in the usual,
regular and ordinary manner as such Business was conducted prior to the date
hereof and, to the extent consistent with such operation, use its best efforts
until the Closing Date to (i) preserve and keep intact the Business, (ii) keep
available the services of the Employees; (iii) preserve its relationships with
residents, suppliers and others having business dealings with Seller in
connection with the Business and (iv) maintain current marketing activities;
8.1.3 Maintenance of Properties. Maintain the Purchased
Assets, whether owned or leased, in good order and condition, in accordance
with Seller's past practices, reasonable wear and tear and fire or other
casualty excepted;
8.1.4 Maintenance of Books and Records. Maintain the Books
and Records in the usual, regular and ordinary manner, on a basis consistent
with past practice;
8.1.5 Compliance with Applicable Law. Comply in all material
respects with all Legal Requirements applicable to the Purchased Assets and to
the conduct of the Business;
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8.1.6 Performance of Obligations. Perform all the material
obligations of Seller relating to the Purchased Assets and the Business in
accordance with the past practices of Seller;
8.1.7 Approvals, Consents. Use its reasonable commercial
efforts to obtain in writing as promptly as possible any approvals and consents
as required to be obtained by Seller in order to effectuate the transactions
contemplated hereby and deliver to Purchaser copies of such approvals and
consents. Accordingly, Seller shall cooperate with Purchaser's efforts to
obtain the necessary licenses to operate the Facility from the appropriate
Accreditation Bodies, including, without limitation, the Department of Human
Resources. Upon execution and delivery of this Agreement, Seller shall
promptly:
(i) provide Purchaser with copies of all Permits and, with
respect to the Facility's administrator, a copy of his or her license and
record of continuing education credits;
(ii) notify each Accreditation Body and Third Party Payor as
required by any Legal Requirement of the pending change of ownership of the
Facility; and
(iii) provide such other notices as required by all Legal
Requirements including (A) notices to residents of the Facility and (B) notices
to the appropriate county department of social services. Prior to sending the
notices, Seller shall provide copies to Purchaser for review and approval,
which approval shall not be unreasonably withheld;
8.1.8 Notice of Material Damage. Give to Purchaser prompt
notice in writing of any fact that, if known on the date hereof, would have
been required to be set forth or disclosed in or pursuant to this Agreement, or
which would result in the breach in any material respect by Seller of any of
its representations, warranties, covenants or agreements hereunder;
8.1.9 Cost Reports. File, or cause to be filed, all Medicare
and Medicaid cost reports that are required to be filed after the Closing Date,
without regard to any extensions, pursuant to all applicable Legal
Requirements. Any liability of Seller required to be paid as a result of any
such cost report for any period prior to the Closing Date shall be paid by
Seller. Purchaser shall cause any refund which may be received after the
Closing Date as a result of any such cost report filed for any period prior to
the Closing Date to be paid to Seller;
8.1.10 Pay Employees to Closing Date. Pay all wages, salaries
and other sums due Employees through the close of business on the day prior to
the Closing Date;
8.1.11 Transfer of Employees. Take all reasonably necessary
steps to transfer to Purchaser the employment of all Employees electing to
continue their employ with Purchaser as of the Closing Date;
8.1.12 Compliance with Agreement. Not undertake any course of
action materially inconsistent with satisfaction of the conditions applicable
to it set forth in this Agreement, and use all reasonable efforts to do all
such acts and take all such measures as may be
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reasonably necessary to comply with the representations, agreements, conditions
and other provisions of this Agreement.
8.1.13 Update Schedule. Promptly disclose to Purchaser any
information contained in the representations and warranties of Seller contained
in Article VI or in the Schedules to this Agreement which is no longer complete
or correct; provided that no such disclosure shall be deemed to modify, amend
or supplement such Seller's representations and warranties; and
8.1.14 Compliance with Bulk Sales Laws. If applicable,
provide any notices required under Sections 25-6-101 et seq. of North
Carolina's Uniform Commercial Code pertaining to bulk transfers in accordance
with the provisions thereof. Prior to sending such notices, Seller shall
provide copies to Purchaser for review and approval, which approval shall not
be unreasonably withheld;
8.2 Other Deliveries. At its own cost and expense, Seller shall have
delivered with respect to the Real Property, as soon as possible but in any
event not later than three days before Closing:
8.2.1 Surveys. Existing surveys of such property currently in
Seller's possession or reasonably obtainable by Seller;
8.2.2 Affidavits. ALTA extended coverage
statements/affidavits in form and substance satisfactory to Purchaser's title
insurer regarding title, mechanic's liens and such other customary matters as
may be reasonably requested by Purchaser or Purchaser's title insurer; and
8.2.3 FIRPTA Certificates. A certificate, duly executed and
acknowledged by an officer of Seller, in the form prescribed by Treasury
Regulation Section 1.1445-2(b)(2)(iii), stating Seller's name, address and
Federal tax identification number, and that Seller is not a "foreign person"
within the meaning of Section 1445 of the Code.
8.3 Prohibited Actions. Between the date of this Agreement and the
Closing Date, in its conduct of the Business, Seller shall not, except as
otherwise agreed by Purchaser in writing:
8.3.1 Sale of Purchased Assets. Sell, transfer, assign,
lease, encumber or otherwise dispose of any of the Purchased Assets other than
in the ordinary course of Seller's Business consistent with past practices;
8.3.2 Business Changes. Change in any material respect the
character of the Business;
8.3.3 Incurrence of Material Obligations. Incur any material
fixed or contingent obligation or enter into any material agreement, commitment
or other transaction or arrangement, commitment or other transaction or
arrangement that is not the ordinary course of Seller's
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Business consistent with past practices and with respect to which Purchaser
will be bound subsequent to Closing;
8.3.4 Incurrence of Liens. Subject to lien, security
interest or any other Encumbrance, other than Permitted Encumbrances, any of
the Purchased Assets;
8.3.5 Change in Employee Compensation and Benefits. Increase
the rate of compensation paid, or pay any bonus, to anyone connected with the
Business, except for those increases or bonuses planned, in the ordinary
course of Seller's Business consistent with past practices, or establish or
adopt any new pension or profit-sharing plan, deferred compensation agreement
or employee benefit arrangement of any kind whatsoever covering or affecting
Employees;
8.3.6 Publicity; Advertisement. Except as required by law,
publicize, advertise or announce to any third-party, except as required
pursuant to this Agreement to obtain the consent of such third-party, the
entering into of this Agreement, the terms of this Agreement or the
transactions contemplated hereby;
8.3.7 No Release. Except in the ordinary course of Seller's
Business consistent with past practices, cancel, release or relinquish any
material debts of or claims against others held by Seller with respect to the
Business or waive any material rights relating to the Business; and
8.3.8 No Termination or Modification. Terminate or materially
modify any material, Contract or Permit listed on Schedule 1.63 or Schedule
2.1.3 or other authorization or agreement affecting the Business or the
Purchased Assets or the operation thereof.
ARTICLE IX. COVENANTS OF PURCHASER PRIOR TO CLOSING DATE
9.1 Required Actions. Between the date of this Agreement and the
Closing Date, Purchaser shall, except as otherwise agreed by Seller in writing:
9.1.1 Advise of Changes. Advise Seller promptly in writing of
any fact that, if known at the Closing Date, would have been required to be set
forth or disclosed in or pursuant to this Agreement, or which would result in
the breach by Purchaser of any of its representations, warranties, covenants
or agreements hereunder;
9.1.2 Compliance with Agreement. Not undertake any course of
action inconsistent with satisfaction of the conditions applicable to it set
forth in this Agreement, and Purchaser shall use its best efforts to do all
such acts and take all such measures as may be reasonably necessary to comply
with the representations, agreements, conditions and other provisions of this
Agreement;
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9.1.3 Examinations. Promptly undertake all examinations,
inspections, surveys and audits, including, without limitation, title searches
and surveys of the Real Property, environmental assessments and audits and
engineering surveys, as Purchaser deems necessary in connection with the
acquisition of the Purchased Assets or the Business; and
9.1.4 Seller's Employees. Take all reasonable steps to ensure
that the transfer of employment of all of the Employees electing to continue
their employ with Purchaser as are able to be accomplished prior to or on the
Closing Date.
9.2 Investigation. Purchaser shall use reasonable efforts to conduct
an investigation of the Business of Seller in such a manner as to prevent
disruption of relations with the Employees, residents and suppliers of Seller,
which investigation shall include such due diligence as is customary for
transactions of the type contemplated herein.
9.3 Approvals, Consents. Purchaser shall use its best efforts to
obtain in writing as promptly as possible any approvals and consents as
required to be obtained by Purchaser in order to effectuate the transactions
contemplated hereby and deliver to Purchaser copies of such approvals and
consents. Accordingly, Purchaser take all commercially reasonable action to
obtain the necessary licenses to operate the Facility from the Department of
Human Resources, as applicable, including:
(i) notifying each Accreditation Body and Third Party Payor
as required by any Legal Requirement of the pending change of ownership of the
Facility; and
(ii) providing such other notices as required by all Legal
Requirements including, if applicable, (A) notices to residents of the Facility
and (B) notices to the appropriate county department of social services. Prior
to sending the notices, Purchaser shall provide copies to Seller for review
and approval, which approval shall not be unreasonably withheld;
9.4 Publicity; Advertisement. Except as required by law,
Purchaser shall not publicize, advertise or announce to any third-party, except
as required pursuant to this Agreement to obtain the consent of such
third-party, the entering into of this Agreement, the terms of this Agreement
or the transactions contemplated hereby; provided, however, the foregoing shall
not be applicable to disclosures made by Purchaser to Purchaser's lender in
response to such lender's reasonable requests.
ARTICLE X. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to proceed with Closing under this
Agreement is subject to the fulfillment prior to or at the time of Closing of
the following conditions with respect to Seller, any one or more of which may
be waived in whole or in part by Purchaser:
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10.1 Accuracy of Representations and Warranties. The representations
and warranties of Seller contained in this Agreement and the Ancillary
Agreements to which Seller is a party shall have been true in all material
respects on the date hereof and shall be true in all material respects on and
as of the Closing Date with the same force and effect as though made on and as
of the Closing Date.
10.2 Performance of Agreement. Seller shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement and the
Ancillary Agreements to which Seller is a party to be performed or complied
with by it at or prior to the Closing Date.
10.3 Seller's Certificate. Purchaser shall have received a certificate
from Seller, dated as of the Closing Date, reasonably satisfactory in form and
substance to Purchaser and its counsel, certifying as to the matters specified
in Section 10.1 and Section 10.2 hereof. The matters set forth in such
certificate shall constitute representations and warranties of Seller
hereunder.
10.4 Secretary's Certificate. Purchaser shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Seller with respect to:
(i) the incumbency and specimen signature of each officer or
representative of Seller executing this Agreement, the certificate referred to
in Section 10.3 and the Ancillary Agreements to which Seller is a party; and
(ii) the resolutions of the board of directors of Seller
and, if necessary, the stockholders of Seller, authorizing the execution and
delivery of this Agreement and the Ancillary Agreements to which Seller is a
party and the performance by Seller of the transactions contemplated hereby and
thereby.
10.5 Injunction. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby or which if successfully asserted might otherwise have a
material adverse effect on the conduct of the Business or impose any additional
material financial obligation on, or require the surrender of any material
right by, Purchaser.
10.6 Actions and Proceedings. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated
by this Agreement or incidental hereto and all other related legal matters
shall be reasonably satisfactory to counsel for Purchaser, and such counsel
shall have been furnished with such certified copies of such
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corporate actions and proceedings and such other instruments and documents as it
shall have reasonably requested, including, without limitation:
(i) certificates of the appropriate public officials to the
effect that Seller is a validly existing corporation in good standing in its
state of incorporation as of a date not more than 10 days prior to the Closing
Date;
(ii) incumbency and specimen signature certificates dated the
Closing Date, signed by the officers of Seller and certified by its Secretary;
and
(iii) true and correct copies of (A) the charter documents of
Seller as of a date not more than 30 days prior to the Closing Date, certified
by the Secretary of State of its state of incorporation and (B) the bylaws of
Seller as of the Closing Date, certified by the Secretary of Seller.
10.7 Consents. Any third-party consents, approvals, authorizations or
Permits (including, without limitation, those required by any Governmental
Authorities) necessary for the conveyance of the Purchased Assets or valid
consummation of the transactions contemplated hereby shall have been obtained.
10.8 Condition of Purchased Assets. At the Closing Date, the Purchased
Assets shall be operating to the reasonable satisfaction of the Purchaser and
shall remain substantially undamaged by fire, storm, or other casualty.
10.9 Environmental Report. At its own cost and expense, Purchaser
shall have obtained a written report from a qualified geotechnical or
engineering firm, in a form and substance, satisfactory to Purchaser,
concerning the presence, handling, treatment and disposal of Regulated
Substances on, in or under the Real Property and disclosing (i) the results of
a review of prior uses of the Real Property disclosed by local public records,
including the chain of title; (ii) contacts with local officials to determine
whether any records exist with respect to the disposal of Regulated Substances
on the Real Property; and (iii) if recommended to or required by Purchaser,
soil samples and groundwater samples consistent with good engineering
practice. Such report shall confirm that the Real Property is not contaminated
by the presence of Regulated Substances to the extent that clean-up is required
or that a condition exists which violates any Environmental Law or which would
prevent Purchaser from obtaining any Permit required to operate the Business of
the Facility.
10.10 Title Insurance. Purchaser shall have obtained for all Real
Property final marked commitments to issue to Purchaser ALTA (1990-Form B with
appropriate state endorsements) owner's or leasehold policies of title
insurance in coverage amounts equal to the fair market value of the Real
Property, insuring good and marketable title to the Real Property with
mechanic's liens coverage and such endorsements as Purchaser may reasonably
request and with exceptions only for ALTA standard printed exceptions (other
than mechanic's and materialmen's liens and rights of possession) and Permitted
Encumbrances.
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10.11 Closing Documents. Purchaser shall have received the other
documents referred to in Section 5.2 which shall be in form and substance
satisfactory to Purchaser in its reasonable discretion.
10.12 Opinion of Counsel. Purchaser shall have received the favorable
opinion of counsel for Seller, addressed to Purchaser and Purchaser's lender,
reasonably satisfactory to Purchaser and its counsel as to the matters set
forth in Sections 6.1, 6.2 and 6.3 hereof, as to which such counsel shall
opine, but only to the extent of its actual knowledge with respect to matters
set forth in Section 6.3 after making such inquiries and reviewing such
materials as are customary in connection with the opinions given therein.
ARTICLE XI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligation of Seller to proceed with any Closing under this
Agreement is subject to the fulfillment prior to or at the time of Closing of
the following conditions with respect to Purchaser, any one or more of which
may be waived in whole or in part by Seller:
11.1 Accuracy of Representations and Warranties. The representations
and warranties of Purchaser contained in this Agreement shall have been true in
all material respects on the date hereof and shall be true in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
11.2 Performance of Agreement. Purchaser shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement to be
performed or complied with by it at or prior to the Closing Date.
11.3 Purchaser's Certificate. Seller shall have received a certificate
from Purchaser, dated as of the Closing Date, reasonably satisfactory in form
and substance to Seller and its counsel, certifying as to the fulfillment of
all matters specified in Section 11.1 and Section 11.2 hereof. The matters set
forth in such certificate shall constitute representations and warranties of
Purchaser hereunder.
11.4 Secretary's Certificate. Seller shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Purchaser with respect to:
(i) the incumbency and specimen signature of each officer or
representative of Purchaser executing this Agreement, the certificate referred
to in Section 11.3 and the Ancillary Agreements to which Purchaser is a party;
and
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(ii) the resolutions of the board of directors of Purchaser
authorizing the execution and delivery of this Agreement and the Ancillary
Agreements to which Purchaser is a party and the performance by Purchaser of
the transactions contemplated hereby and thereby.
11.5 Injunction. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted,
threatened or anticipated which questions the validity or legality of the
transactions contemplated hereby.
ARTICLE XII. OBLIGATIONS AFTER THE CLOSING DATE
12.1 Covenant Not to Interfere. Seller covenants and agrees that for a
period of three (3) years after the Closing Date, Seller will not solicit for
employment by Seller or any Affiliates any Person who is an Employee of the
Business as of the Closing Date.
12.2 Noncompetition. For a period of three years following the Closing
Date, Seller will not, directly or indirectly, unless acting in accordance with
Purchaser's written consent, own, manage, operate, finance or participate in
the ownership, management, operation or financing of or permit its name to be
used by or in connection with any business or enterprise engaged in the
Business acquired by Purchaser hereunder and located within a 25-mile radius of
the Facility. Seller acknowledges that the provisions of this Section are
reasonable and necessary to protect the interests of Purchaser, that any
violation of this Section will result in an irreparable injury to Purchaser and
that damages at law would not be reasonable or adequate compensation to
Purchaser for violation of this Section and that, in addition to any other
available remedies, Purchaser shall be entitled to have the provisions of this
Section specifically enforced by preliminary and permanent injunctive relief
without the necessity of proving actual damages or posting a bond or other
security to an equitable accounting of all earnings, profits and other benefits
arising out of any violation of this Section. In the event that the provision
of this Section shall ever be deemed to exceed the time, geographic scope or
other limitations permitted by applicable law, then the provisions shall be
deemed reformed to the maximum extent permitted by applicable law.
12.3 Transition of Employees. From and after the Closing Date,
Purchaser and Seller shall cooperate to ensure an orderly transition of the
Employees who accept employment with Purchaser.
12.4 [RESERVED].
12.5 Certain Transitional Matters.
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12.5.1 Transfer of Assets. Seller agrees that Purchaser, from
and after the Closing, shall have the right and authority to collect for
Purchaser's own account all items which shall be transferred to Purchaser as
provided herein.
12.5.2 Seller's Remittance of Funds. After the Closing, Seller
shall promptly transfer and deliver to Purchaser any cash or other property, if
any, that Seller may receive related to the Business or the Purchased Assets
other than the Excluded Assets and that relates to the operation of the Business
after the Closing Date.
12.5.3 Purchaser's Remittance of Funds. After the Closing,
Purchaser shall promptly transfer and deliver to Seller any cash or other
property, if any, that Purchaser may receive related to the Excluded Assets or
to the operation of the Business prior to the Closing Date.
12.5.4 Assumed Liabilities Controlled by Purchaser. From and
after the Closing, Purchaser shall have complete control over the payment,
settlement or other disposition of, or any dispute involving, any Assumed
Liability, and Purchaser shall have the right to conduct and control all
negotiations and proceedings with respect thereto. Seller shall notify Purchaser
promptly of any claim made with respect to any Assumed Liability and shall not,
except with the prior written consent of Purchaser, voluntarily make any payment
of, or settle or offer to settle, or consent to any compromise with respect to,
any such Assumed Liability. Seller shall cooperate with Purchaser in connection
with any negotiations or proceedings involving any Assumed Liability.
12.6 Audits. Following the Closing Date, Seller shall cooperate, and
request Seller's independent public accountants to cooperate at Purchaser's
cost and expense, with Purchaser and its auditors in the preparation of audited
financial statements of Seller for the years ended December 31, 1996 and 1995
and unaudited financial statements as of September 30, 1997 and for the
nine-month periods ending September 30, 1997 and 1996, prepared in accordance
with GAAP, to the extent required in connection with any registration statement
or other form filed by Purchaser with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, for a public offering and sale of
securities of Purchaser and for other filings under the Securities Exchange
Act of 1934, as amended. In addition, Seller will provide its independent
public accountants with any information necessary to complete such audits
including a management representation letter substantially in the form of
Exhibit 12.6 attached hereto.
12.7 Further Assurances of Seller. From and after the Closing Date,
Seller shall, at the request of Purchaser, execute, acknowledge and deliver to
Purchaser, without further consideration, all such further assignments,
conveyances, endorsements, deeds, special powers of attorney, consents and
other documents, and take such other action, as Purchaser may reasonably
request (i) to transfer to and vest in Purchaser, and protect its rights, title
and interest in, all the Purchased Assets and (ii) otherwise to consummate the
transactions contemplated by this Agreement. In addition, from and after the
Closing Date, Seller shall afford Purchaser and its attorneys, accountants and
other representatives access, during normal business hours, to any
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Books and Records relating to the Business as may reasonably be required in
connection with the preparation of financial information or tax returns of
Purchaser.
12.8 Further Assurances of Purchaser. From and after the Closing Date,
Purchaser shall afford to Seller and its attorneys, accountants and other
representatives access, during normal business hours, to such Books and Records
relating to the Business as may reasonably be required in connection with the
preparation of financial information or Tax Returns for periods concluding on
or prior to the Closing Date. Purchaser shall cooperate in all reasonable
respects with Seller with respect to its former interest in the Business and in
connection with financial account closing and reporting and claims and
litigation asserted by or against third parties, including, but not limited to,
making employees available at reasonable times to assist with, or provide
information in connection with financial account closing and reporting and
claims and litigation, provided that Seller reimburses Purchaser for its
reasonable out-of-pocket expenses (including costs of employees so assisting)
in connection therewith.
ARTICLE XIII. TERMINATION
13.1 Termination of Agreement. This Agreement may be terminated:
(i) by the mutual consent of Seller and Purchaser;
(ii) by Seller or Purchaser if Closing has not taken place on
or before, November 30, 1997; provided however, that no Party then in material
breach of any of its obligations hereunder shall have the right to terminate;
(iii) by Purchaser upon notice to Seller if any of the
conditions set forth in Article X hereof have not been satisfied or become
impossible to satisfy by the Closing Date (other than by reason of the material
failure of Purchaser to fulfill its obligations under this Agreement);
(iv) by Seller upon notice to Purchaser if any of the
conditions set forth in Article XI hereof have not been satisfied or become
impossible to satisfy by the Closing Date (other than by reason of the material
failure of Seller to fulfill its obligations under this Agreement);
(v) by Seller if Purchaser materially breaches or fails to
fulfill its obligations under this Agreement, which failure continues and
remains uncured for 15 consecutive calendar days after Seller gives written
notice of such failure to Purchaser; and/or
(vi) by Purchaser if Seller materially breaches or fails to
fulfill its obligations under this Agreement, which failure continues and
remains uncured for 15 consecutive calendar days after Purchaser gives written
notice of such failure to Seller.
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13.2 Return of Documents. If this Agreement is terminated for any
reason pursuant to this Article XIII, each Party shall return to the other
Party all documents and copies thereof which shall have been furnished to it by
such other Party or, with the agreement of the other Party, shall destroy all
such documents and copies thereof.
13.3 Escrow Fund. Upon termination of this Agreement, the Escrow Fund
shall be disbursed as follows and in accordance with the terms and conditions
of the Escrow Agreement:
(i) if this Agreement is terminated pursuant to Section
13.1(i), Section 13(iii) or Section 13.1(vi), the Escrow Fund shall be released
to Purchaser in accordance with this Agreement and the Escrow Agreement;
(iii) if this Agreement is terminated pursuant to Section
13.1(ii), Section 13.1(iv) or Section 13.1(v), the Escrow Fund shall be
released to Seller in accordance with this Agreement and the Escrow Agreement.
13.4 Remedies.
13.4.1 Seller's Remedies. If this Agreement is terminated by
Seller as permitted under Section 13.1, the right to receive the Escrow Fund as
set forth in Section 13.3 shall be the sole and exclusive remedy of Seller as
liquidated damages, and shall be in lieu of all other rights and remedies which
may otherwise be available at law or in equity.
13.4.2 Purchaser's Remedies. If Purchaser terminates this
Agreement pursuant to Section 13.1(vi), in addition to Purchaser's right to
receive the Escrow Fund as permitted under Section 13.3, Purchaser may seek any
other remedies that may otherwise be available at law or in equity, including,
without limitation, an action for specific performance and reimbursement from
Seller for all actual costs and expenses incurred by Purchaser in connection
with this Agreement and the transactions contemplated hereby. Purchaser shall
be entitled only to receive the Escrow Fund if it terminates this Agreement
pursuant to Section 13.1(iii).
ARTICLE XIV. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
14.1 Survival of Representations and Warranties. All representations
and warranties of the Parties shall survive for two years from the Closing Date
(the "Survival Date"). Notwithstanding the foregoing, there shall be no
termination of any such representation or warranty as to which a claim has been
asserted prior to the termination of the applicable survival period. Except as
otherwise expressly provided in this Agreement, all covenants, agreements,
undertakings and indemnities set forth in this Agreement shall survive
indefinitely. Any Party's right to the indemnification or other remedies based
upon the representations and warranties, covenants, agreements and
undertakings of the other Party will not be affected by any investiga-
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tion, knowledge or waiver of any condition by such Party. Any investigation by
such Party shall be for its own protection only and shall not affect or impair
any right or remedy hereunder.
14.2 Indemnification by Seller. Seller shall indemnify, defend, save
and hold Purchaser and its officers, directors, employees, agents and
Affiliates (collectively, "Purchaser Indemnitees") harmless from and against
all demands, claims, allegations, assertions, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing
and whether or not any such demands, claims, allegations, etc., of third
parties are meritorious; collectively, "Purchaser Damages") asserted against,
imposed upon, resulting to, required to be paid by, or incurred by any
Purchaser Indemnitees, directly or indirectly, in connection with, arising out
of, which could result in, or which would not have occurred but for, a breach
of any representation or warranty made by Seller in this Agreement, in any
certificate or document furnished pursuant hereto by Seller or any Ancillary
Agreement to which Seller is or is to become a party, a breach or
nonfulfillment of any covenant or agreement made by Seller in or pursuant to
this Agreement and in any Ancillary Agreement to which Seller is or is to
become a party, and any Retained Liability.
14.3 Indemnification by Purchaser. Purchaser shall indemnify, defend,
save and hold Seller and its officers, directors, Employees, agents and
Affiliates (collectively, "Seller Indemnitees") harmless from and against any
and all demands, claims, actions or causes of action, assessments, losses,
damages, deficiencies, liabilities, costs and expenses (including reasonable
legal fees, interest, penalties, and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing and whether or not
any such demands, claims, allegations, etc., of third parties are meritorious;
collectively, "Seller Damages") asserted against, imposed upon, resulting to,
required to be paid by, or incurred by any Seller Indemnitees, directly or
indirectly, (i) in connection with, arising out of, which could result in, or
which would not have occurred but for, a breach of any representation or
warranty made by Purchaser in this Agreement or in any certificate or document
furnished pursuant hereto by Purchaser or any Ancillary Agreement to which
Purchaser is a party, a breach or nonfulfillment of any covenant or agreement
made by Purchaser in this Agreement or in any Ancillary Agreement to which
Purchaser is a party, and any Assumed Liability or (ii) in connection with or
arising out of the operation of the Business and the Purchased Assets following
the Closing Date.
14.4 Notice of Claims. If any Purchaser Indemnitee or Seller
Indemnitee (an "Indemnified Party") believes that it has suffered or incurred
or will suffer or incur any Purchaser Damages or Seller Damages, as the case
may be ("Damages") for which it is entitled to indemnification under this
Article XIV, such Indemnified Party shall so notify the Party from whom
indemnification is being claimed (the "Indemnifying Party") with reasonable
promptness and reasonable particularity in light of the circumstances then
existing. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Party intends to claim any
Damages, such Indemnified Party shall promptly notify the Indemnifying Party of
such action or suit. The failure of an Indemnified Party to give any notice
required by
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this Section shall not affect any of such party's rights under this Article XIV
or otherwise except and to the extent that such failure is actually prejudicial
to the rights or obligations of the Indemnified Party. Notwithstanding the
foregoing, any Purchaser Indemnitee shall be required to notify Seller's Agent
of any claim for Purchaser Damages as required herein even though the same may
be included in the $25,000 threshold set forth in Section 14.6, and Seller shall
have the right to dispute any such claim.
14.5 Third Party Claims. The Indemnified Party shall have the right to
conduct and control, through counsel of its choosing, the defense of any third
party claim, action or suit, and the Indemnified Party may compromise or settle
the same, provided that the Indemnified Party shall give the Indemnifying Party
advance notice of any proposed compromise or settlement. The Indemnified Party
shall permit the Indemnifying Party to participate in the defense of any such
action or suit through counsel chosen by the Indemnifying Party, provided that
the fees and expenses of such counsel shall be borne by the Indemnifying Party.
If the Indemnified Party permits the Indemnifying Party to undertake, conduct
and control the conduct and settlement of such action or suit, the Indemnifying
Party shall not thereby permit to exist any Encumbrance upon any asset of the
Indemnified Party; the Indemnifying Party shall not consent to any settlement
that does not include as an unconditional term thereof the giving of a complete
release from liability with respect to such action or suit to the Indemnified
Party; the Indemnifying Party shall permit the Indemnified Party to participate
in such conduct or settlement through counsel chosen by the Indemnified Party;
and the Indemnifying Party shall agree promptly to reimburse the Indemnified
Party for the full amount of any Damages including fees and expenses of counsel
for the Indemnified Party incurred after giving the foregoing notice to the
Indemnifying Party and prior to the assumption of the conduct and control of
such action or suit by the Indemnifying Party.
14.6 Limitation of Liability. Notwithstanding the foregoing, Seller's
liabilities and obligations to indemnify Purchaser Indemnitees against any
Purchaser Damages shall be subject to all of the following limitations:
14.6.1 Threshold. No indemnification shall be made under
Section 14.2 until the aggregate amount of Purchaser Damages thereunder exceeds
$25,000, but if the aggregate amount of Purchaser Damages thereunder exceeds
$25,000 in the aggregate, then indemnification shall be made by Seller
thereunder to the full extent of the Purchaser Damages.
14.6.2 Time Period. Seller shall be obligated to indemnify
Purchaser Indemnitees by virtue of Section 14.2 only for those Purchaser
Damages as to which Purchaser has given Seller's Agent written notice thereof
on or before the Survival Date.
14.6.3 Fraud; Intentional Misrepresentation. The limitations
set forth in Sections 14.6.1 and 14.6.2 shall not apply to Purchaser Damages
arising out of fraud, the breach of any representation or warranty contained
herein or pursuant hereto if such representation or warranty was made with
actual knowledge that it contained an untrue statement of a fact or omitted to
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state a fact necessary to make the statements of facts contained therein not
misleading or misrepresented.
The foregoing limitations relate only to indemnification and do not diminish or
in any way relieve Seller of any of its obligations or liabilities with
respect to the Retained Liabilities.
ARTICLE XV. GENERAL
15.1 Expenses. Except as otherwise provided in this Agreement, and
whether or not the transactions herein contemplated shall be consummated,
Purchaser and Seller shall pay their own fees, expenses and disbursements,
including the fees and expenses of their respective counsel, accountants and
other experts in connection with the subject matter of this Agreement and all
other costs and expenses incurred in performing and complying with all
conditions to be performed under this Agreement.
15.2 Publicity. All notices to third parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and among Purchaser and Seller. Except as may be
required by law, no Party shall act unilaterally in this regard without prior
written approval of the other Party, such approval not be unreasonably
withheld.
15.3 Disclosure. Seller acknowledges and agrees that this Agreement
and the transactions contemplated hereunder may be disclosed in a registration
statement or other form filed by Purchaser with the Securities and Exchange
Commission under the Securities Act of 1933 for a public offering and sale of
securities by Purchaser.
15.3 Waivers. The waiver by either Party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
15.4 Binding Effect; Benefits. This Agreement shall inure to the
benefit of the Parties hereto, and shall be binding upon the Parties hereto and
their respective successors and assigns. Nothing in this Agreement, express or
implied, is intended to confer on any Person other than the Parties hereto, or
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
15.5 Notices. All notices, requests, demands, elections and other
communications which either Party to this Agreement may be required to give
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, by a reputable courier service which requires a signature
upon delivery, by mailing the same by registered or certified first class
mail, postage prepaid, return receipt requested, or by telecopying with receipt
confirmation (followed by a first class mailing of the same) to the Party to
whom the same is so given or made. Such notice, request, demand, waiver,
election or other communication will be deemed to
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have been given as of the date so delivered or electronically transmitted or two
days after mailing thereof.
15.5.1 Notice to Seller.
If to Seller, to:
Triangle Retirement Services, Inc.
6928 Slade Hill Drive
Raleigh, North Carolina 27615
with a required copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
Suite 1900, 434 Fayetteville Street Mall
Raleigh, North Carolina 27601
Fax: (919) 743-7358
Attn: Lacy H. Reaves, Esquire
15.5.2 Notice to Purchaser.
If to Purchaser, to:
Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Fax: (717) 796-6150
Attn: Director, Legal Services
with a required copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Fax: (412) 355-6501
Attn: _______________, Esquire
Or to such other addresses as such Party shall have specified by notice to the
other Party hereto.
15.6 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the Ancillary Agreements and documents delivered at
Closing pursuant hereto and thereto constitute the entire agreement and
understanding between the Parties hereto as to the matters set forth herein and
therein and supersede and revoke all prior agreements and understandings, oral
and written, between the Parties hereto or thereto or otherwise with respect to
the subject matter hereof or thereof. No change, amendment, termination or
attempted waiver of any of the
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provisions hereof shall thereof be binding upon any Party unless set forth in
an instrument in writing signed by the Party to be bound or their respective
successors in interest.
15.7 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
15.8 Headings. The article, section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement.
15.9 Construction. Within this Agreement, the singular shall include
the plural and the plural shall include the singular, and any gender shall
include all other genders, all as the meaning and the context of this Agreement
shall require.
15.10 Governing Law and Choice of Forum. The validity and
interpretation of this Agreement shall be construed in accordance with, and
governed by the internal laws of, the State of North Carolina but without
regard to its rules governing conflict of laws.
15.11 Cooperation. The Parties hereto shall cooperate fully at their
own expense, except as otherwise provided in this Agreement, with each other
and their respective counsel and accountants in connection with all steps to be
taken as part of their obligations under this Agreement.
15.12 Severability. If any term, covenant, condition or provision of
this Agreement or the application thereof to any circumstance shall be invalid
or unenforceable to any extent, the remaining terms, covenants, conditions and
provisions of this Agreement shall not be affected thereby and each remaining
term, covenant, condition and provision of this Agreement shall be valid and
shall be enforceable to the fullest extent permitted by law. If any provision
of this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
15.13 Attorneys' Fees. If a dispute arises among the Parties as a
result of which an action is commenced to interpret or enforce any of the terms
of this Agreement, the non-prevailing Party shall pay to the prevailing Party's
reasonable out-of-pocket attorneys' fees, costs and expenses incurred in
connection with the prosecution or defense of such action.
15.14 Successors and Assigns. The covenants, agreements, and
conditions contained herein or granted hereby shall be binding upon and shall
inure to the benefit of Purchaser and Seller, and each of their respective
successors and permitted assigns. Seller shall not assign, or otherwise
transfer any interest in this Agreement to any other Person without the prior
written consent of Purchaser, which consent shall not unreasonably be
withheld. Purchaser may assign and transfer its interest in this Agreement
without Seller's consent to any of Purchaser's Affiliates or to any lender
providing financing for the transactions contemplated hereby.
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Purchaser will promptly provide Seller with a copy of any such assignment, and
Seller agrees to execute and deliver any consents reasonably required by
Purchaser's lender in connection therewith, provided such assignment does not
expand any of Seller's obligations and liabilities hereunder. Notwithstanding
any permitted assignment of this Agreement by Purchaser, Purchaser shall remain
liable to Seller for all obligations and liabilities to be performed by or on
behalf of Purchaser hereunder.
[NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, intending to be legally bound hereby, the Parties
have caused this Agreement to be signed in their respective names by an officer
thereof duly authorized as of the date first above written.
PURCHASER:
BALANCED CARE CORPORATION, a Delaware
corporation
By: /s/ BRIAN L. BARTH
-----------------------------------
Name: Brian L. Barth
Title: Vice President
SELLER:
TRIANGLE RETIREMENT SERVICES, INC., a
North Carolina corporation
By: /s/ E. LEE BARHAM, JR.
----------------------------------
Name: E. Lee Barham, Jr.
Title: President
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<PAGE> 1
EXHIBIT 2.21
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into and is
effective this 26th day of November, 1997, by and between BALANCED CARE
CORPORATION, a Delaware corporation (together with its permitted assigns,
"Purchaser"), and GETHSEMANE RETIREMENT COMMUNITY AND REHABILITATION CENTER,
INC., a Pennsylvania corporation, formerly Boone Nursing Home, Inc. ("Seller").
RECITALS:
Seller owns certain assets in connection with the operation of the
licensed 66-bed skilled nursing facility located at the following address: 3298
Ridge Road, P.O. Box 440, Bloomsburg, Pennsylvania (the "Facility"). Purchaser
desires to purchase substantially all of the assets of Seller and the Business
(as hereinafter defined) related thereto and Seller desires to sell such assets
to Purchaser.
This Agreement sets forth the terms and conditions upon which Purchaser
is purchasing the assets (other than Excluded Assets, as hereinafter defined)
owned by Seller and used in the conduct of the Business, and Seller is selling
to Purchaser such assets (other than Excluded Assets).
In consideration of the mutual agreements, covenants, representations
and warranties contained herein, and in reliance thereon, Purchaser and Seller
hereby agrees as follows:
ARTICLE I. CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "ACCOUNTS RECEIVABLE" shall mean as of any date any trade accounts
receivable (including, without limitation, any third party receivables arising
in connection with any Third Party Payor Programs), notes receivable, bid or
performance deposits, employee advances and other miscellaneous receivables
associated with the Business through and as of such date.
1.2 "ACCREDITATION BODY" shall mean CARF, JCAHO, the Department of
Health, the Pennsylvania Department of Public Welfare and all other Persons
having jurisdiction over the accreditation, certification, evaluation or
operation of the Business.
1.3 "ACCRUED EXPENSES" shall mean as of any date accrued rents,
insurance premiums, payroll and benefits (including, without limitation,
vacation, sick pay, disability pay) and other accrued expenses as would appear
on a balance sheet of Seller as of such date prepared in accordance with GAAP
consistently applied, including those described in SCHEDULE 1.3.
1.4 "AFFILIATE" shall mean any company or other entity which controls,
is controlled by or is under common control with the designated Party. For the
purpose of the foregoing, ownership, directly or indirectly, of 20% or more of
the voting stock or other equity interest shall be deemed to constitute control.
<PAGE> 2
1.5 "AGREEMENT" shall mean this Asset Purchase Agreement.
1.6 "ANCILLARY AGREEMENTS" shall mean the real property conveyances
described in Section 5.2.1, the bill of sale, assignment and assumption
described in Section 5.2.2, the Employment Agreement and the Escrow Agreement.
1.7 "ASSUMED LIABILITIES" shall have the meaning given to such term in
Section 4.2.
1.8 "BENEFIT PLAN" shall have the meaning given to such term in Section
6.19.
1.9 "BOOKS AND RECORDS" shall have the meaning given to such term in
Section 6.16.
1.10 "BUSINESS" shall mean the operation of a skilled nursing facility
and any other ancillary health care services owned, operated, delivered,
managed, developed, constructed, maintained, used, occupied or possessed by
Seller in connection therewith (including, without limitation, any outpatient
and contract rehab therapy services or any Alzheimer's units).
1.11 "CARF" shall mean the Commission on Accreditation of
Rehabilitation Facilities.
1.12 "CHAMPUS" shall mean the Civilian Health and Medical Program of
the Uniform Service, a program of medical benefits covering retirees and
dependents of members or former members of a uniformed service provided,
financed and supervised by the United States Department of Defense and
established by 10 U.S.C. Sections 1071 ET SEQ.
1.13 "CLOSING" shall have the meaning given to such term in Section
5.1.
1.14 "CLOSING DATE" shall have the meaning given to such term in
Section 5.1.
1.15 "CLOSING INVENTORY" shall mean all Inventory relating to the
Business on the Closing Date.
1.16 "CODE" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time, and any successor thereto. Any reference herein to a
specific section or sections of the Code shall be deemed to include a reference
to any corresponding provision of future law.
1.17 "CONTRACT" shall mean all alliance agreements, transfer
agreements, other agreements (including, without limitation, Patient's
Agreements described on SCHEDULE 1.50, Management Agreements and Provider
Agreements), contracts, contract rights, commitments, customer accounts, orders,
leases, guarantees, warranties and representations, franchises and books and
records of account benefiting, relating to the Business or the ownership,
construction, development, maintenance, repair, management, use, occupancy,
possession or operation thereof, or the operation of any of the programs or
services in conjunction with the Business and all renewals, replacements and
substitutions therefor, issued by any Governmental Authority, Accreditation Body
or Third Party Payor or maintained or used by Seller with any third Person.
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1.18 "CURRENT LIABILITIES" shall mean all liabilities classified as
current liabilities in accordance with GAAP.
1.19 "DAMAGES" shall have the meaning given to such term in Section
14.4.
1.20 "DEPARTMENT OF HEALTH" shall mean the Commonwealth of
Pennsylvania, Department of Health.
1.21 "EMPLOYEE" shall mean any individual employed by Seller in the
conduct of the Business as listed on SCHEDULE 1.21 (such Schedule being subject
to change between the date hereof and the Closing Date as a result of employee
changes in the ordinary course of business consistent with past practices).
1.22 "EMPLOYMENT AGREEMENT" shall mean the contract entered into
between Purchaser and Keefer substantially in the form of EXHIBIT 1.22.
1.23 "ENCUMBRANCE" shall mean any right to, or interest in, property,
which subsists in a third-party and which constitutes a claim, lien, charge or
liability attached to and binding upon the property, including, but not limited
to, a mortgage, judgment lien, mechanic's lien, lease, security interest,
easement and right-of-way.
1.24 "ENVIRONMENTAL LAW" shall mean any federal [including but not
limited to the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 ET
SEQ.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 ET SEQ.), the
Clean Air Act (42 U.S.C. Sections 7401 ET SEQ.), the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Sections 9601 ET SEQ.), the
Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 ET SEQ.), the
Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 ET SEQ.), and
the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C. Sections 136 ET
SEQ.)], other Legal Requirements, any common law doctrine and any provision or
condition of any permit, license or other operating authorization relating to
(i) the protection of the environment or the public welfare from actual or
potential exposure (or the effects of exposure) to any actual or potential
release, discharge, disposal or emission (whether past or present) of any
Regulated Substance or (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Regulated Substance.
1.25 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.26 "ERISA PLANS" shall mean defined benefit pension plans and defined
contribution pension plans qualified under Section 401(a) of the Code.
1.27 "ESCROW AGENT" shall mean First American Title Insurance Company.
1.28 "ESCROW AGREEMENT" shall mean the escrow agreement entered into
among Escrow Agent, Purchaser and Seller in substantially the form of EXHIBIT
1.28.
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1.29 "ESCROW DEPOSIT" shall have the meaning given to such term in
Section 3.2.
1.30 "EXCLUDED ASSETS" shall mean those assets that are not included in
the sale contemplated hereby and as are further defined in Section 2.2.
1.31 "FACILITY" shall mean the facility identified in the Recitals of
this Agreement.
1.32 "FINAL ESCROW DEPOSIT" shall have the meaning given to such term
in Section 3.2.
1.33 "FINANCING COMMITMENT" shall have the meaning given to such term
in Section 10.16.
1.34 "GAAP" shall mean generally accepted accounting principles in the
United States of America.
1.35 "GETHSEMANE AL ASSET PURCHASE AGREEMENT" shall mean the asset
purchase agreement entered into between Purchaser and Gethsemane Assisted
Living, Inc. concurrently herewith.
1.36 "GOVERNMENTAL AUTHORITIES" shall mean all agencies, authorities,
bodies, boards, commissions, courts, instrumentalities, legislatures and offices
of any nature whatsoever of any government, quasi-governmental unit or political
subdivision, whether with a federal, state, county, district, municipality, city
or otherwise.
1.37 "INDEMNIFYING PARTY" shall have the meaning given to such term in
Section 14.4.
1.38 "INDEMNIFIED PARTY" shall have the meaning given to such term in
Section 14.4.
1.39 "INITIAL ESCROW DEPOSIT" shall have the meaning given to such term
in Section 3.2.
1.40 "INVENTORY" shall mean the inventory of Seller, including, without
limitation, dry storage goods, janitorial supplies, food and beverage supplies,
office supplies, medical supplies and pharmaceutical supplies.
1.41 "JCAHO" shall mean the Joint Commission on Accreditation of
Healthcare Organizations.
1.42 "KEEFER" shall mean Susan E. Keefer, an individual.
1.43 "KNOWLEDGE" and words of similar import shall mean, with respect
to any Party, actual knowledge of a particular fact or other matter being
possessed by an individual, and the knowledge that reasonably could be expected
to be obtained in the course of the reasonable conduct of such Party's business,
but shall not be construed to require a comprehensive investigation concerning
the subject matter.
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1.44 "LEGAL REQUIREMENTS" shall mean all statutes, ordinances, by-laws,
codes, rules, regulations, restrictions, orders, judgments, decrees and
injunctions (including, without limitation, all applicable building, health
code, zoning, subdivision and other land use and health care licensing statutes,
ordinances, by-laws, codes, rules and regulations), promulgated or issued by any
Governmental Authority, Accreditation Body or Third Party Payor. Without
limiting the foregoing, the term Legal Requirements includes all Environmental
Laws and all Permits and Contracts issued or entered into by any Governmental
Authority, any Accreditation Body and/or any Third Party Payor and all Permitted
Encumbrances.
1.45 "MANAGED CARE PLANS" shall mean all health maintenance
organizations, preferred provider organizations, individual practice
associations, competitive medical plans and similar arrangements.
1.46 "MANAGEMENT AGREEMENT" shall mean any agreement, whether written
or oral, between Seller and any other Person pursuant to which Seller provides
any payment, fee or other consideration to any other Person to operate or manage
the Business (except any employment agreements).
1.47 "MEDICAID" shall mean the medical assistance program established
by Title XIX of the Social Security Act (42 U.S.C. Sections 1396 ET SEQ.) and
any statute succeeding thereto.
1.48 "MEDICARE" shall mean the health insurance program for the aged
and disabled established by Title XVIII of the Social Security Act (42 U.S.C.
Sections 1395 ET SEQ.) and any statute succeeding thereto.
1.49 "PARTY" shall mean either Seller or Purchaser, individually, as
the context so requires, and the term "PARTIES" shall mean Seller and Purchaser
together.
1.50 "PATIENT'S AGREEMENTS" shall mean copies of all contracts,
agreements and consents executed by or on behalf of any patient or other Person
seeking services at the Facility as more fully described in SCHEDULE 1.50
hereto, including, without limitation, assignments of benefits and guarantees,
and such patient's related medical and/or other records.
1.51 "PAYABLES" as of any date shall mean any of the trade accounts
payable of Seller with respect to the Purchased Assets or the Business as of
such date in accordance with GAAP consistently applied.
1.52 "PERMITS" shall mean all permits, licenses, approvals,
qualifications, rights, variances, permissive uses, accreditations,
certificates, certifications, consents, contracts, interim licences, permits and
other authorizations of every nature whatsoever required by, or issued to or on
behalf of Seller under any Legal Requirements benefiting, relating or effecting
the Business or the construction, development, maintenance, management, use or
operation thereof, or the operation of any programs or services in conjunction
with the Business and all renewals, replacements and substitutions therefor, now
or hereafter required or issued by any Governmental Authority, Accreditation
Body or Third Party Payor.
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1.53 "PERMITTED ENCUMBRANCES" shall mean those Encumbrances as
specifically set forth on SCHEDULE 1.53 hereto.
1.54 "PERSON" shall mean any individual, corporation, company, limited
or general partnership, trust or estate, joint venture, association or other
entity.
1.55 "PREPAID EXPENSES" as of any date shall mean payments made by
Seller with respect to the Purchased Assets or the Business, which constitute
prepaid expenses in accordance with GAAP consistently applied.
1.56 "PROPRIETARY RIGHTS" shall have the meaning given to such term in
Section 6.10.1.
1.57 "PROVIDER AGREEMENTS" shall mean all participation, provider and
reimbursement agreements or arrangements for the benefit of Seller in connection
with the operation of the Business relating to any right to payment or other
claim arising out of or in connection with Seller's participation in any Third
Party Payor Program.
1.58 "PURCHASE PRICE" shall have the meaning given to such term in
Section 3.1.1.
1.59 "PURCHASED ASSETS" shall have the meaning given to such term in
Section 2.1.
1.60 "PURCHASER" shall have the meaning given to such term in the
preamble of this Agreement.
1.61 "PURCHASER DAMAGES" shall have the meaning given to such term in
Section 14.2.
1.62 "PURCHASER INDEMNITEES" shall have the meaning given to such term
in Section 14.2.
1.63 "REAL PROPERTY" shall mean the Real Property Leased and the Real
Property Owned, collectively.
1.64 "REAL PROPERTY LEASED" shall mean the real property owned by
Seller and leased to Gethsemane Assisted Living, Inc., as tenant, as more fully
described in SCHEDULE 1.64 hereto, used in connection with the operation of a
personal care home located thereon.
1.65 "REAL PROPERTY OWNED" shall mean the real property owned by
Seller, and used in connection with the Facility and the Business as more fully
described in SCHEDULE 1.65 hereto.
1.66 "REGULATED SUBSTANCE" shall mean petroleum, petroleum hydrocarbons
or petroleum products and any other chemical, material, substance or waste that
is identified (by listing or characteristic) and regulated (or the clean-up of
which can be required) by any Legal Requirement intended to protect the
environment or the public health or welfare, including but not limited to Legal
Requirements relating to clean air, clean water, hazardous and solid waste
disposal, safe drinking water, endangered species, occupational safety and
health, oil spill prevention, groundwater protection, and toxic substances
control.
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1.67 "RELATED PARTY" means (i) Seller, (ii) any Affiliate of Seller,
(iii) any officer, director, shareholder or partner of any Person identified in
clauses (i) or (ii) preceding, and (iv) any spouse, sibling, ancestor or lineal
descendant of any natural Person identified in any one of the preceding clauses.
1.68 "RETAINED LIABILITIES" has the meaning given that term in Section
4.2.
1.69 "SECURITY RIGHT" means, with respect to any security, any option,
warrant, subscription right, preemptive right, other right, proxy, put, call,
demand, plan, commitment, agreement, understanding or arrangement of any kind
relating to such security, whether issued or unissued, or any other security
convertible into or exchangeable for any such security. "Security Right"
includes any right relating to issuance, sale, assignment, transfer, purchase,
redemption, conversion, exchange, registration or voting and includes rights
conferred by statute, by the issuer's governing documents or by agreement.
1.70 "SELLER" shall have the meaning given to such term in the preamble
of this Agreement.
1.71 "SELLER DAMAGES" shall have the meaning given to such term in
Section 14.3.
1.72 "SELLER INDEMNITEES" shall have the meaning given to such term in
Section 14.3.
1.73 "TAXES" shall mean all taxes, duties, charges, fees, levies or
other assessments imposed by any Governmental Authority, including, without
limitation, income, gross receipts, value-added, excise, withholding, personal
property, real estate, sales, use, ad valorem, license, lease, service,
severance, stamp, transfer, payroll, employment, customs, duties, alternative,
add-on minimum, estimated and franchise taxes (including any interest, penalties
or additions attributable to or imposed on or with respect to day such
assessment).
1.74 "TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
1.75 "THIRD PARTY PAYOR PROGRAMS" shall mean all third party payor
programs which Seller participates, including, without limitation, Medicare,
Medicaid, Champus, Blue Cross and/or Blue Shield, Managed Care Plans, other
private insurance plans and employee assistance programs.
1.76 "THIRD PARTY PAYORS" shall mean Medicare, Medicaid, Blue Cross
and/or Blue Shield, private insurers and any other Person which maintains Third
Party Payor Programs.
ARTICLE II. TRANSFER OF ASSETS AND PROPERTIES
2.1 PURCHASED ASSETS. Subject to the terms and conditions of this
Agreement, Seller shall sell and convey to Purchaser, free and clear of all
Encumbrances whatsoever (other than Permitted Encumbrances and except as
expressly provided herein), and Purchaser shall purchase
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from Seller, all of Seller's's right, title and interest in and to the assets,
properties and rights of every kind and description, real, personal and mixed,
tangible and intangible, wherever situated owned by Seller and used or useful in
connection with the Business (the "Purchased Assets") as the same shall exist on
the Closing Date (other than the Excluded Assets), including, without
limitation, the following:
2.1.1 REAL PROPERTY OWNED. The Real Property Owned, together
with the buildings, structures, improvements and fixtures located
thereon, and all rights, privileges, easements, licenses, hereditaments
and other appurtenances relating thereto;
2.1.2 REAL PROPERTY LEASED. The Real Property Leased, together
with the buildings, structures, improvements and fixtures located
thereon, and all rights, privileges, easements, licenses, hereditaments
and other appurtenances relating thereto;
2.1.3 EQUIPMENT, MACHINERY AND OTHER TANGIBLE PERSONAL
PROPERTY. All machinery, equipment, leasehold improvements,
automobiles, supplies, office furniture and office equipment, computing
and telecommunications equipment and other items of personal property,
including those described in SCHEDULE 2.1.3 hereto;
2.1.4 CONTRACTS RELATING TO THE BUSINESS. All contracts
relating to the acquisition or ownership of the Purchased Assets or the
operation of the Business, including, without limitation, the Contracts
listed on SCHEDULE 2.1.4 and the Patient's Agreements listed on
SCHEDULE 1.50 HERETO, to the extent such Contracts are transferrable to
Purchaser;
2.1.5 MARKETING MATERIALS, MANUALS. All catalogs, brochures,
reference sources, suppliers' names, mailing lists, art work,
photographs, public relations and advertising material used in the
Business, whether in electronic form or otherwise;
2.1.6 PERMITS, LICENSES. All Permits relating to the
acquisition or ownership of the Purchased Assets or the operation of
the Business, including, without limitation, those permits listed in
SCHEDULE 2.1.6 hereto, to the extent such Permits are transferrable to
Purchaser;
2.1.7 TRADE SECRETS. All policies and procedures, methods of
delivery of services, trade secrets, designs, drawings and
specifications, market studies, consultants' reports, prototypes, and
all similar property of any nature, tangible or intangible, used in
connection with the Business;
2.1.8 INTELLECTUAL PROPERTY. All patents, trademarks,
trademark registrations, trade names, service marks, copyrights and
copyright registrations of used in connection with the Business,
including, without limitation, those described in SCHEDULE 2.1.8;
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2.1.9 GOODWILL. All goodwill incident to the Business,
including but not limited to the value of the names associated with the
Business and the value of good customer relations;
2.1.10 INVENTORY. All Closing Inventory;
2.1.11 PATIENT FUNDS. All prepaid rents, deposits and escrow
accounts of, or for the benefit of, the Facility's patients at the
Closing Date;
2.1.12 COMPUTER SOFTWARE. All computer applications software,
owned or licensed, whether for general business usage (e.g.,
accounting, word processing, graphics, spreadsheet analysis, etc.), or
specific, unique-to-the-business usage, and all computer operating,
security or programming software, owned or licensed and used in the
operation of the Business; and
2.1.13 OTHER INTANGIBLE ASSETS. All other intangible assets
(including all causes of action, rights of action, contract rights and
warranty and product liability claims against third parties) relating
to the Purchased Assets or the Business.
2.2 EXCLUDED ASSETS. Notwithstanding Section 2.1, the following assets
(collectively, the "Excluded Assets") shall be excluded from this Agreement, and
shall not be assigned or transferred to Purchaser:
2.2.1 CASH. All other cash, cash equivalents on hand or in
bank accounts, short-term notes receivable and unbilled costs and fees
up through and including the Closing Date;
2.2.2 CONSIDERATION. The consideration paid to Seller pursuant
to this Agreement;
2.2.3 PENSIONS. Assets constituting any pension or other funds
for the benefit of Employees existing on the Closing Date;
2.2.4 CORPORATE BOOKS. Corporate minute book and stock book of
Seller;
2.2.5 THIRD PARTY CLAIMS. Any claims and rights against third
parties (including, without limitation, insurance carriers) to the
extent they relate to liabilities or obligations that are not assumed
by Purchaser hereunder (except the amount of costs and expenses
Purchaser shall have incurred with respect to such claims and rights);
2.2.6 TAXES. Claims for refunds of Taxes and other charges
imposed by any Governmental Authority;
2.2.7 ACCOUNTS RECEIVABLE. All Accounts Receivable existing on
the Closing Date;
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2.2.8 PREPAID EXPENSES. All Prepaid Expenses of, or for the
benefit of, the Purchased Assets or the Business at the Closing Date;
and
2.2.9 OTHER ASSETS. Assets listed on SCHEDULE 2.2.9.
2.3 LICENSE TO USE CERTAIN ASSETS. To the extent that there are any
tangible or intangible assets used by Seller in connection with the Purchased
Assets or the Business that are not specifically designated as Excluded Assets
by Section 2.2 (without reference to this Section), the Purchased Assets shall
include an irrevocable, nonexclusive, perpetual, paid-up, royalty-free,
transferrable license to utilize such assets in connection with the operation of
the Business after the Closing Date. To the extent that any such assets may not
be licensed, Seller shall take all steps required to assure that Purchaser
obtains the benefit of such assets.
ARTICLE III. CONSIDERATION AND TERMS
3.1 CONSIDERATION FOR PURCHASED ASSETS.
3.1.1 PURCHASE PRICE. The aggregate consideration to be paid
by Purchaser for the Purchased Assets and the Business (the "Purchase
Price") shall be $5,358,250.
3.1.2 OTHER CONSIDERATION. As additional consideration,
Purchaser shall also assume the Assumed Liabilities at the time of
Closing.
3.2 PAYMENT. The Purchase Price shall be paid as follows:
3.2.1 INITIAL DEPOSIT. Upon the execution of this Agreement
and the Escrow Agreement, Purchaser shall deliver to Escrow Agent by
wire transfer of federal funds an initial good faith deposit towards
the Purchase Price in the amount of $12,500 (the "Initial Escrow
Deposit") to be held pursuant to the Escrow Agreement.
3.2.2 FINAL DEPOSIT. Upon satisfaction or waiver of
Purchaser's condition precedent set forth in Section 10.19, Purchaser
shall deliver to Escrow Agent by wire transfer of federal funds a final
good faith deposit towards the Purchase Price in the amount of $12,500
(the "Final Escrow Deposit") to be held pursuant to the Escrow
Agreement (together, the Initial Escrow Deposit and the Final Escrow
Deposit shall be referred to as the "Escrow Deposit").
3.2.3 CASH. At Closing, Purchaser shall deliver to Seller by
wire transfer the Purchase Price less the amount of the Escrow Deposit.
3.2.4 ESCROW DEPOSIT. At Closing, provided this Agreement has
not been terminated pursuant to Article XIII and Seller is not
otherwise is default hereunder, the Escrow Deposit shall be released by
Escrow Agent in favor of Seller in accordance with the terms of this
Agreement and the Escrow Agreement.
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3.3 ALLOCATION OF PURCHASE PRICE. Within two weeks from the date of
this Agreement, the Purchase Price shall be allocated among the Purchased Assets
and the Business as mutually agreed by the Parties and shall be consistent with
Purchaser's appraisal. Upon the parties reaching an agreement with respect to
such allocation, it shall be set forth in SCHEDULE 3.3. Purchaser and Seller
shall report the federal, state and local income and other tax consequences of
the purchase and sale contemplated hereby in a manner consistent with such
allocation, and shall not take any position inconsistent therewith upon
examination of any tax return, in any refund claim, in any litigation or
otherwise.
ARTICLE IV. ASSUMPTION OF LIABILITIES; EMPLOYEE MATTERS
4.1 GENERAL LIMITATION ON ASSUMPTION OF LIABILITIES. Except for
Permitted Encumbrances and as otherwise provided in Sections 4.2, 4.3 and 4.4
below, Seller shall transfer the Purchased Assets to Purchaser free and clear of
all Encumbrances, and without any assumption of liabilities and obligations, and
Purchaser shall not, by virtue of its purchase of the Purchased Assets, assume
or become responsible for any liabilities or obligations of Seller or any other
Person. For purposes of this Section 4.1 the phrase "liabilities and
obligations" shall include, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured
or unsecured.
4.2 ASSUMED LIABILITIES AND OBLIGATIONS OF SELLER. On the Closing Date,
Purchaser shall acquire the Purchased Assets subject only to, and shall
undertake, assume, perform and otherwise pay, satisfy and discharge, and hold
Seller harmless from the following liabilities and obligations, excluding any
liabilities and obligations to Affiliates of Seller (collectively, the "Assumed
Liabilities"):
(i) all obligations of Seller accruing subsequent to the Closing
Date under the Contracts contemplated by Section 2.1.4,
provided that the rights thereunder have been duly and
effectively assigned to Purchaser; and
(ii) all obligations of Seller accruing after the Closing Date
under the Permits described in Section 2.1.6, provided that
the rights thereunder have been duly and effectively assigned
to Purchaser.
Except for the Assumed Liabilities, Purchaser does not and shall not
assume or in any way undertake to pay, perform, satisfy or discharge any other
liability of Seller existing on the Closing Date or arising out of any
transactions entered into, or any state of facts existing, prior to the Closing
Date (the "Retained Liabilities"), and Seller agrees to pay and satisfy when due
all of Seller's Retained Liabilities. Except for the obligations and liabilities
included in the Assumed Liabilities, the term "Retained Liabilities" shall
include, without limitation, liabilities:
(i) for or in connection with any dividends, distributions,
redemptions, or Security Rights with respect to any security
of Seller;
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(ii) arising out of any transaction affecting Seller or obligations
incurred by Seller after Closing;
(iii) for expenses or fees incident to or arising out of the
negotiation, preparation, approval or authorization of this
Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, all legal
and accounting fees and all brokers or finders fees or
commissions payable by Seller;
(iv) under or arising out of this Agreement;
(v) against which Seller is insured or otherwise indemnified or
which would have been covered by insurance (or
indemnification) but for a claim by the insurer (or the
indemnitor) that the insured (or the indemnities) had breached
its obligations under the policy of insurance (or the contract
of indemnity) or had committed fraud in the insurance
application;
(vi) to any Related Party;
(viii) to indemnify Seller's officers, directors, shareholders,
Employees or agents;
(ix) federal, state or local tax liabilities or obligations of
Seller in respect to periods prior to Closing, and the
transactions contemplated hereunder, including, without
limitation, income taxes payable under the Code, any income
tax, any franchise tax, any tax recapture, any FICA, workers'
compensation, vacation liability and other employee benefits,
any insurance premiums, rents, or other accruals and any and
all other taxes or amounts due or payable for a period prior
to Closing; notwithstanding the foregoing, all transfer taxes,
and all other impositions of tax arising solely by reason of
the transfers contemplated by this Agreement (excluding all
federal, state and local income and gross receipt taxes on the
earnings or gross receipts of Seller prior to the Closing
Date, which shall remain the sole responsibility of Seller,
and sales tax assessed on the transfer of vehicles which shall
be the sole responsibility of Purchaser) shall be the
responsibility of and shall be borne equally by Seller and
Purchaser (any real estate and personal property taxes for the
year in which Closing occurs shall be pro-rated to the Closing
Date [based on a calendar year or fiscal year for which such
taxes are levied basis], if the tax rates for the year in
which Closing occurs shall not be fixed prior to the Closing
Date for a particular item of the Purchased Assets, the
pro-ration of taxes thereon shall be based upon the tax rate
for the year prior to Closing applied to the latest assessment
valuation; however, in the event that any such taxes are
increased or decreased for the year in which Closing occurs,
Seller or Purchaser shall then reimburse the other party for
amounts in excess of or less than the proration as determined
as of the Closing Date);
(x) for long term indebtedness and other obligations or guarantees
of Seller;
(xi) for Current Liabilities of Seller at the Closing Date;
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(xii) if applicable, for or in connection with any cost reports
required to be filed by Seller with respect to periods prior
to Closing; and
(xiii) for Accrued Expenses and Payables of Seller at the Closing Date.
4.3 OFFER OF EMPLOYMENT. Purchaser shall offer employment on and as of
Closing, on an at-will basis, to substantially all Employees actively at work in
substantially similar jobs, at substantially the same base salaries or wages and
substantially the same benefits as were paid or provided by Seller immediately
prior to the Closing Date.
4.4 VACATION, WORKERS' COMPENSATION AND DISABILITY CLAIMS.
4.4.1 SELLER'S LIABILITY. Seller shall remain liable for all
liability for all accrued vacation entitlements, workers' compensation,
disability and occupational diseases of or with respect to the
Employees attributable to entitlements, injuries, claims, conditions,
events and occurrences occurring on or before the Closing Date,
regardless of the date on which the actual claim is made.
4.4.2 PURCHASER'S LIABILITY. Purchaser shall be liable for all
liability for all vacation entitlements, workers' compensation,
disability and occupational diseases of or with respect to the
Employees hired by Purchaser attributable to entitlements, injuries,
claims, conditions, events and occurrences first occurring after the
Closing Date.
4.4.3 WORKERS' COMPENSATION; UNEMPLOYMENT COMPENSATION.
SCHEDULE 4.4.3 attached hereto sets forth a true and correct summary of
the following with respect to Seller and the Employees:
(i) a listing of all workers' compensation contracts;
(ii) the workers' compensation loss experience for the past
three years;
(iii) a summary report and experience rating for unemployment
compensation; and
(iv) the turnover rates for the Facility.
ARTICLE V. CLOSING
5.1 TIME; LOCATION. The consummation of the purchase and sale of the
Purchased Assets shall take place on or before January 2, 1998 (the "Closing"),
unless extended by mutual agreement of the Parties hereto. The date of the
Closing shall be referred to as the "Closing Date." The Closing shall take place
at such time, date and place as may be mutually agreed upon by the Parties.
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5.2 DOCUMENTS. At Closing, Seller shall execute and deliver the
following instruments of transfer and assignment:
5.2.1 DEEDS. Duly executed special warranty deeds in favor of
Purchaser or Purchaser's designee, in recordable form, transferring
good and marketable fee simple title to the Real Property Owned,
subject only to Permitted Encumbrances, and such affidavits or other
instruments as Purchaser's title insurance company may reasonably
request, including, but not limited to, (i) exceptions for (A)
judgments, bankruptcies, taxes and municipal claims, (B) parties in
possession other than current occupants pursuant to agreements with
Seller, (C) mechanics' or materialmens' liens and (D) encroachments or
survey discrepancies of any nature; (ii) payoff letters, lien releases
and satisfaction pieces and (iii) gap indemnities;
5.2.2 BILL OF SALE. A general bill of sale, assignment and
assumption substantially in the form of EXHIBIT 5.2.2 hereto,
transferring to Purchaser good and indefeasible title to all of the
tangible personal property included in the Purchased Assets, subject
only to Permitted Encumbrances and the Assumed Liabilities and
assigning to Purchaser, to the extent assignable, Seller's right, title
and interest in each of the contracts, permits and other agreements
included in the Purchased Assets, together with all consents of third
parties that are required to make each such assignment effective to
such third parties;
5.2.3 TITLE CERTIFICATES. Certificates of title to all
vehicles included in the Purchased Assets with assignments to
Purchaser;
5.2.4 PROPERTY TAX STATEMENTS. To the extent not delivered
prior to Closing, all real estate and personal property tax statements
or bills for or relating to the Real Property or any of the other
Purchased Assets for the applicable current tax year or years, and all
tax assessments or notices thereof upon which such taxes are based;
5.2.5 PLANS AND SPECIFICATIONS. To the extent not delivered
prior to Closing, all plans, specifications and other drawings used in
the construction of the Facility or any renovations thereof (including,
without limitation, any as-built plans and architectural
specifications) and all guarantees and warranties made by third parties
with respect to the improvements, buildings, personalty or any of the
other Purchased Assets;
5.2.6 PERMITS; SURVEYS; STUDIES. To the extent not delivered
prior to Closing, all building permits, zoning permits, occupancy
permits, subdivision plans, surveys, engineering reports, geotechnical
reports, soils studies and hazardous waste or other environmental
studies prepared within two years before the date hereof, for or
relating to the Facility;
5.2.7 CONTRACTS AND OTHER PERMITS. To the extent not delivered
prior to Closing, all Contracts, Permits, or other instruments or
agreements relating to the ownership, operation, use, occupancy,
licensure, accreditation or maintenance of the Business;
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5.2.8 CLOSING DOCUMENTS. To the extent not delivered prior to
Closing, the documents referred to in Section 8.1.2 and Section 8.1.8;
and
5.2.9 OTHER DOCUMENTS. The Ancillary Agreements, and such
additional instruments of conveyance and transfer as Purchaser may
reasonably require in order to more effectively vest in it, and put it
in possession of, the Purchased Assets.
5.3 REASONABLE STEPS. Seller shall make such reasonable efforts as may
be appropriate so that on the Closing Date, Purchaser shall be placed in actual
possession and control of all of the Purchased Assets.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller represents and warrants
to Purchaser, that each of the following representations and warranties is true
and correct as of the date hereof:
6.1 ORGANIZATION, GOOD STANDING AND POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, and has all requisite corporate power and authority to execute
and deliver this Agreement and the Ancillary Agreements to which it is a party,
to consummate the transactions contemplated hereby and thereby and to perform
all the terms and conditions hereof and thereof and to be performed by it.
6.2 AUTHORIZATION OF AGREEMENT. Seller has taken all necessary
corporate action to authorize the execution and delivery of this Agreement and
the Ancillary Agreements to which it is a party, the performance by it of all
terms and conditions hereof and thereof to be performed by it and the
consummation of the transactions contemplated hereby and thereby.
6.3 ENFORCEABILITY. This Agreement constitutes, and the Ancillary
Agreements to which Seller is party, upon Seller's execution and delivery
thereof, will constitute the legal, valid and binding obligations of Seller,
enforceable in accordance with their terms except to the extent that
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws presently or hereafter in effect relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
6.4 NO VIOLATION; CONSENTS. The execution, delivery and performance by
Seller of this Agreement and the Ancillary Agreements to which Seller is a
party, and the consummation of the transactions contemplated hereby and thereby
will not (with or without the giving of notice or the lapse of time, or both)
(i) violate any provision of the charter or bylaws of Seller; (ii) except with
respect to notices and consents (if any) required to be given by Seller to any
Accreditation Body or Governmental Authority in connection with the sale and
change of ownership of the Purchased Assets and the Business, violate or require
any consent, authorization or approval of, or exemption by, or filing under any
provision of any law, statute, rule or regulation to which Seller, the Business
or the Purchased Assets are subject; (iii) violate any judgment, order, writ or
decree of any court applicable to Seller, the Business or the Purchased
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Assets; (iv) except as identified on SCHEDULE 2.1.4, conflict with, result in a
breach of, constitute a default under (or a default that might, with the passage
of time or the giving of notice or both, constitute a default), or accelerate or
permit the acceleration of the performance required by, or require any consent,
authorization or approval under any contract or other instrument, document or
undertaking to which Seller is a party or any of the Purchased Assets is bound
or (v) result in the creation or imposition of any Encumbrances upon the
Purchased Assets.
6.5 FINANCIAL STATEMENTS. Seller has delivered to Purchaser true and
complete copies of the reviewed (i) balance sheets of the Business at June 30,
1997, 1996 and 1995, and the related statements of income and cash flows for the
years then ended and (ii) monthly statements of profit and loss for the first
four months of fiscal year 1998 with respect to the operation of the Facility
and, in addition, Seller shall provide Purchaser, as promptly as the same become
available through the Closing Date, but no later than 15 days after the last day
of each month, monthly statements of profit and loss of Seller for the Facility.
In the event that the Closing Date occurs within the first 15 days of a month,
notwithstanding anything to the contrary herein, Seller shall furnish Purchaser
statements of profit and loss for the then immediately preceding month no later
than three days prior to the Closing Date. True and correct copies of such
financial statements are attached hereto as SCHEDULE 6.5. The foregoing
financial statements have been prepared from the Books and Records of Seller in
accordance with GAAP consistently applied throughout the periods involved except
as may be noted therein. Such financial statements, including the related notes,
are true and correct and fairly present the financial position of the Business
at the dates indicated and the results of operations and cash flows of the
Business for the periods then ended in accordance with GAAP.
6.6 RESERVED.
6.7 INVENTORY. The Inventory was or will be acquired and maintained in
accordance with the regular business practices of Seller, consists or will
consist of new and unused items of a quality and quantity usable or salable in
the ordinary course of business consistent with past practice, and is or will be
valued in accordance with GAAP consistently applied.
6.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 6.8 hereto, since June 30, 1997 in connection with the Business, Seller
has not:
(i) amended in any material respect or terminated any
Contract or Permit other than in the ordinary course
of business consistent with past practice;
(ii) suffered the occurrence of any events that,
individually or in the aggregate, have had, or could
reasonably be expected to have, a material adverse
effect on results of operations of the Business,
including any damage or destruction by fire, storm or
similar casualty, whether or not covered by
insurance;
(iii) sold, transferred, replaced or leased any of the
Purchased Assets, except for transactions in the
ordinary course of business consistent with past
practice;
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(iv) waived or released any material rights with respect
to the Purchased Assets or the Business;
(v) transferred or granted any rights to any Proprietary
Rights;
(vi) entered into any transaction or made any commitments
(for capital expenditures or otherwise) other than in
the ordinary course of business consistent with past
practice;
(vii) changed its methods of accounting;
(viii) increased the compensation of any of the Employees,
except following normal review procedures or as
reasonably deemed necessary in the ordinary course of
business consistent with past practice;
(ix) suffered any major or key personnel changes;
(x) materially altered its conduct in its relations with
suppliers and patients; or
(xi) materially altered its marketing efforts with respect
to the Business.
6.9 REAL PROPERTY.
6.9.1 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
Seller owns and will transfer to Purchaser at Closing good, marketable
and indefeasible title to all of the Purchased Assets owned by Seller
subject to Closing, including, without limitation, the Real Property,
free and clear of all Encumbrances, other than Permitted Encumbrances.
Seller has the right to quiet enjoyment of all Real Property Leased in
which Seller holds a leasehold interest for the full term, including
all renewal rights, of the lease or similar agreement relating thereto.
Copies of all title insurance policies and surveys written in favor of
Seller relating to the Real Property have been delivered to Purchaser.
6.9.2 STRUCTURES AND IMPROVEMENTS. To Seller's Knowledge,
Seller represents and warrants that all structures and other
improvements on the Real Property are in good order and repair and free
from any structural defects.
6.9.3 BOUNDARIES; LOCATION. Seller represents and warrants
that the structures and other improvements on the Real Property are
within the lot lines and do not encroach on the properties of any other
Person. Seller further represents and warrants that each parcel of Real
Property is considered a separate parcel of land for taxing and
conveyancing purposes.
6.9.4 FLOOD HAZARD AREA. Weller represents and warants that no
portion of the Real Property Owned is located in a flood plain, flood
hazard area or designated wetlands area. Seller has disclosed that the
Real Property Leased is in a flood hazard area. Selr
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represents and warrants that it maintains folld insureance equal to or
greater than the value of the Real Property Leased.
6.9.5 USE AND OPERATION. Seller represents and warrants that
the use and operation of the Real Property conforms to all applicable
building, zoning, safety and subdivision laws, Environmental Laws and
other Legal Requirements, and all restrictive covenants and
restrictions and conditions affecting title.
6.9.6 UTILITIES. Seller represents and warrants that all
utilities (including water, gas, electric, storm and sanitary sewage
and telephone utilities) required to operate the Facility are available
to the Facility and such utilities enter the boundaries of such
Facility through adjoining public streets, permanent easements or
rights-of-way of record in favor of Seller. To Seller's Knowledge, such
utilities are all connected pursuant to valid permits, are all in good
working order and are adequate to service the operations of the
Facility as currently conducted and permit full compliance with all
Legal Requirements. Seller has not received any written notice of any
proposed, planned or actual curtailment of service of any utility
supplied to the Facility.
6.9.7 ASSESSMENTS; NOTICES. Seller has not received any
written or oral notice of assessments for public improvements against
the Real Property or any written or oral notice or order by any
Governmental Authority, any insurance company that has issued a policy
with respect to any of such properties or any board of fire
underwriters or other body exercising similar functions that relates to
violations of building, safety or fire ordinances or regulations, that
claims any defect or deficiency with respect to any of such properties
or requests the performance of any repairs, alterations or other work
to or in any of such properties or in the streets bounding the same.
6.9.8 CONDEMNATION. Seller represents and warrants that there
is no pending condemnation, expropriation, eminent domain or similar
proceeding affecting all or any portion of the Real Property.
6.9.9 ACCESS. Seller represents and warrants that all present
driveways and other access routes to the Real Property are from public
streets and no other Person has any right to use any such driveways or
other access routes.
6.10 PROPRIETARY RIGHTS.
6.10.1 LOGOS AND TRADENAMES. SCHEDULE 2.1.8 hereto sets forth
a correct and complete list of all patents, logos, trademarks, trade
names, service marks, copyrights and applications or registrations
therefor used in and material to the Business (collectively, the
"Proprietary Rights").
6.10.2 LICENSES. Except as disclosed in SCHEDULE 2.1.8: (i)
Seller owns or possesses adequate licenses or other valid rights to use
(without the making of any payment to others or the obligation to grant
rights to others in exchange) all the Proprietary Rights; (ii) the
Proprietary Rights included in the Purchased Assets constitute
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all the material rights necessary to conduct the Business in accordance
with past practice and are being conveyed to Purchaser together with
the other Purchased Assets; (iii) the validity of the Proprietary
Rights and the rights therein of Seller have not been questioned in any
litigation to which Seller is a party, nor, to Seller's Knowledge, is
any such litigation threatened; and (iv) the conduct of the Business
does not conflict with patent rights, licenses, trademark rights, trade
name rights, copyrights or other intellectual property rights of
others.
6.10.3 INFRINGEMENT. Except as disclosed in SCHEDULE 2.1.8
hereto, Seller does not have Knowledge that any material use of any
Proprietary Rights owned by Seller has heretofore been, or is now
being, made by any Person other than Seller, and Seller has no
Knowledge of any infringement of any Proprietary Rights owned or
licensed by Seller. No present or former director, officer, Employee or
consultant of Seller has any interest in any of the Proprietary Rights.
6.11 CONTRACTS AND COMMITMENTS. Except as listed and described on
SCHEDULE 1.50 and SCHEDULE 2.1.4, Seller is not with respect to the Business a
party to any written or oral:
(i) Contract for the future purchase of, or payment for,
supplies or products, or for the performance of
services by another party, involving in any one case
$10,000 or more;
(ii) Contract to sell or supply products or to perform
services, involving in any one case $10,000 or more
(except for any Patient's Agreement);
(iii) Contract continuing over a period of more than six
months from the date hereof or exceeding $10,000 in
value (except for any Patient's Agreement);
(iv) representative, sales agency, dealer or distributor
Contract;
(v) lease under which Seller is either lessor or lessee
other than with respect to the Real Property Leased;
(vi) note, debenture, bond, conditional sale agreement,
equipment trust agreement, letter of credit
agreement, loan agreement or other Contract or for
the borrowing or lending of money (including without
limitation loans to or from Employees) or guarantee,
pledge or undertaking of the indebtedness of any
other Person;
(vii) Contract for any charitable or political
contribution;
(viii) Contract limiting or restraining Seller or any
successor or assign from engaging or competing in any
likeness of business with any Person;
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(ix) license, franchise, distributorship or other
agreement, including those that relate in whole or in
part to any patent, trademark, trade name, service
mark or copyright or to any ideas, technical
assistance or other know-how of or used by the
Business;
(x) Contract or commitment to assign, option, sell,
transfer or otherwise convey any right, title or
interest of Seller in and to all or any portion of
the Business; or
(xi) any other material Contract not made in the ordinary
course of business consistent with past practice.
To Seller's Knowledge, each of the contracts and other instruments,
documents and undertakings listed on SCHEDULE 1.50, SCHEDULE 2.1.4, SCHEDULE
1.64 and SCHEDULE 1.65 is valid and enforceable in accordance with its terms,
the parties thereto are in compliance with the provisions thereof, neither party
is in default in the performance, observance or fulfillment of any material
obligation, covenant or condition contained therein, and no event has occurred
that with or without the giving of notice or lapse of time, or both, would
constitute a default thereunder and (ii) except as set forth on SCHEDULE 1.50,
SCHEDULE 2.1.4, SCHEDULE 1.64 and SCHEDULE 1.65, no advance payments have been
received by Seller by or on behalf of any party to any of the contracts and
other instruments, documents and undertakings listed thereon for services to be
rendered or products to be delivered by such party after the Closing Date. Any
contracts that cannot be transferred or require consent or approval for the
transfer thereof are specifically identified on SCHEDULE 1.50, SCHEDULE 2.1.4,
SCHEDULE 1.64 and SCHEDULE 1.65 hereto as nontransferable or requiring such
consent or approval.
6.12 PERMITS, LICENSES. Seller has all Permits that are required to
operate the Business and the Facility as a skilled nursing facility as that term
is defined by the Department of Health (including without limitation those
required under any Environmental Law) and Seller is in substantial compliance
with the terms and conditions of the Permits. SCHEDULE 2.1.6 hereto sets forth a
correct and complete list of all Permits, each one of which is in full force and
effect. To Seller's Knowledge, no suspension or cancellation of any of the
Permits is threatened and no cause exists for such suspension or cancellation.
Any Permits that cannot be transferred or require consent or approval for the
transfer thereof are specifically identified on SCHEDULE 2.1.6 hereto as
nontransferable or requiring such consent or approval.
6.13 COMPLIANCE WITH LAWS. Except as described in SCHEDULE 6.13 hereto,
Seller has at all times conducted, and is presently conducting, the Business so
as to comply in all material respects with all Legal Requirements applicable to
the conduct of operation of the Business or the ownership or use of the
Purchased Assets.
6.14 LEGAL PROCEEDINGS. Except as described in SCHEDULE 6.14 hereto,
there is no claim, action, suit, proceeding, investigation or inquiry pending
before any Governmental Authority or, to Seller's Knowledge, threatened against
Seller with respect to the Business or any of the Purchased Assets owned or used
by it in connection therewith, or relating to the transactions contemplated by
this Agreement, nor to Seller's Knowledge is there any basis for
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any such claim, action, suit, proceeding, investigation, or inquiry. Except as
set forth on SCHEDULE 6.14 hereto, Seller is not a party to or subject to the
provisions of any judgment, order, writ, injunction, decree or award of any
court, arbitrator or governmental, regulatory or administrative official, body
or authority that relates to the Business or the Purchased Assets owned or used
by Seller in connection therewith that might affect the transactions
contemplated by this Agreement.
6.15 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 6.15, Seller has no liabilities or obligations (as defined in Section
4.1) relating to the Business except (i) those liabilities and obligations
reserved and reflected on the financial statements of Seller previously provided
to Purchaser in the amounts shown therein and not heretofore paid or discharged;
(ii) those liabilities and obligations arising in the ordinary course of
business consistent with past practice under any Contract or commitment
specifically disclosed on SCHEDULE 2.1.4 hereto and not required to be disclosed
because of the term or amount involved; and (iii) those liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the financial statements dated June 30, 1997 provided to
Purchaser, and none of which, individually or in the aggregate, has had or will
have a material adverse effect on the Business or the financial condition of
Seller or the Facility.
6.16 BOOKS AND RECORDS. All books of account and other financial
records of Seller directly relating to the Business (the "Books and Records")
are materially complete and correct and have been made available to Purchaser.
All of the Books and Records have been prepared and maintained in accordance
with good business practices and, where applicable, in conformity with GAAP
(except as otherwise stated therein) and in compliance in all material respects
with all Legal Requirements.
6.17 EMPLOYEES. SCHEDULE 1.21 sets forth a true and correct list of the
following for the Facility: (i) all individuals employed by Seller in the
conduct of the Business; (ii) total wage costs; (iii) wage/salary grade
structure and (iv) each Employee's (A) present position and department, (B) job
description, (C) rate of compensation and (D) service credited for purposes of
vesting and eligibility under each Benefit Plan.
6.18 LABOR DISPUTES. Except as described in SCHEDULE 6.18 hereto, there
are no material discrimination complaints nor any other kind of employment or
labor related disputes against Seller in connection with the Business pending
before or, to Seller's Knowledge, threatened before any federal, state or local
court or agency, and to Seller's Knowledge, no material dispute respecting
minimum wage or overtime claims or other conditions or terms of employment
exists. The Business has not experienced any material labor disputes or any
material work stoppage due to labor disagreements within the past three years.
With respect to the Business and except to the extent set forth in SCHEDULE
6.18: (i) there is no unfair labor practice charge or complaint against Seller
pending or, to Seller's Knowledge, threatened, before the National Labor
Relations Board; (ii) there is no labor strike, slowdown or stoppage pending or,
to Seller's Knowledge, threatened against or affecting Seller; and (iii) no
question concerning representation has been raised within the past three years,
or to Seller's Knowledge, is threatened respecting the Employees.
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6.19 EMPLOYEE BENEFITS.
6.19.1 BENEFIT PLANS. SCHEDULE 6.19 contains a complete list
of each employee benefit plan (written and unwritten) subject to ERISA
and any other (written or unwritten) profit sharing, pension, savings,
deferred compensation, fringe benefit, insurance, medical, medical
reimbursement, life, disability, accident, post-retirement health or
welfare benefit, stock option, stock purchase, sick pay, vacation,
employment, severance, termination or other plan or arrangement (each,
a "Benefit Plan") maintained by or with respect to which Seller has any
liability or obligation, whether actual or contingent, funded or
unfunded, with respect to the Employees or their respective
beneficiaries.
6.19.2 PLAN LIABILITY. Seller has not taken any action that
may result in Purchaser being a party to, or bound by, an ERISA Plan,
and Purchaser shall have no liability under, or be subject to any
liability on account of, any ERISA Plan or Benefit Plan following the
consummation of the transaction contemplated hereby.
6.19.3 RETIREMENT BENEFITS. No ERISA Plan or other employee
arrangement has provided for the payment of retiree benefits by
Purchaser.
6.20 NO FINDER. Seller has not taken any action that would give to any
Person a right to a finder's fee or any type of brokerage commission in relation
to, or in connection with, the transactions contemplated by this Agreement.
6.21 CONDITION OF EQUIPMENT. To Seller's Knowledge, except as set forth
on SCHEDULE 6.21, all equipment that is part of the Purchased Assets is in good
operating condition and repair (subject only to routine maintenance and repair)
and usable in the conduct of the Business consistent with past practice.
6.22 AFFILIATE TRANSACTIONS. Except as set forth in SCHEDULE 6.22
hereto, Seller and its Affiliates provide no services or products to the
Business.
6.23 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 6.23:
6.23.1 COMPLIANCE; NO LIABILITY. Seller has operated the
Business and each parcel of Real Property in material compliance with
all applicable Environmental Laws. Seller is not subject to any
liability, penalty or expense (including legal fees), and Purchaser
will not suffer or incur any loss, liability, penalty or expense
(including legal fees) by virtue of any violation of any Environmental
Law occurring prior to the Closing, any environmental activity
conducted on or with respect to any property by Seller at or prior to
the Closing or any environmental condition existing on or with respect
to any property at or prior to the Closing, in each case whether or not
Seller permitted or participated in such act or omission.
6.23.2 TREATMENT; CERCLA. Seller has not treated, stored,
recycled or disposed of any hazardous material, and to Seller's
Knowledge, no other Person has treated, stored,
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recycled or disposed of any hazardous material on any part of the Real
Property. To Seller's Knowledge, there has been no release of any
hazardous material at, on or under any Real Property. Seller has not
transported any hazardous material or arranged for the transportation
of any hazardous material to any location that is listed or proposed
for listing on the National Priorities List pursuant to Superfund, on
CERCLA or any other location that is the subject of federal, state or
local enforcement action or other investigation that may lead to claims
against Seller for cleanup costs, remedial action, damages to natural
resources, to other property or for personal injury including claims
under Superfund. None of the Real Property is listed or, to Seller's
Knowledge, proposed for listing on the National Priorities List
pursuant to Superfund, CERCLA or any state or local list of sites
requiring investigation or cleanup.
6.23.3 NOTICES; EXISTING CLAIMS; CERTAIN HAZARDOUS MATERIALS;
STORAGE TANKS. Seller has not received any request for information,
notice of claim, demand or other notification that it is or may be
potentially responsible with respect to any investigation, abatement or
cleanup of any threatened or actual release of any hazardous material.
Seller is not required to place any notice or restriction relating to
the presence of any hazardous material at any Real Property or in any
deed to any Real Property. Seller has provided to Purchaser a list of
all sites to which Seller has transported any hazardous material for
recycling, treatment, disposal, other handling or otherwise. There has
been no past, and there is no pending or contemplated, claim by Seller
under any Environmental Law or Legal Requirement based on actions of
others that may have impacted on the Real Property, and Seller has not
entered into any agreement with any Person regarding any Environmental
Law, remedial action or other environmental liability or expense. All
storage tanks located on the Real Property, whether underground or
aboveground, are disclosed on SCHEDULE 6.23, and, to Seller's
Knowledge, all such tanks and associated piping are in sound condition
and are not leaking and have not leaked.
6.24 INSURANCE. SCHEDULE 6.24 sets forth a complete list of all
insurance policies with respect to which Seller is the owner, insured or
beneficiary for the past three years and all insurance policies known by Seller
to have been maintained by any other Person which may provide any coverage for
liabilities relating in any manner to any Environmental Law. SCHEDULE 6.24 also
sets forth a true and correct summary of the loss experiences for the past three
years under each such policy. Seller will have no liability after Closing for
retrospective or retroactive premium adjustments. All of Seller's insurance
policies covering products liability and general liability have been
"occurrence" policies and not "claims made" policies. Following the Closing,
Seller shall, to the extent that coverage under its insurance policies extends
to include the Business, (i) take no action to eliminate or reduce such
coverage, other than normal elimination or reduction of coverage as they occur
by virtue of the filing of claims in the ordinary course under such insurance
policies, (ii) pay when due any premiums under such policies for periods,
including retrospective or retroactive premium adjustments and (iii) use its
best efforts to assist in filing and processing claims under and otherwise
cooperate with Purchaser to allow Purchaser, in its own name, or on behalf of
Seller, to obtain all coverage benefits applicable to the Business under such
insurance policies, including the execution of assignments or powers of attorney
for
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the benefit of Purchaser. Any proceeds of insurance paid by an insurer to Seller
for claims of Purchaser made in accordance with this Section shall be promptly
paid to Purchaser.
6.25 NO SIGNIFICANT ITEMS EXCLUDED. Except for Excluded Assets, there
are no assets, properties, contracts, permits or other items of Seller or any
Related Party that are of material importance to the ongoing operation of the
Business by Purchaser in substantially the same manner in which the Business has
been conducted by Seller prior to the date of this Agreement.
6.26. SURVEYS. Seller has provided Purchaser with copies of Seller's
federal and/or state surveys or inspections and any plans of correction for the
current year and the two immediately preceding years for the Facility. Each such
survey or inspection was prepared in material compliance with all applicable
Legal Requirements.
6.27. OCCUPANCY REPORTS. Seller has provided Purchaser with copies of
Seller's occupancy reports for the Facility for the last year. Each such
occupancy report was prepared based on the number of operational beds (i.e.,
double occupancy rooms were only counted as such when both beds were occupied).
6.28 DISCOUNTED RATES; RATE LIMITATIONS; FREE CARE. Attached hereto is
SCHEDULE 6.28 that sets forth a true and complete list of the following for the
Facility: (i) any services that are provided based on a discount factor from the
rates regularly charged at the Facility; (ii) any restrictions or limitations on
rates which may be charged to private pay patients for services provided at the
Facility; (iii) any percentage of beds or slots in any program at the Facility
that must be reserved for Medicare or Medicaid eligible patients and (iv) any
amount of welfare, free or charity care or discounted government assisted
patient care provided at the Facility.
6.29. TAX RETURNS. Seller has filed or caused to be filed, or will file
or cause to be filed, all Tax Returns that are required to be filed by it prior
to or on the Closing Date, pursuant to all Legal Requirements of each
Governmental Authority with taxing power over it. All such Tax Returns were or
will be, as the case may be, correct and complete in all material respects.
Seller has paid or will pay all Taxes that have or will become due as shown on
such Tax Returns or pursuant to any assessment received as an adjustment to such
Tax Returns, except (i) such Taxes, if any, as are being contested in good faith
and disclosed on SCHEDULE 6.29, (ii) such Taxes that are fully reserved against
on the financial statements of Seller previously provided to Purchaser and
(iii)Taxes accruing that are not yet due. Except as set forth on SCHEDULE 6.29,
Seller is not currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has been made by any taxing authority of a
jurisdiction other than one in which the Facility is located. Seller has paid,
or will withhold and pay, all Taxes required to have been withheld in connection
with amounts paid or owing to any Employee, independent contractor, creditor,
stockholder or other third party.
6.30 COMPLETENESS AND ACCURACY. All information set forth on any
Schedule hereto is true, correct and complete. No representation or warranty of
Seller contained in this Agreement contains or will contain any untrue statement
of material fact, or omits or will omit to state any material fact necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. All Contracts, Permits and other documents and
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instruments furnished or made available to Purchaser by Seller are or will be
true, complete and accurate originals or copies of originals and include all
amendments, supplements, waivers and modifications thereto.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, Purchaser represents and
warrants to Seller, that each of the following representations and warranties is
true and correct as of the date hereof:
7.1 ORGANIZATION, GOOD STANDING, POWER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own and
lease the Purchased Assets, to carry on the Business and to execute and deliver
this Agreement and the Ancillary Agreements to which Purchaser is a party, to
consummate the transactions contemplated hereby and thereby and to perform all
the terms and conditions hereof and thereof to be performed by it.
7.2 AUTHORIZATION OF AGREEMENT AND ENFORCEABILITY. Purchaser has taken
all necessary corporate action to authorize the execution and delivery of this
Agreement and the Ancillary Agreements to which Purchaser is a party, the
performance by it of all terms and conditions hereof and thereof to be performed
by it and the consummation of the transactions contemplated hereby and thereby.
This Agreement constitutes, and the Ancillary Agreements, upon Purchaser's
execution and delivery thereof, will constitute, the legal, valid and binding
obligations of Purchaser, enforceable in accordance with their terms except to
the extent that enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws presently or hereafter in effect relating to or
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
7.3 NO VIOLATIONS; CONSENTS. Except as set forth on SCHEDULE 7.3, the
execution, delivery and performance by Purchaser of this Agreement and the
Ancillary Agreements to which Purchaser is a party and the consummation of the
transactions contemplated hereby and thereby will not (with or without the
giving of notice or the lapse of time, or both) (i) violate any provision of the
charter or bylaws of Purchaser, (ii) except with respect to notices and consents
required to be given by Purchaser to any Accreditation Body or Governmental
Authority in connection with the sale and change of ownership of the Purchased
Assets and the Business, violate, or require any consent, authorization or
approval of, or exemption by, or filing under any provision of any contract,
law, statute, rule or regulation to which Purchaser is subject, (iii) violate
any judgment, order, writ or decree of any court applicable to Purchaser, (vi)
conflict with, result in a breach of, constitute a default under (or a default
that might, with the passage of time or the giving of notice or both, constitute
a default), or accelerate or permit the acceleration of the performance required
by, or require any consent, authorization or approval under any agreement,
contract, commitment, lease or other instrument, document or undertaking to
which Purchaser is a party or (v) result in the creation or imposition of any
Encumbrance upon its assets.
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7.4. LEGAL PROCEEDINGS. There is no claim, action, suit, proceeding,
investigation or inquiry pending before any Governmental Authority or, to
Purchaser's Knowledge, threatened against Purchaser or any of Purchaser's
properties, assets, operations or businesses that might prevent or delay the
consummation of the transactions contemplated hereby.
7.5 NO FINDER. Purchaser has not taken any action which would give to
any Person a right to a finder's fee or any type of brokerage commission in
relation to, or in connection with, the transactions contemplated by this
Agreement.
ARTICLE VIII. COVENANTS OF SELLER PRIOR TO CLOSING DATE
8.1 REQUIRED ACTIONS. Between the date of this Agreement and the
Closing Date, Seller covenants that it will:
8.1.1 ACCESS TO INFORMATION. Give to Purchaser and its
counsel, accountants, environmental consultants, engineers, architects
and other representatives, for the purpose of audit, review and
copying, reasonable access, during normal business hours, to such of
the properties, books, accounts and records of Seller as are relevant
to the Purchased Assets and the Business, and furnish or otherwise make
available to Purchaser all such information concerning the Purchased
Assets and the Business as Purchaser may reasonably request.
8.1.2 SURVEYS; OCCUPANCY; OPERATIONS. Provide Purchaser with
the following:
(i) occupancy reports for the Facility, as soon as the
same become available through the Closing Date, but
no later than the last day of any given week (which
reports shall be prepared based on the number of
operational beds);
(ii) federal and/or state surveys or inspections and any
plans of correction for the Facility, as soon as the
same become available through the Closing Date, but
no later than 15 days after received by Seller;
(iii) Seller's cost reports for the current year and the
two immediately preceding years for the Facility, the
current year's Resource Utilization Group index
scores and quarterly case mix information, together
with the rate schedule for the Facility; and
(iv) monthly statements of profit and loss of Seller for
the Facility, as soon as the same become available
through the Closing Date, but no later than 15 days
after the last day of each month;
8.1.3 CONDUCT OF BUSINESS. Operate the Business in the usual,
regular and ordinary manner as such Business was conducted prior to the
date hereof and, to the extent consistent with such operation, use its
best efforts until the Closing Date to (i) preserve and keep intact the
Business; (ii) keep available the services of the Employees; (iii)
preserve its relationships with patients, referring physicians,
suppliers and others
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having business dealings with Seller in connection with the Business
and (iv) maintain current marketing activities.
8.1.4 MAINTENANCE OF PROPERTIES. Maintain the Purchased
Assets, whether owned or leased, in their good repair, order and
condition, in accordance with Seller's past practices, reasonable wear
and tear excepted;
8.1.5 MAINTENANCE OF BOOKS AND RECORDS. Maintain the Books and
Records in the usual, regular and ordinary manner, on a basis
consistent with past practice;
8.1.6 COMPLIANCE WITH APPLICABLE LAW. Comply in all material
respects with all Legal Requirements applicable to the Purchased Assets
and to the conduct of the Business;
8.1.7 PERFORMANCE OF OBLIGATIONS. Perform all the material
obligations of Seller relating to the Purchased Assets and the Business
in accordance with the past practices;
8.1.8 APPROVALS, CONSENTS. Use its best efforts to obtain in
writing as promptly as possible any approvals and consents as required
to be obtained by Seller in order to effectuate the transactions
contemplated hereby and deliver to Purchaser copies of such approvals
and consents. Accordingly, Seller shall cooperate with Purchaser's
efforts to obtain the necessary licenses to operate the Facility from
the appropriate Accreditation Bodies, including, without limitation,
the Department of Health. Upon execution and delivery of this
Agreement, Seller shall promptly:
(i) provide Purchaser with copies of all Permits;
(ii) notify each Accreditation Body and Third Party Payor
as required by any Legal Requirement of the pending
change of ownership of the Facility; and
(iii) provide such other notices as required by all Legal
Requirements including, if required, (i) notices to
the Facility's patients and (ii) notices to referral
or human service agencies. Prior to sending the
notices, Seller shall provide copies to Purchaser for
review and approval, which approval shall not be
unreasonably withheld;
8.1.9 NOTICE OF MATERIAL DAMAGE. Give to Purchaser prompt
notice in writing of any fact that, if known on the date hereof, would
have been required to be set forth or disclosed in or pursuant to this
Agreement, or which would result in the breach in any material respect
by Seller of any of its representations, warranties, covenants or
agreements hereunder;
8.1.10 PAY EMPLOYEES TO CLOSING DATE. Pay all wages, salaries
and other sums due Employees through the close of business on the day
prior to the Closing Date;
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8.1.11 COST REPORTS. File, or cause to be filed, all Medicare
and Medicaid cost reports that are required to be filed after the
Closing Date, without regard to any extensions, pursuant to all
applicable Legal Requirements. Any liability of Seller required to be
paid as a result of any such cost report for any period prior to the
Closing Date shall be paid by Seller. Purchaser shall cause any refund
which may be received after the Closing Date as a result of any such
cost report filed for any period prior to the Closing Date to be paid
to Seller;
8.1.12 TRANSFER OF EMPLOYEES. Take all reasonably necessary
steps to transfer to Purchaser the employment of all Employees electing
to continue their employ with Purchaser as of the Closing Date;
8.1.13 COMPLIANCE WITH AGREEMENT. Not undertake any course of
action inconsistent with satisfaction of the conditions applicable to
it set forth in this Agreement, and use all reasonable efforts to do
all such acts and take all such measures as may be reasonably necessary
to comply with the representations, agreements, conditions and other
provisions of this Agreement;
8.1.14 COMPLIANCE WITH BULK SALES LAWS. (i) Provide notice to
the Pennsylvania Department of Revenue and the Pennsylvania Department
of Labor and Industry, at least ten days prior to Closing, of the sale
of the Business and the Purchased Assets contemplated hereunder, in
accordance with 72 P.S. Section 1403 and 43 P.S. Section 788.3, and
shall provide Purchaser with a copy of said notice; and (ii) file all
State Tax reports with the Pennsylvania Department of Revenue and the
Pennsylvania Department of Labor and Industry to and including the
Closing Date, pay all taxes due to the Commonwealth in accordance
therewith, and provide Purchaser with evidence of such payment on or
before the Closing Date; and
8.1.15 UPDATE SCHEDULE. Promptly disclose to Purchaser any
information contained in the representations and warranties of Seller
contained in Article VI or in the Schedules to this Agreement which is
no longer complete or correct (including furnishing updated financial
statements); provided that no such disclosure shall be deemed to
modify, amend or supplement Seller's representations and warranties.
8.2 PROHIBITED ACTIONS. Between the date of this Agreement and the
Closing Date, Seller shall not, except as otherwise agreed by Purchaser in
writing:
8.2.1 SALE OF PURCHASED ASSETS. Sell, transfer, assign, lease,
encumber or otherwise dispose of any of the Purchased Assets other than
in the ordinary course of business consistent with past practices;
8.2.2 BUSINESS CHANGES. Change in any material respect the
character of the Business;
8.2.3 INCURRENCE OF MATERIAL OBLIGATIONS. Incur any material
fixed or contingent obligation or enter into any material agreement,
commitment or other transaction or
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arrangement, commitment or other transaction or arrangement that is not
the ordinary course of business consistent with past practices and with
respect to which Purchaser will be bound subsequent to Closing;
8.2.4 INCURRENCE OF LIENS. Subject to lien, security interest
or any other Encumbrance, other than Permitted Encumbrances, any of the
Purchased Assets;
8.2.5 CHANGE IN EMPLOYEE COMPENSATION AND BENEFITS. Increase
the rate of compensation paid, or pay any bonus, to anyone connected
with the Business, or enter into any employment or consulting agreement
that is not terminable at will and without penalty, except in the
ordinary course of business consistent with past practices, or
establish or adopt any new Benefit Plan or other employee benefit
arrangement of any kind whatsoever covering or affecting Employees;
8.2.6 PUBLICITY; ADVERTISEMENT. Except as required by law,
publicize, advertise or announce to any third-party, except as required
pursuant to this Agreement to obtain the consent of such third-party,
the entering into of this Agreement, the terms of this Agreement or the
transactions contemplated hereby;
8.2.7 NO RELEASE. Except in the ordinary course of business
consistent with past practices, cancel, release or relinquish any
material debts of or claims against others held by Seller with respect
to the Business or waive any material rights relating to the Business;
and
8.2.8 NO TERMINATION OR MODIFICATION. Terminate or materially
modify any material contract or permit (including, without limitation,
those items listed on SCHEDULE 1.50, SCHEDULE 2.1.4, SCHEDULE 1.64 and
SCHEDULE 1.65) or other authorization or agreement affecting the
Purchased Assets or the Business or the operation thereof.
ARTICLE IX. COVENANTS OF PURCHASER PRIOR TO CLOSING DATE
9.1 REQUIRED ACTIONS. Between the date of this Agreement and the
Closing Date, Purchaser shall, except as otherwise agreed by Seller in writing:
9.1.1 ADVISE OF CHANGES. Advise Seller promptly in writing of
any fact that, if known at the Closing Date, would have been required
to be set forth or disclosed in or pursuant to this Agreement, or which
would result in the breach by Purchaser of any of its representations,
warranties, covenants or agreements hereunder;
9.1.2 COMPLIANCE WITH AGREEMENT. Not undertake any course of
action inconsistent with satisfaction of the conditions applicable to
it set forth in this Agreement, and Purchaser shall use its best
efforts to do all such acts and take all such measures as may be
reasonably necessary to comply with the representations, agreements,
conditions and other provisions of this Agreement;
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9.1.3 EXAMINATIONS. Promptly undertake all examinations,
inspections, surveys and audits, including, without limitation, title
searches and surveys of the Real Property, environmental assessments
and audits and engineering surveys, as Purchaser deems necessary in
connection with the acquisition of the Purchased Assets or the
Business; and
9.1.4 SELLER'S EMPLOYEES. Take all reasonable steps to ensure
that the transfer of employment of all of the Employees electing to
continue their employ with Purchaser as are able to be accomplished
prior to or on the Closing Date.
9.2 INVESTIGATION. Purchaser shall use reasonable efforts to conduct an
investigation of the Business of Seller in such a manner as to prevent
disruption of relations with the Employees, patients and suppliers of Seller,
which investigation shall include such due diligence as is customary for
transactions of the type contemplated herein.
9.3 APPROVALS, CONSENTS. Purchaser shall use its best efforts to obtain
in writing as promptly as possible any approvals and consents as required to be
obtained by Purchaser in order to effectuate the transactions contemplated
hereby and deliver to Purchaser copies of such approvals and consents.
Accordingly, Purchaser take all reasonable action to obtain the necessary
licenses to operate the Facility from the Department of Health, including:
(i) providing notice to each Accreditation Body and Third
Party Payor as required by any Legal Requirement of
the pending change of ownership of the Facility; and
(ii) providing such other notices as required by all Legal
Requirements including, if required, (i) notices to
the Facility's patients and (ii) notices to referral
and human service agencies. Prior to sending the
notices, Purchaser shall provide copies to Seller for
review and approval, which approval shall not be
unreasonably withheld.
9.4 PUBLICITY; ADVERTISEMENT. Except as required by law, Purchaser
shall not publicize, advertise or announce to any third-party, except as
required pursuant to this Agreement to obtain the consent of such third-party,
the entering into of this Agreement, the terms of this Agreement or the
transactions contemplated hereby; provided, however, the foregoing shall not be
applicable to disclosures made by Purchaser to Purchaser's lender in response to
such lender's reasonable requests.
ARTICLE X. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to proceed with Closing under this
Agreement is subject to the fulfillment prior to the specified date or at the
time of Closing of the following conditions with respect to Seller, any one or
more of which may be waived in whole or in part by Purchaser:
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Seller contained in this Agreement and the Ancillary Agreement
to which Seller is a party shall have been true in all material respects on the
date hereof and shall be true in all material
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respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
10.2 PERFORMANCE OF AGREEMENT. Seller shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement and the
Ancillary Agreements to which Seller is a party to be performed or complied with
by it at or prior to the Closing Date.
10.3 SELLER'S CERTIFICATE. Purchaser shall have received a certificate
from Seller, dated as of the Closing Date, reasonably satisfactory in form and
substance to Purchaser and its counsel, certifying as to the matters specified
in Section 10.1 and Section 10.2 hereof. The matters set forth in such
certificate shall constitute representations and warranties of Seller hereunder.
10.4 SECRETARY'S CERTIFICATE. Purchaser shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Seller with respect to:
(i) the resolutions of the board of directors of Seller
and, if necessary, the stockholders of Seller,
authorizing the execution and delivery of this
Agreement and the Ancillary Agreements to which
Seller is a party and the performance by Seller of
the transactions contemplated hereby and thereby;
(ii) the incumbency and specimen signature of each officer
or representative of Seller executing this Agreement,
the certificate referred to in Section 10.3 and the
Ancillary Agreements to which Seller is a party; and
(iii) the effect that the governing documents of Seller
delivered pursuant to Section 10.6 were in effect at
the date of adoption of such resolutions, the date of
execution of this Agreement and the Closing Date.
10.5 INJUNCTION. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby or which if successfully asserted might otherwise have a
material adverse effect on the conduct of the Business or impose any additional
material financial obligation on, or require the surrender of any material right
by, Purchaser.
10.6 ACTIONS AND PROCEEDINGS. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental hereto and all other related legal matters shall be
reasonably satisfactory to counsel for Purchaser, and such counsel shall have
been furnished with such certified copies of such corporate actions
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and proceedings and such other instruments and documents as it shall have
reasonably requested, including, without limitation:
(i) certificates of the appropriate public officials to
the effect that Seller is a validly existing
corporation in good standing in its state of
incorporation as of a date not more than 10 days
prior to the Closing Date;
(ii) incumbency and specimen signature certificates dated
the Closing Date, signed by the officers of Seller
and certified by its Secretary; and
(iii) true and correct copies of (A) the charter documents
of Seller as of a date not more than 10 days prior to
the Closing Date, certified by the Secretary of State
of its state of incorporation and (B) the bylaws of
Seller as of the Closing Date, certified by the
Secretary of Seller.
10.7 CONSENTS. Any third-party consents, approvals, authorizations or
Permits (including, without limitation, those required by any Governmental
Authorities) necessary for the conveyance of the Purchased Assets or valid
consummation of the transactions contemplated hereby shall have been obtained.
10.8 ARRANGEMENTS WITH EMPLOYEES. Substantially all of Seller's
Employees shall have accepted employment with Purchaser effective as of the
Closing Date and Purchaser shall have entered into arrangements with key
Employees of Seller satisfactory to Purchaser in its sole discretion.
10.9 BUSINESS INVESTIGATION. Purchaser shall have completed its
investigation as contemplated in Section 9.2, the results of which shall be
satisfactory to Purchaser in its sole discretion.
10.10 PHYSICAL INSPECTION. At its own cost and expense, Purchaser shall
have inspected and approved the physical condition of the Real Property
including the improvements and the HVAC, electrical, plumbing and other systems,
and shall receive the written report in form and substance satisfactory to
Purchaser from a qualified engineering firm approved by Purchaser or any
engineer employed by Purchaser to the effect that the improvements on the Real
Property have been constructed in compliance with, and currently are in
compliance with, all governmental requirements, including without limitation the
Americans With Disabilities Act, and with all restrictions of record applicable
thereto which materially affect the Purchaser's intended use of the Real
Property.
10.11 ENVIRONMENTAL REPORT. At its own cost and expense, Purchaser
shall have obtained a written report from a qualified geotechnical or
engineering firm, in a form and substance, satisfactory to Purchaser, concerning
the presence, handling, treatment and disposal of Regulated Substances on, in or
under the Real Property and disclosing (i) the results of a review of prior uses
of the Real Property disclosed by local public records, including the chain of
title; (ii) contacts with local officials to determine whether any records exist
with respect to the
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disposal of Regulated Substances on the Real Property; and (iii) if recommended
to or required by Purchaser, soil samples and groundwater samples consistent
with good engineering practice.
10.12 TITLE INSURANCE. Purchaser shall have obtained for all Real
Property final marked commitments to issue to Purchaser ALTA (1990-Form B with
appropriate state endorsements) owner's or leasehold policies of title insurance
in coverage amounts equal to the fair market values of such Real Property,
insuring good and marketable title to such Real Property with mechanic's liens
coverage and such endorsements as Purchaser may reasonably request and with
exceptions only for ALTA standard printed exceptions (other than mechanic's and
materialmen's liens and rights of possession) and Permitted Encumbrances.
10.13 ESTOPPEL CERTIFICATES. Purchaser shall have received estoppel
certificates from the Seller and any other lessor of the Real Property Leased,
in form and substance satisfactory to Purchaser.
10.14 CLOSING DOCUMENTS. Purchaser shall have received the other
documents referred to in Section 5.2 which shall be in form and substance
satisfactory to Purchaser in its reasonable discretion.
10.15 OTHER DELIVERIES. At its own cost and expense, Purchaser shall
have received with respect to the Real Property:
10.15.1 SURVEYS. Surveys of such property which conform to the
standards set forth in the ALTA/American Congress on Surveying and
Mapping Minimum Standard Detail Requirements for Land Title Surveys and
which disclose no state of facts inconsistent with the representations
and warranties of Seller set forth in Section 6.9 hereof and are
otherwise acceptable to Purchaser;
10.15.2 AFFIDAVITS. ALTA extended coverage
statements/affidavits in form and substance satisfactory to Purchaser's
title insurer regarding title, mechanic's liens and such other
customary matters as may be reasonably requested by Purchaser or
Purchaser's title insurer; and
10.15.3 FIRPTA CERTIFICATES. A certificate, duly executed and
acknowledged by Seller under penalties of perjury, in the form
prescribed by Treasury Regulation Section 1.1445-2(b)(2)(iii), stating
Seller's name, address and Federal tax identification number, and that
Seller is not a "foreign person" within the meaning of Section 1445 of
the Code.
10.16 FINANCING. Purchaser shall have received, on terms that shall be
satisfactory to Purchaser in its sole discretion, a written binding commitment
from a real estate investment trust or other financing source in an amount
sufficient to enable Purchaser to pay the Purchase Price in full (the "Financing
Commitment").
10.17 AL ASSET PURCHASE AGREEMENT. All conditions to the closing set
forth in Article X of the Gethsemane AL Asset Purchase Agreement shall have been
satisfied in full.
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10.18 OPINION OF COUNSEL. Purchaser shall have received the favorable
opinion of Latsha Davis & Yohe, counsel for Seller, addressed to Purchaser and
Purchaser's lender, reasonably satisfactory to Purchaser and its counsel as to
the matters set forth in Sections 6.1, 6.2 and 6.3 hereof.
10.19 AUTHORIZATION. On or before October 31, 1997, Purchaser shall
have obtained final approval of the transactions contemplated herein by its
board of directors and shareholders (if necessary).
ARTICLE XI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligation of Seller to proceed with the Closing under this
Agreement is subject to the fulfillment prior to the specified date or at the
time of Closing of the following conditions with respect to Purchaser, any one
or more of which may be waived in whole or in part by Seller:
11.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser contained in this Agreement shall have been true in
all material respects on the date hereof and shall be true in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
11.2 PERFORMANCE OF AGREEMENT. Purchaser shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement to be
performed or complied with by it at or prior to the Closing Date.
11.3 PURCHASER'S CERTIFICATE. Seller shall have received a certificate
from Purchaser, dated as of the Closing Date, reasonably satisfactory in form
and substance to Seller and their counsel, certifying as to the fulfillment of
all matters specified in Section 11.1 and Section 11.2 hereof. The matters set
forth in such certificate shall constitute representations and warranties of
Purchaser hereunder.
11.4 SECRETARY'S CERTIFICATE. Seller shall have received a certificate,
dated as of the Closing Date, of the Secretary or any Assistant Secretary of
Purchaser with respect to:
(i) the resolutions of the board of directors of
Purchaser and, if necessary, the stockholders of
Purchaser, authorizing the execution and delivery of
this Agreement and the Ancillary Agreements to which
Purchaser is a party and the performance by Purchaser
of the transactions contemplated hereby and thereby;
(ii) the incumbency and specimen signature of each officer
or representative of Purchaser executing this
Agreement, the certificate referred to in Section
11.3 and the Ancillary Agreements to which Purchaser
is a party; and
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(iii) the effect that the governing documents of Purchaser
delivered pursuant to Section 11.6 were in effect at
the date of adoption of such resolutions, the date of
execution of this Agreement and the Closing Date.
11.5 INJUNCTION. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted,
threatened or anticipated which questions the validity or legality of the
transactions contemplated hereby.
11.6 ACTIONS AND PROCEEDINGS. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental hereto and all other related legal matters shall be
reasonably satisfactory to counsel for Seller, and such counsel shall have been
furnished with such certified copies of such corporate actions and proceedings
and such other instruments and documents as it shall have reasonably requested,
including, without limitation:
(i) certificates of the appropriate public officials to
the effect that Purchaser is a validly existing
corporation in good standing in its state of
incorporation as of a date not more than 10 days
prior to the Closing Date;
(ii) incumbency and specimen signature certificates dated
the Closing Date, signed by the officers of Purchaser
and certified by its Secretary; and
(iii) true and correct copies of (A) the charter documents
of Purchaser as of a date not more than 10 days prior
to the Closing Date, certified by the Secretary of
State of its state of incorporation and (B) the
bylaws of Purchaser as of the Closing Date, certified
by the Secretary of Purchaser.
11.7 FINANCING COMMITMENT. Purchaser shall have received the Financing
Commitment or shall have otherwise demonstrated, to the reasonable satisfaction
of Seller, that Purchaser has the ability to pay the Purchase Price in full as
evidenced at Closing by (i) Purchaser's balance sheet, (ii) other firm lending
commitments or (iii) a combination of items (i) and (ii).
11.8 AL ASSET PURCHASE AGREEMENT. All conditions to the closing set
forth in Article XI of the Gethsemane AL Asset Purchase Agreement shall have
been satisfied in full.
ARTICLE XII. OBLIGATIONS AFTER THE CLOSING DATE
12.1 COVENANT NOT TO INTERFERE. Seller covenants and agrees that for a
period of three years after the Closing Date, Seller will not solicit for
employment by Seller or any Affiliates any Person who is an Employee of the
Business as of the Closing Date.
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12.2 NONCOMPETITION. For a period of three years following the Closing
Date, Seller will not, directly or indirectly, unless acting in accordance with
Purchaser's written consent, own, manage, operate, finance or participate in the
ownership, management, operation or financing of or permit its name to be used
by or in connection with any business or enterprise engaged in the Business
acquired by Purchaser hereunder and located within a 25-mile radius of the
Facility. Seller acknowledges that the provisions of this Section are reasonable
and necessary to protect the interests of Purchaser, that any violation of this
Section will result in an irreparable injury to Purchaser and that damages at
law would not be reasonable or adequate compensation to Purchaser for violation
of this Section and that, in addition to any other available remedies, Purchaser
shall be entitled to have the provisions of this Section specifically enforced
by preliminary and permanent injunctive relief without the necessity of proving
actual damages or posting a bond or other security to an equitable accounting of
all earnings, profits and other benefits arising out of any violation of this
Section. In the event that the provision of this Section shall ever be deemed to
exceed the time, geographic scope or other limitations permitted by applicable
law, then the provisions shall be deemed reformed to the maximum extent
permitted by applicable law.
12.3 TRANSITION OF EMPLOYEES. From and after the Closing Date,
Purchaser and Seller shall cooperate to ensure an orderly transition of the
Employees who accept employment with Purchaser.
12.4 CERTAIN TRANSITIONAL MATTERS.
12.4.1 TRANSFER OF ASSETS. Seller agrees that Purchaser, from
and after the Closing Date, shall have the right and authority to
collect for Purchaser's own account all items which shall be
transferred to Purchaser as provided herein.
12.4.2 ENDORSEMENT OF CHECKS. From and after the Closing Date,
Purchaser shall have the right and authority to retain and endorse
without recourse the name of Seller on any check or any other evidence
of indebtedness relating to a period on or after Closing, received by
Purchaser on account of any of the Purchased Assets and the Business
transferred to Purchaser hereunder.
12.4.3 SELLER'S REMITTANCE OF FUNDS. After the Closing Date,
Seller shall promptly transfer and deliver to Purchaser any cash or
other property, if any, that Seller may receive related to the
Purchased Assets other than the Excluded Assets and the Business.
12.4.4 PURCHASER'S REMITTANCE OF FUNDS. After the Closing
Date, Purchaser shall promptly transfer and deliver to the appropriate
Seller any cash or other property, if any, that Purchaser may receive
related to the Excluded Assets.
12.4.5 ASSUMED LIABILITIES CONTROLLED BY PURCHASER. From and
after the Closing, Purchaser shall have complete control over the
payment, settlement or other disposition of, or any dispute involving
any Assumed Liability, and Purchaser shall have the right to conduct
and control all negotiations and proceedings with respect thereto.
Seller shall
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notify Purchaser promptly of any claim made with respect to any Assumed
Liability and shall not, except with the prior written consent of
Purchaser, voluntarily make any payment of, or settle or offer to
settle, or consent to any compromise with respect to, any such Assumed
Liability. Seller shall cooperate with Purchaser in connection with any
negotiations or proceedings involving any Assumed Liability.
12.5 AUDITS. To the extent reasonably requested by Purchaser, following
the Closing Date, at Purchaser's cost and expense, Seller shall cooperate and
request Seller's accountants to cooperate, with Purchaser and its auditors in
the preparation of audited financial statements of the Facility for the years
ended June 30, 1997, 1996 and 1995 prepared in accordance with GAAP or, to the
extent required, in connection with any registration statement or other form
filed by Purchaser with the Securities and Exchange Commission under the
Securities Act of 1933 for a public offering and sale of securities of
Purchaser.
12.6 ACCESS TO RECORDS. To the extent required by any applicable Legal
Requirement, Seller agrees to make available to the Comptroller General of the
United States, the Department of Health and Human Services and their duly
authorized representatives, the books, documents and records of Seller and such
other information as may be required by the Comptroller General or Secretary of
Health and Human Services to verify the nature and extent of the costs of
services provided by Seller under the Contracts in connection with the Business.
If Seller carries out the duties of any Contract through a subcontract worth
$10,000 or more over a twelve (12) month period with a related organization, the
subcontract will also contain an access clause to permit access by the
Secretary, Comptroller General and their representatives to the related
organization's books and records.
12.7 FURTHER ASSURANCES OF SELLER. From and after the Closing Date,
Seller shall, at the request of Purchaser, execute, acknowledge and deliver to
Purchaser, without further consideration, all such further assignments,
conveyances, endorsements, deeds, special powers of attorney, consents and other
documents, and take such other action, as Purchaser may reasonably request (i)
to transfer to and vest in Purchaser, and protect its rights, title and interest
in, all the Purchased Assets and (ii) otherwise to consummate the transactions
contemplated by this Agreement. In addition, from and after the Closing Date,
Seller shall afford Purchaser and its attorneys, accountants and other
representatives access, during normal business hours, to any Books and Records
relating to the Business that Seller may retain as may reasonably be required in
connection with the preparation of financial information or tax returns of
Purchaser.
12.8 FURTHER ASSURANCES OF PURCHASER. From and after the Closing Date,
Purchaser shall afford to Seller and its attorneys, accountants and other
representatives access, during normal business hours, to such Books and Records
relating to the Business as may reasonably be required in connection with the
preparation of financial information or Tax Returns for periods concluding on or
prior to the Closing Date. Purchaser shall cooperate in all reasonable respects
with Seller with respect to its former interest in the Business and in
connection with financial account closing and reporting and claims and
litigation asserted by or against third parties, including, but not limited to,
making Purchaser's employees available at reasonable times to assist with, or
provide information in connection with financial account closing and reporting
and
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claims and litigation, provided that Seller reimburses Purchaser for its
reasonable out-of-pocket expenses (including costs of employees so assisting) in
connection therewith.
ARTICLE XIII. TERMINATION
13.1 TERMINATION OF AGREEMENT. This Agreement may be terminated:
(i) by the mutual consent of Seller and Purchaser;
(ii) by Purchaser upon notice to Seller if any of the
conditions set forth in Article X hereof have not
been satisfied or become impossible to satisfy by the
specified date or the Closing Date, as the case may
be (other than by reason of the material failure of
Purchaser to fulfill its obligations under this
Agreement);
(iii) by Seller upon notice to Purchaser if any of the
conditions set forth in Article XI hereof have not
been satisfied or become impossible to satisfy by the
Closing Date (other than by reason of the material
failure of Seller to fulfill its obligations under
this Agreement);
(iv) by Seller if Purchaser materially breaches or fails
to fulfill its obligations under this Agreement,
which failure continues and remains uncured for 30
consecutive calendar days after Seller gives written
notice of such failure to Purchaser;
(v) by Purchaser if Seller materially breaches or fails
to fulfill its obligations under this Agreement,
which failure continues and remains uncured for 30
consecutive calendar days after Purchaser gives
written notice of such failure to Seller; and
(vi) by Purchaser or Seller if Closing has not taken place
on or before January 2, 1998 and the Closing Date has
not been extended upon mutual agreement of the
Parties; provided, no Party then in material breach
of any of its obligations hereunder shall have the
right to terminate.
13.2 RELEASE OF ESCROW DEPOSIT. If this Agreement is terminated, the
Escrow Deposit shall be disbursed as follows and in accordance with the terms
and conditions of the Escrow Agreement:
13.3.1 TO BUYER. If this Agreement is terminated pursuant to
Section 13.1(i), Section 13.1(ii) or Section 13.1(v), the Parties agree
to instruct Escrow Agent to release the Escrow Deposit to Purchaser;
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13.3.2 TO SELLER. If this Agreement is terminated pursuant to
Section 13.1(iii) or Section 13.1(iv), the Parties agree to instruct
Escrow Agent to release the Escrow Deposit to Seller; and
13.3.3 TO BUYER AND SELLER. If this Agreement is terminated
pursuant to Section 13.1(vi), the Parties agree to instruct Escrow
Agent to release the one-half of the Escrow Deposit to Purchaser and
one-half of the Escrow Deposit to Seller.
13.3 RETURN OF DOCUMENTS. If this Agreement is terminated for any
reason pursuant to this Article XIII, each Party shall return to the other Party
all documents and copies thereof which shall have been furnished to it by such
other Party or, with the agreement of the other Party, shall destroy all such
documents and copies thereof.
13.4 REMEDIES. If this Agreement is terminated by Purchaser or Seller
as permitted under Section 13.1 and not as a result of a breach of a
representation or warranty or the failure of any Party to perform its
obligations hereunder, except for the return of the Escrow Deposit pursuant to
Section 13.3, such termination shall be without liability of any Party. If a
Party terminates this Agreement as a result of a breach of a representation or
warranty by the other Party or the failure of the other Party to perform its
obligations hereunder, the nonbreaching Party, in addition to any other legal
remedies that may be available, shall be entitled to a return of the Escrow
Deposit pursuant to Section 13.3 and reimbursement from the breaching Party for
all
ARTICLE XIV. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
14.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Parties shall survive for two (2) years after the Closing
Date; provided that there shall be no termination of any such representation or
warranty as to which a claim has been asserted prior to the termination of such
survival period. Except as otherwise expressly provided in this Agreement, all
covenants, agreements, undertakings and indemnities set forth in this Agreement
shall survive indefinitely. Any Party's right to the indemnification or other
remedies based upon the representations and warranties, covenants, agreements
and undertakings of any other Party will not be affected by any investigation,
knowledge or waiver of any condition by such Party. Any investigation by such
Party shall be for its own protection only and shall not affect or impair any
right or remedy hereunder.
14.2 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend, save
and hold Purchaser and its officers, directors, employees, agents and Affiliates
(collectively, "Purchaser Indemnitees") harmless from and against all demands,
claims, allegations, assertions, actions or causes of action, assessments,
losses, damages, deficiencies, liabilities, costs and expenses (including
reasonable legal fees, interest, penalties, and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing and whether or not
any such demands, claims, allegations, etc., of third parties are meritorious;
collectively, "Purchaser Damages") asserted against, imposed upon, resulting to,
required to be paid by, or incurred by any Purchaser Indemnitees, directly or
indirectly, in connection with, arising out of, which could
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result in, or which would not have occurred but for, a breach of any
representation or warranty made by Seller in this Agreement, in any certificate
or document furnished pursuant hereto by Seller or any Ancillary Agreement to
which Seller is or is to become a party, a breach or nonfulfillment of any
covenant or agreement made by Seller in or pursuant to this Agreement and in any
Ancillary Agreement to which Seller is or is to become a party, and any Retained
Liability.
14.3 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify, defend,
save and hold Seller and its officers, directors, Employees, Affiliates and
agents, as the case may be (collectively, "Seller Indemnitees") harmless from
and against any and all demands, claims, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing and
whether or not any such demands, claims, allegations, etc., of third parties are
meritorious; collectively, "Seller Damages") asserted against, imposed upon,
resulting to, required to be paid by, or incurred by any Seller Indemnitees,
directly or indirectly, in connection with, arising out of, which could result
in, or which would not have occurred but for, a breach of any representation or
warranty made by Purchaser in this Agreement or in any certificate or document
furnished pursuant hereto by Purchaser or any Ancillary Agreement to which
Purchaser is a party, a breach or nonfulfillment of any covenant or agreement
made by Purchaser in or pursuant to this Agreement and in any Ancillary
Agreement to which Purchaser is a party, and, with respect to Seller, any
Assumed Liability.
14.4 NOTICE OF CLAIMS. If any Purchaser Indemnitee or Seller Indemnitee
(an "Indemnified Party") believes that it has suffered or incurred or will
suffer or incur any Purchaser Damages or Seller Damages, as the case may be
("Damages") for which it is entitled to indemnification under this Article XIV,
such Indemnified Party shall so notify the party or parties from whom
indemnification is being claimed (the "Indemnifying Party") with reasonable
promptness and reasonable particularity in light of the circumstances then
existing. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Party intends to claim any
Damages, such Indemnified Party shall promptly notify the Indemnifying Party of
such action or suit. The failure of an Indemnified Party to give any notice
required by this Section shall not affect any of such party's rights under this
Article XIV or otherwise except and to the extent that such failure is actually
prejudicial to the rights or obligations of the Indemnified Party.
14.5 THIRD PARTY CLAIMS. The Indemnified Party shall have the right to
conduct and control, through counsel of its choosing, the defense of any third
party claim, action or suit, and the Indemnified Party may compromise or settle
the same, provided that the Indemnified Party shall give the Indemnifying Party
advance notice of any proposed compromise or settlement. The Indemnified Party
shall permit the Indemnifying Party to participate in the defense of any such
action or suit through counsel chosen by the Indemnifying Party, provided that
the fees and expenses of such counsel shall be borne by the Indemnifying Party.
If the Indemnified Party permits the Indemnifying Party to undertake, conduct
and control the conduct and settlement of such action or suit, the Indemnifying
Party shall not thereby permit to exist any Encumbrance upon any asset of the
Indemnified Party; the Indemnifying Party shall not consent to any settlement
that does not include as an unconditional term thereof the giving of a complete
release
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from liability with respect to such action or suit to the Indemnified Party; the
Indemnifying Party shall permit the Indemnified Party to participate in such
conduct or settlement through counsel chosen by the Indemnified Party (at its
own cost and expense); and the Indemnifying Party shall agree promptly to
reimburse the Indemnified Party for the full amount of any Damages including
fees and expenses of counsel for the Indemnified Party incurred after giving the
foregoing notice to the Indemnifying Party and prior to the assumption of the
conduct and control of such action or suit by the Indemnifying Party.
14.6 OTHER REMEDIES. The indemnification rights of any Indemnified
Party under this Article XIV are independent of and in addition to such rights
and remedies as such Indemnified Party may have at law, in equity or otherwise
for any misrepresentation, breach of warranty or failure to fulfill any covenant
or agreement under or in connection with this Agreement on the part of any
Party, none of which rights or remedies shall be affected or diminished hereby.
ARTICLE XV. GENERAL
15.1 EXPENSES. Except as otherwise provided in this Agreement, and
whether or not the transactions herein contemplated shall be consummated,
Purchaser and Seller shall pay their own fees, expenses and disbursements,
including the fees and expenses of their respective counsel, accountants and
other experts in connection with the subject matter of this Agreement and all
other costs and expenses incurred in performing and complying with all
conditions to be performed under this Agreement.
15.2 PUBLICITY. All notices to third-parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and among Purchaser and Seller. Except as may be
required by law, no Party shall act unilaterally in this regard without prior
written approval of every other Party, such approval not be unreasonably
withheld.
15.3 WAIVERS. The waiver by any Party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
15.4 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of the Parties hereto, and shall be binding upon the Parties hereto and
their respective successors, assigns, heirs, executors, administrators and legal
representatives. Nothing in this Agreement, express or implied, is intended to
confer on any Person other than the Parties hereto, or their respective
successors, assigns, heirs, executors, administrators and legal representatives
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
15.5 NOTICES. All notices, requests, demands, elections and other
communications which any Party to this Agreement may be required to give
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, by a reputable courier service which requires a signature
upon delivery, by mailing the same by registered or certified first class mail,
postage prepaid, return receipt requested, or by telecopying with receipt
confirmation (followed by a first class mailing of the same) to the Party to
whom the same is so given or made. Such notice, request, demand, waiver,
election or other communication will be deemed to have
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been given as of the date so delivered or electronically transmitted or two days
after mailing thereof.
15.5.1 NOTICE TO SELLER.
If to Seller, to:
Gethsemane Retirement Community and
Rehabilitation Center, Inc.
2820 Shaffer Road
Bloomsburg, PA 17815
Attn: Susan E. Keefer, President
With a required copy to:
Latsha Davis & Yohe, P.C.
P.O. Box 825
Harrisburg, PA 17108-2286
Fax: (717) 761-2286
Attn: Doug Yohe, Esq.
15.5.2 NOTICE TO PURCHASER.
If to Purchaser, to:
Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Fax: (717) 796-6150
Attn: Robin Barber, Esq.
With a required copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Fax: (412) 355-6501
Attn: John C. Rodney, Esq.
Or to such other addresses as such Party shall have specified by notice to every
other Party hereto.
15.6 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules hereto) and the Ancillary Agreements and documents delivered at
Closing pursuant hereto and thereto
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constitute the entire agreement and understanding between the Parties hereto as
to the matters set forth herein and therein and supersede and revoke all prior
agreements and understandings, oral and written, between the Parties hereto or
thereto or otherwise with respect to the subject matter hereof or thereof. No
change, amendment, termination or attempted waiver of any of the provisions
hereof or thereof shall be binding upon any Party unless set forth in an
instrument in writing signed by the Party to be bound or their respective
successors in interest.
15.7 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
15.8 HEADINGS. The article, section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement.
15.9 CONSTRUCTION. Within this Agreement, the singular shall include
the plural and the plural shall include the singular, and any gender shall
include all other genders, all as the meaning and the context of this Agreement
shall require.
15.10 GOVERNING LAW AND CHOICE OF FORUM. The validity and
interpretation of this Agreement shall be construed in accordance with, and
governed by the internal laws of the Commonwealth of Pennsylvania. All claims,
disputes or causes of action relating to or arising out of this Agreement shall
be brought, heard and resolved solely and exclusively by and in the federal or
state courts situated in Dauphin County and Cumberland, County, Pennsylvania,
respectively. The Parties hereto agree to submit to the jurisdiction of such
courts and agree that such jurisdiction shall be proper for all purposes of this
Agreement.
15.11 COOPERATION. The Parties hereto shall cooperate fully at their
own expense, except as otherwise provided in this Agreement, with each other and
their respective counsel and accountants in connection with all steps to be
taken as part of their obligations under this Agreement.
15.12 SEVERABILITY. If any term, covenant, condition or provision of
this Agreement or the application thereof to any circumstance shall be invalid
or unenforceable to any extent, the remaining terms, covenants, conditions and
provisions of this Agreement shall not be affected thereby and each remaining
term, covenant, condition and provision of this Agreement shall be valid and
shall be enforceable to the fullest extent permitted by law. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
15.13 ATTORNEYS' FEES. If a dispute arises among the Parties as a
result of which an action is commenced to interpret or enforce any of the terms
of this Agreement, the non-prevailing Parties shall pay the prevailing Party's
reasonable out-of-pocket attorneys' fees, costs and expenses incurred in
connection with the prosecution or defense of such action.
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15.14 SUCCESSORS AND ASSIGNS. The covenants, agreements, and conditions
contained herein or granted hereby shall be binding upon and shall inure to the
benefit of Purchaser and Seller, and each of their respective permitted
successors, assigns, heirs, executors, administrators and legal representatives.
Seller shall not assign, or otherwise transfer any interest in this Agreement to
any other Person without the prior written consent of Purchaser, which consent
shall not unreasonably be withheld. Purchaser may assign and transfer its
interest in this Agreement without Seller's consent to any of Purchaser's
Affiliates or to any lender providing financing for the transactions
contemplated hereby. In addition, Purchaser anticipates financing the
transactions contemplated hereby with a real estate investment trust. Purchaser
shall have the right to assign this Agreement, in whole or in part, in such
manner as Purchaser may desire in order to facilitate such financing. Purchaser
will promptly provide Seller with a copy of any such assignment, and Seller
agrees to execute and deliver any consents reasonably required by Purchaser's
lender in connection therewith, provided such assignment does not expand either
of Seller's obligations and liabilities hereunder. Notwithstanding any permitted
assignment of this Agreement by Purchaser, Purchaser shall remain liable to
Seller for all obligations and liabilities to be performed by or on behalf of
Purchaser hereunder with respect to Seller.
[NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, intending to be legally bound hereby, the Parties
have caused this Agreement to be signed in their respective names by an officer
thereof duly authorized as of the date first above written.
PURCHASER:
BALANCED CARE CORPORATION
By: /s/ BRIAN L. BARTH
------------------------------------
Brian L. Barth
Vice President
SELLER:
GETHSEMANE RETIREMENT COMMUNITY AND
REHABILITATION CENTER, INC.
By: /s/ SUSAN E. KEEFER
------------------------------------
Susan E. Keefer
President
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EXHIBIT 2.22
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into and is
effective this 26th day of November, 1997, by and between BALANCED CARE
CORPORATION, a Delaware corporation (together with its permitted assigns,
"Purchaser"), and GETHSEMANE ASSISTED LIVING, INC., a Pennsylvania corporation
("Seller").
RECITALS:
Seller owns certain assets in connection with the operation of the
licensed 51-bed personal care home facility located at the following address:
P.O. Box 340, Route 1, Millville, Pennsylvania (the "Facility"). Purchaser
desires to purchase substantially all of the assets of Seller and the Business
(as hereinafter defined) related thereto and Seller desires to sell such assets
to Purchaser.
This Agreement sets forth the terms and conditions upon which Purchaser
is purchasing the assets (other than Excluded Assets, as hereinafter defined)
owned by Seller and used in the conduct of the Business, and Seller is selling
to Purchaser such assets (other than Excluded Assets).
In consideration of the mutual agreements, covenants, representations
and warranties contained herein, and in reliance thereon, Purchaser and Seller
hereby agrees as follows:
ARTICLE I. CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "ACCOUNTS RECEIVABLE" shall mean as of any date any trade accounts
receivable (including, without limitation, any third party receivables arising
in connection with any Third Party Payor Programs), notes receivable, bid or
performance deposits, employee advances and other miscellaneous receivables
associated with the Business through and as of such date.
1.2 "ACCREDITATION BODY" shall mean CARF, JCAHO, the Department of
Welfare and all other Persons having jurisdiction over the accreditation,
certification, evaluation or operation of the Business.
1.3 "ACCRUED EXPENSES" shall mean as of any date accrued rents,
insurance premiums, payroll and benefits (including, without limitation,
vacation, sick pay, disability pay) and other accrued expenses as would appear
on a balance sheet of Seller as of such date prepared in accordance with GAAP
consistently applied, including those described in SCHEDULE 1.3.
1.3A "ADJACENT PARCEL" shall mean that certain parcel of land adjoining
the Real Property, owned by the Keefers, upon which is located a well currently
servicing the sprinkler system of the Facility.
<PAGE> 2
1.4 "AFFILIATE" shall mean any company or other entity which controls,
is controlled by or is under common control with the designated Party. For the
purpose of the foregoing, ownership, directly or indirectly, of 20% or more of
the voting stock or other equity interest shall be deemed to constitute control.
1.5 "AGREEMENT" shall mean this Asset Purchase Agreement.
1.6 "ANCILLARY AGREEMENTS" shall mean the real property conveyances
described in Section 5.2.1, the bill of sale, assignment and assumption
described in Section 5.2.2, the Employment Agreement and the Escrow Agreement.
1.7 "ASSUMED LIABILITIES" shall have the meaning given to such term in
Section 4.2.
1.8 "BENEFIT PLAN" shall have the meaning given to such term in Section
6.19.
1.9 "BOOKS AND RECORDS" shall have the meaning given to such term in
Section 6.16.
1.10 "BUSINESS" shall mean the operation of a personal care home
facility and any other ancillary health care services owned, operated,
delivered, managed, developed, constructed, maintained, used, occupied or
possessed by Seller in connection therewith (including, without limitation, any
outpatient and contract rehab therapy services or any Alzheimer's units).
1.11 "CARF" shall mean the Commission on Accreditation of
Rehabilitation Facilities.
1.12 "CHAMPUS" shall mean the Civilian Health and Medical Program of
the Uniform Service, a program of medical benefits covering retirees and
dependents of members or former members of a uniformed service provided,
financed and supervised by the United States Department of Defense and
established by 10 U.S.C. Sections 1071 ET SEQ.
1.13 "CLOSING" shall have the meaning given to such term in Section
5.1.
1.14 "CLOSING DATE" shall have the meaning given to such term in
Section 5.1.
1.15 "CLOSING INVENTORY" shall mean all Inventory relating to the
Business on the Closing Date.
1.16 "CODE" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time, and any successor thereto. Any reference herein to a
specific section or sections of the Code shall be deemed to include a reference
to any corresponding provision of future law.
1.17 "CONTRACT" shall mean all alliance agreements, transfer
agreements, other agreements (including, without limitation, Resident's
Agreements described on SCHEDULE 1.67A, Management Agreements and Provider
Agreements), contracts, contract rights, commitments, customer accounts, orders,
leases, guarantees, warranties and representations, franchises and books and
records of account benefiting, relating to the Business or the ownership,
construction,
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development, maintenance, repair, management, use, occupancy, possession or
operation thereof, or the operation of any of the programs or services in
conjunction with the Business and all renewals, replacements and substitutions
therefor, issued by any Governmental Authority, Accreditation Body or Third
Party Payor or maintained or used by Seller with any third Person.
1.18 "CURRENT LIABILITIES" shall mean all liabilities classified as
current liabilities in accordance with GAAP.
1.19 "DAMAGES" shall have the meaning given to such term in Section
14.4.
1.20 "DEPARTMENT OF WELFARE" shall mean the Commonwealth of
Pennsylvania, Department of Public Welfare.
1.21 "EMPLOYEE" shall mean any individual employed by Seller in the
conduct of the Business as listed on SCHEDULE 1.21 (such Schedule being subject
to change between the date hereof and the Closing Date as a result of employee
changes in the ordinary course of business consistent with past practices).
1.22 "EMPLOYMENT AGREEMENT" shall mean the contract entered into
between Purchaser and Keefer substantially in the form of EXHIBIT 1.22.
1.23 "ENCUMBRANCE" shall mean any right to, or interest in, property,
which subsists in a third-party and which constitutes a claim, lien, charge or
liability attached to and binding upon the property, including, but not limited
to, a mortgage, judgment lien, mechanic's lien, lease, security interest,
easement and right-of-way.
1.24 "ENVIRONMENTAL LAW" shall mean any federal [including but not
limited to the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 ET
SEQ.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 ET SEQ.), the
Clean Air Act (42 U.S.C. Sections 7401 ET SEQ.), the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Sections 9601 ET SEQ.), the
Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 ET SEQ.), the
Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 ET SEQ.), and
the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C. Sections 136 ET
SEQ.)], other Legal Requirements, any common law doctrine and any provision or
condition of any permit, license or other operating authorization relating to
(i) the protection of the environment or the public welfare from actual or
potential exposure (or the effects of exposure) to any actual or potential
release, discharge, disposal or emission (whether past or present) of any
Regulated Substance or (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any Regulated Substance.
1.25 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.26 "ERISA PLANS" shall mean defined benefit pension plans and defined
contribution pension plans qualified under Section 401(a) of the Code.
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1.27 "ESCROW AGENT" shall mean First American Title Insurance Company.
1.28 "ESCROW AGREEMENT" shall mean the escrow agreement entered into
among Escrow Agent, Purchaser and Seller in substantially the form of EXHIBIT
1.28.
1.29 "ESCROW DEPOSIT" shall have the meaning given to such term in
Section 3.2.
1.30 "EXCLUDED ASSETS" shall mean those assets that are not included in
the sale contemplated hereby and as are further defined in Section 2.2.
1.31 "FACILITY" shall mean the facility identified in the Recitals of
this Agreement.
1.32 "FINAL ESCROW DEPOSIT" shall have the meaning given to such term
in Section 3.2.
1.33 "FINANCING COMMITMENT" shall have the meaning given to such term
in Section 10.16.
1.34 "GAAP" shall mean generally accepted accounting principles in the
United States of America.
1.35 "GETHSEMANE SNF ASSET PURCHASE AGREEMENT" shall mean the asset
purchase agreement entered into between Purchaser and Gethsemane Retirement
Community, Inc.
concurrently herewith.
1.36 "GOVERNMENTAL AUTHORITIES" shall mean all agencies, authorities,
bodies, boards, commissions, courts, instrumentalities, legislatures and offices
of any nature whatsoever of any government, quasi-governmental unit or political
subdivision, whether with a federal, state, county, district, municipality, city
or otherwise.
1.37 "INDEMNIFYING PARTY" shall have the meaning given to such term in
Section 14.4.
1.38 "INDEMNIFIED PARTY" shall have the meaning given to such term in
Section 14.4.
1.39 "INITIAL ESCROW DEPOSIT" shall have the meaning given to such term
in Section 3.2.
1.40 "INVENTORY" shall mean the inventory of Seller, including, without
limitation, dry storage goods, janitorial supplies, food and beverage supplies,
office supplies, medical supplies and pharmaceutical supplies.
1.41 "JCAHO" shall mean the Joint Commission on Accreditation of
Healthcare Organizations.
1.42 "KEEFER" shall mean Susan E. Keefer, an individual.
1.42A "KEEFERS" shall mean Susan E. Keefer and Robert A. Keefer, her
husband.
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1.43 "KNOWLEDGE" and words of similar import shall mean, with respect
to any Party, actual knowledge of a particular fact or other matter being
possessed by an individual, and the knowledge that reasonably could be expected
to be obtained in the course of the reasonable conduct of such Party's business,
but shall not be construed to require a comprehensive investigation concerning
the subject matter.
1.44 "LEGAL REQUIREMENTS" shall mean all statutes, ordinances, by-laws,
codes, rules, regulations, restrictions, orders, judgments, decrees and
injunctions (including, without limitation, all applicable building, health
code, zoning, subdivision and other land use and health care licensing statutes,
ordinances, by-laws, codes, rules and regulations), promulgated or issued by any
Governmental Authority, Accreditation Body or Third Party Payor. Without
limiting the foregoing, the term Legal Requirements includes all Environmental
Laws and all Permits and Contracts issued or entered into by any Governmental
Authority, any Accreditation Body and/or any Third Party Payor and all Permitted
Encumbrances.
1.45 "MANAGED CARE PLANS" shall mean all health maintenance
organizations, preferred provider organizations, individual practice
associations, competitive medical plans and similar arrangements.
1.46 "MANAGEMENT AGREEMENT" shall mean any agreement, whether written
or oral, between Seller and any other Person pursuant to which Seller provides
any payment, fee or other consideration to any other Person to operate or manage
the Business (except any employment agreements).
1.47 "MEDICAID" shall mean the medical assistance program established
by Title XIX of the Social Security Act (42 U.S.C. Sections 1396 ET SEQ.) and
any statute succeeding thereto.
1.48 "MEDICARE" shall mean the health insurance program for the aged
and disabled established by Title XVIII of the Social Security Act (42 U.S.C.
Sections 1395 ET SEQ.) and any statute succeeding thereto.
1.49 "PARTY" shall mean either Seller or Purchaser, individually, as
the context so requires, and the term "PARTIES" shall mean Seller and Purchaser
together.
1.50 RESERVED.
1.51 "PAYABLES" as of any date shall mean any of the trade accounts
payable of Seller with respect to the Purchased Assets or the Business as of
such date in accordance with GAAP consistently applied.
1.52 "PERMITS" shall mean all permits, licenses, approvals,
qualifications, rights, variances, permissive uses, accreditations,
certificates, certifications, consents, contracts, interim licences, permits and
other authorizations of every nature whatsoever required by, or issued to or on
behalf of Seller under any Legal Requirements benefiting, relating or effecting
the Business or the construction, development, maintenance, management, use or
operation thereof, or the operation of any programs or services in conjunction
with the Business and all renewals,
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replacements and substitutions therefor, now or hereafter required or issued by
any Governmental Authority, Accreditation Body or Third Party Payor.
1.53 "PERMITTED ENCUMBRANCES" shall mean those Encumbrances as
specifically set forth on SCHEDULE 1.53 hereto.
1.54 "PERSON" shall mean any individual, corporation, company, limited
or general partnership, trust or estate, joint venture, association or other
entity.
1.54A "POST-CLOSING PAYMENT" shall have the meaning given to such term
in Section 3.3.
1.55 "PREPAID EXPENSES" as of any date shall mean payments made by
Seller with respect to the Purchased Assets or the Business, which constitute
prepaid expenses in accordance with GAAP consistently applied.
1.56 "PROPRIETARY RIGHTS" shall have the meaning given to such term in
Section 6.10.1.
1.57 "PROVIDER AGREEMENTS" shall mean all participation, provider and
reimbursement agreements or arrangements for the benefit of Seller in connection
with the operation of the Business relating to any right to payment or other
claim arising out of or in connection with Seller's participation in any Third
Party Payor Program.
1.58 "PURCHASE PRICE" shall have the meaning given to such term in
Section 3.1.1.
1.59 "PURCHASED ASSETS" shall have the meaning given to such term in
Section 2.1.
1.60 "PURCHASER" shall have the meaning given to such term in the
preamble of this Agreement.
1.61 "PURCHASER DAMAGES" shall have the meaning given to such term in
Section 14.2.
1.62 "PURCHASER INDEMNITEES" shall have the meaning given to such term
in Section 14.2.
1.63 [Reserved}
1.64 "REAL PROPERTY " shall mean the real property leased by Seller and
used in connection with the Facility and the Business as more fully described in
SCHEDULE 1.64 hereto, pursuant to that certain lease by and between Seller as
tenant and Gethsemane Retirement Community and Rehabilitation Center, Inc., as
landlord dated January 15, 1997.
1.65 [Reserved]
1.66 "REGULATED SUBSTANCE" shall mean petroleum, petroleum hydrocarbons
or petroleum products and any other chemical, material, substance or waste that
is identified (by listing or characteristic) and regulated (or the clean-up of
which can be required) by any Legal
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Requirement intended to protect the environment or the public health or welfare,
including but not limited to Legal Requirements relating to clean air, clean
water, hazardous and solid waste disposal, safe drinking water, endangered
species, occupational safety and health, oil spill prevention, groundwater
protection, and toxic substances control.
1.67 "RELATED PARTY" means (i) Seller, (ii) any Affiliate of Seller,
(iii) any officer, director, shareholder or partner of any Person identified in
clauses (i) or (ii) preceding, and (iv) any spouse, sibling, ancestor or lineal
descendant of any natural Person identified in any one of the preceding clauses.
1.67A "RESIDENT'S AGREEMENTS" shall mean copies of all contracts,
agreements and consents executed by or on behalf of any resident or other Person
seeking services at the Facility as more fully described in SCHEDULE 1.67A
hereto, including, without limitation, assignments of benefits and guarantees,
and such resident's related medical and/or other records.
1.68 "RETAINED LIABILITIES" has the meaning given that term in Section
4.2.
1.69 "SECURITY RIGHT" means, with respect to any security, any option,
warrant, subscription right, preemptive right, other right, proxy, put, call,
demand, plan, commitment, agreement, understanding or arrangement of any kind
relating to such security, whether issued or unissued, or any other security
convertible into or exchangeable for any such security. "Security Right"
includes any right relating to issuance, sale, assignment, transfer, purchase,
redemption, conversion, exchange, registration or voting and includes rights
conferred by statute, by the issuer's governing documents or by agreement.
1.70 "SELLER" shall have the meaning given to such term in the preamble
of this Agreement.
1.71 "SELLER DAMAGES" shall have the meaning given to such term in
Section 14.3.
1.72 "SELLER INDEMNITEES" shall have the meaning given to such term in
Section 14.3.
1.73 "TAXES" shall mean all taxes, duties, charges, fees, levies or
other assessments imposed by any Governmental Authority, including, without
limitation, income, gross receipts, value-added, excise, withholding, personal
property, real estate, sales, use, ad valorem, license, lease, service,
severance, stamp, transfer, payroll, employment, customs, duties, alternative,
add-on minimum, estimated and franchise taxes (including any interest, penalties
or additions attributable to or imposed on or with respect to day such
assessment).
1.74 "TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
1.75 "THIRD PARTY PAYOR PROGRAMS" shall mean all third party payor
programs which Seller participates, including, without limitation, Medicare,
Medicaid, Champus, Blue Cross
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and/or Blue Shield, Managed Care Plans, other private insurance plans and
employee assistance programs.
1.76 "THIRD PARTY PAYORS" shall mean Medicare, Medicaid, Blue Cross
and/or Blue Shield, private insurers and any other Person which maintains Third
Party Payor Programs.
ARTICLE II. TRANSFER OF ASSETS AND PROPERTIES
2.1 PURCHASED ASSETS. Subject to the terms and conditions of this
Agreement, Seller shall sell and convey to Purchaser, free and clear of all
Encumbrances whatsoever (other than Permitted Encumbrances and except as
expressly provided herein), and Purchaser shall purchase from Seller, all of
Seller's's right, title and interest in and to the assets, properties and rights
of every kind and description, real, personal and mixed, tangible and
intangible, wherever situated owned by Seller and used or useful in connection
with the Business (the "Purchased Assets") as the same shall exist on the
Closing Date (other than the Excluded Assets), including, without limitation,
the following:
2.1.1 [Reserved]
2.1.2 REAL PROPERTY. The leasehold interest (as lessee) in the
Real Property;
2.1.3 EQUIPMENT, MACHINERY AND OTHER TANGIBLE PERSONAL
PROPERTY. All machinery, equipment, leasehold improvements,
automobiles, supplies, office furniture and office equipment, computing
and telecommunications equipment and other items of personal property,
including those described in SCHEDULE 2.1.3 hereto;
2.1.4 CONTRACTS RELATING TO THE BUSINESS. All contracts
relating to the acquisition or ownership of the Purchased Assets or the
operation of the Business, including, without limitation, the Contracts
listed on SCHEDULE 2.1.4 and the Resident's Agreements listed on
SCHEDULE 1.67A HERETO, to the extent such Contracts are transferrable
to Purchaser;
2.1.5 MARKETING MATERIALS, MANUALS. All catalogs, brochures,
reference sources, suppliers' names, mailing lists, art work,
photographs, public relations and advertising material used in the
Business, whether in electronic form or otherwise;
2.1.6 PERMITS, LICENSES. All Permits relating to the
acquisition or ownership of the Purchased Assets or the operation of
the Business, including, without limitation, those permits listed in
SCHEDULE 2.1.6 hereto, to the extent such Permits are transferrable to
Purchaser;
2.1.7 TRADE SECRETS. All policies and procedures, methods of
delivery of services, trade secrets, designs, drawings and
specifications, market studies, consultants' reports, prototypes, and
all similar property of any nature, tangible or intangible, used in
connection with the Business;
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2.1.8 INTELLECTUAL PROPERTY. All patents, trademarks,
trademark registrations, trade names, service marks, copyrights and
copyright registrations of used in connection with the Business,
including, without limitation, those described in SCHEDULE 2.1.8;
2.1.9 GOODWILL. All goodwill incident to the Business,
including but not limited to the value of the names associated with the
Business and the value of good customer relations;
2.1.10 INVENTORY. All Closing Inventory;
2.1.11 RESIDENT FUNDS. All prepaid rents, deposits and escrow
accounts of, or for the benefit of, the Facility's residents at the
Closing Date;
2.1.12 COMPUTER SOFTWARE. All computer applications software,
owned or licensed, whether for general business usage (e.g.,
accounting, word processing, graphics, spreadsheet analysis, etc.), or
specific, unique-to-the-business usage, and all computer operating,
security or programming software, owned or licensed and used in the
operation of the Business; and
2.1.13 OTHER INTANGIBLE ASSETS. All other intangible assets
(including all causes of action, rights of action, contract rights and
warranty and product liability claims against third parties) relating
to the Purchased Assets or the Business.
2.2 EXCLUDED ASSETS. Notwithstanding Section 2.1, the following assets
(collectively, the "Excluded Assets") shall be excluded from this Agreement, and
shall not be assigned or transferred to Purchaser:
2.2.1 CASH. All other cash, cash equivalents on hand or in
bank accounts, short-term notes receivable and unbilled costs and fees
up through and including the Closing Date;
2.2.2 CONSIDERATION. The consideration paid to Seller pursuant
to this Agreement;
2.2.3 PENSIONS. Assets constituting any pension or other funds
for the benefit of Employees existing on the Closing Date;
2.2.4 CORPORATE BOOKS. Corporate minute book and stock book of
Seller;
2.2.5 THIRD PARTY CLAIMS. Any claims and rights against third
parties (including, without limitation, insurance carriers) to the
extent they relate to liabilities or obligations that are not assumed
by Purchaser hereunder (except the amount of costs and expenses
Purchaser shall have incurred with respect to such claims and rights);
2.2.6 TAXES. Claims for refunds of Taxes and other charges
imposed by any Governmental Authority;
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2.2.7 ACCOUNTS RECEIVABLE. All Accounts Receivable existing on
the Closing Date;
2.2.8 PREPAID EXPENSES. All Prepaid Expenses of, or for the
benefit of, the Purchased Assets or the Business at the Closing Date;
and
2.2.9 OTHER ASSETS. Assets listed on SCHEDULE 2.2.9.
2.3 LICENSE TO USE CERTAIN ASSETS. To the extent that there are any
tangible or intangible assets used by Seller in connection with the Purchased
Assets or the Business that are not specifically designated as Excluded Assets
by Section 2.2 (without reference to this Section), the Purchased Assets shall
include an irrevocable, nonexclusive, perpetual, paid-up, royalty-free,
transferrable license to utilize such assets in connection with the operation of
the Business after the Closing Date. To the extent that any such assets may not
be licensed, Seller shall take all steps required to assure that Purchaser
obtains the benefit of such assets.
ARTICLE III. CONSIDERATION AND TERMS
3.1 CONSIDERATION FOR PURCHASED ASSETS.
3.1.1 PURCHASE PRICE. The aggregate consideration to be paid
by Purchaser for the Purchased Assets and the Business (the "Purchase
Price") shall be $41,750.
3.1.2 OTHER CONSIDERATION. As additional consideration,
Purchaser shall also assume the Assumed Liabilities at the time of
Closing.
3.2 PAYMENT. The Purchase Price shall be paid as follows:
3.2.1 INITIAL DEPOSIT. Upon the execution of this Agreement
and the Escrow Agreement, Purchaser shall deliver to Escrow Agent by
wire transfer of federal funds an initial good faith deposit towards
the Purchase Price in the amount of $12,500 (the "Initial Escrow
Deposit") to be held pursuant to the Escrow Agreement.
3.2.2 FINAL DEPOSIT. Upon satisfaction or waiver of
Purchaser's condition precedent set forth in Section 10.19, Purchaser
shall deliver to Escrow Agent by wire transfer of federal funds a final
good faith deposit towards the Purchase Price in the amount of $12,500
(the "Final Escrow Deposit") to be held pursuant to the Escrow
Agreement (together, the Initial Escrow Deposit and the Final Escrow
Deposit shall be referred to as the "Escrow Deposit").
3.2.3 CASH. At Closing, Purchaser shall deliver to Seller by
wire transfer the Purchase Price less the amount of the Escrow Deposit.
3.2.4 ESCROW DEPOSIT. At Closing, provided this Agreement has
not been terminated pursuant to Article XIII and Seller is not
otherwise is default hereunder, the Escrow Deposit shall be released by
Escrow Agent in favor of Seller in accordance with the terms of this
Agreement and the Escrow Agreement.
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3.3 POST-CLOSING EARN-OUT ADJUSTMENT. Seller may be entitled to a
post-closing adjustment to the Purchase Price upon achievement of a certain
level of net operating income for the Facility. If the Facility achieves an
annualized net operating income of $207,000 for the period from the Closing Date
through June 30, 1998 ( the Earn-out Period"), Purchaser will pay to Seller an
amount equal to $1,200,000 (the "Post-Closing Payment") within thirty (30) days
of Purchaser's confirmation thereof. If the annualized net operating income is
less than $207,000, then the Post-Closing Payment shall be reduced on a prorata
basis by the amount of the deficiency. As used herein, the phrase "net operating
income" shall mean net operating income, calculated in accordance with GAAP,
before amortization, depreciation, interest, rent expense, income taxes,
management fees and other extraordinary expenses (including extraordinary
marketing or advertising expenses) and before one-half of Seller's real estate
taxes relating to the Real Property accrued by Seller during the Earn-out
Period, annualized. Operating expenses will be generally determined in
accordance with the staffing assumptions (including maintenance, dietary, etc.)
and the employee benefit costs set forth on the financial pro forma prepared by
Seller attached hereto and incorporated herein as SCHEDULE 3.3. Any additional
staffing and cost items not associated with the normal conduct of Seller's
business or the operation of the Facility as a licensed personal care home
facility in accordance with all Legal Requirements, including any corporate
overhead, will be excluded from the calculation of net operating income.
3.4 ALLOCATION OF PURCHASE PRICE. Within two weeks from the date of
this Agreement, the Purchase Price shall be allocated among the Purchased Assets
and the Business as mutually agreed by the Parties and shall be consistent with
Purchaser's appraisal. Upon the Parties reaching an agreement with respect to
such allocation, it shall be set forth in SCHEDULE 3.4. Purchaser and Seller
shall report the federal, state and local income and other tax consequences of
the purchase and sale contemplated hereby in a manner consistent with such
allocation, and shall not take any position inconsistent therewith upon
examination of any tax return, in any refund claim, in any litigation or
otherwise.
ARTICLE IV. ASSUMPTION OF LIABILITIES; EMPLOYEE MATTERS
4.1 GENERAL LIMITATION ON ASSUMPTION OF LIABILITIES. Except for
Permitted Encumbrances and as otherwise provided in Sections 4.2, 4.3 and 4.4
below, Seller shall transfer the Purchased Assets to Purchaser free and clear of
all Encumbrances, and without any assumption of liabilities and obligations, and
Purchaser shall not, by virtue of its purchase of the Purchased Assets, assume
or become responsible for any liabilities or obligations of Seller or any other
Person. For purposes of this Section 4.1 the phrase "liabilities and
obligations" shall include, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured
or unsecured.
4.2 ASSUMED LIABILITIES AND OBLIGATIONS OF SELLER. On the Closing Date,
Purchaser shall acquire the Purchased Assets subject only to, and shall
undertake, assume, perform and
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otherwise pay, satisfy and discharge, and hold Seller harmless from the
following liabilities and obligations, excluding any liabilities and obligations
to Affiliates of Seller (collectively, the "Assumed Liabilities"):
(i) all obligations of Seller accruing subsequent to the Closing
Date under the Contracts contemplated by Section 2.1.4,
provided that the rights thereunder have been duly and
effectively assigned to Purchaser; and
(ii) all obligations of Seller accruing after the Closing Date
under the Permits described in Section 2.1.6, provided that
the rights thereunder have been duly and effectively assigned
to Purchaser.
Except for the Assumed Liabilities, Purchaser does not and shall not
assume or in any way undertake to pay, perform, satisfy or discharge any other
liability of Seller existing on the Closing Date or arising out of any
transactions entered into, or any state of facts existing, prior to the Closing
Date (the "Retained Liabilities"), and Seller agrees to pay and satisfy when due
all of Seller's Retained Liabilities. Except for the obligations and liabilities
included in the Assumed Liabilities, the term "Retained Liabilities" shall
include, without limitation, liabilities:
(i) for or in connection with any dividends, distributions,
redemptions, or Security Rights with respect to any security
of Seller;
(ii) arising out of any transaction affecting Seller or obligations
incurred by Seller after Closing;
(iii) for expenses or fees incident to or arising out of the
negotiation, preparation, approval or authorization of this
Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, all legal
and accounting fees and all brokers or finders fees or
commissions payable by Seller;
(iv) under or arising out of this Agreement;
(v) against which Seller is insured or otherwise indemnified or
which would have been covered by insurance (or
indemnification) but for a claim by the insurer (or the
indemnitor) that the insured (or the indemnities) had breached
its obligations under the policy of insurance (or the contract
of indemnity) or had committed fraud in the insurance
application;
(vi) to any Related Party;
(viii) to indemnify Seller's officers, directors, shareholders,
Employees or agents;
(ix) federal, state or local tax liabilities or obligations of
Seller in respect to periods prior to Closing, and the
transactions contemplated hereunder, including, without
limitation, income taxes payable under the Code, any income
tax, any franchise tax, any tax recapture, any FICA, workers'
compensation, vacation liability and
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other employee benefits, any insurance premiums, rents, or
other accruals and any and all other taxes or amounts due or
payable for a period prior to Closing; notwithstanding the
foregoing, all transfer taxes, and all other impositions of
tax arising solely by reason of the transfers contemplated by
this Agreement (excluding all federal, state and local income
and gross receipt taxes on the earnings or gross receipts of
Seller prior to the Closing Date, which shall remain the sole
responsibility of Seller, and sales taxes assessed on the sale
of vehicles hereunder, which shall be paid by Purchaser) shall
be the responsibility of and shall be borne equally by Seller
and Purchaser (any real estate and personal property taxes for
the year in which Closing occurs shall be pro-rated to the
Closing Date [based on a calendar year or fiscal year for
which such taxes are levied basis], if the tax rates for the
year in which Closing occurs shall not be fixed prior to the
Closing Date for a particular item of the Purchased Assets,
the pro-ration of taxes thereon shall be based upon the tax
rate for the year prior to Closing applied to the latest
assessment valuation; however, in the event that any such
taxes are increased or decreased for the year in which Closing
occurs, Seller or Purchaser shall then reimburse the other
party for amounts in excess of or less than the proration as
determined as of the Closing Date);
(x) for long term indebtedness and other obligations or guarantees
of Seller;
(xi) for Current Liabilities of Seller at the Closing Date; and
(xii) for Accrued Expenses and Payables of Seller at the Closing
Date.
4.3 OFFER OF EMPLOYMENT. Purchaser shall offer employment on and as of
Closing, on an at-will basis, to substantially all Employees actively at work in
substantially similar jobs, at substantially the same base salaries or wages and
substantially the same benefits as were paid or provided by Seller immediately
prior to the Closing Date.
4.4 VACATION, WORKERS' COMPENSATION AND DISABILITY CLAIMS.
4.4.1 SELLER'S LIABILITY. Seller shall remain liable for all
liability for all accrued vacation entitlements, workers' compensation,
disability and occupational diseases of or with respect to the
Employees attributable to entitlements, injuries, claims, conditions,
events and occurrences occurring on or before the Closing Date,
regardless of the date on which the actual claim is made.
4.4.2 PURCHASER'S LIABILITY. Purchaser shall be liable for all
liability for all vacation entitlements, workers' compensation,
disability and occupational diseases of or with respect to the
Employees hired by Purchaser attributable to entitlements, injuries,
claims, conditions, events and occurrences first occurring after the
Closing Date.
4.4.3 WORKERS' COMPENSATION; UNEMPLOYMENT COMPENSATION.
SCHEDULE 4.4.3 attached hereto sets forth a true and correct summary of
the following with respect to Seller and the Employees:
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(i) a listing of all workers' compensation contracts;
(ii) the workers' compensation loss experience for the past
three years;
(iii) a summary report and experience rating for unemployment
compensation; and
(iv) the turnover rates for the Facility.
ARTICLE V. CLOSING
5.1 TIME; LOCATION. The consummation of the purchase and sale of the
Purchased Assets shall take place on or before January 2, 1998 (the "Closing"),
unless extended by mutual agreement of the Parties hereto. The date of the
Closing shall be referred to as the "Closing Date." The Closing shall take place
at such time, date and place as may be mutually agreed upon by the Parties.
5.2 DOCUMENTS. At Closing, Seller shall execute and deliver the
following instruments of transfer and assignment:
5.2.1 DEEDS. Duly executed special warranty deeds in favor of
Purchaser or Purchaser's designee, in recordable form, transferring
good and marketable fee simple title to the Real Property, subject only
to Permitted Encumbrances, and such affidavits or other instruments as
Purchaser's title insurance company may reasonably request, including,
but not limited to, (i) exceptions for (A) judgments, bankruptcies,
taxes and municipal claims, (B) parties in possession other than
current occupants pursuant to agreements with Seller, (C) mechanics' or
materialmens' liens and (D) encroachments or survey discrepancies of
any nature; (ii) payoff letters, lien releases and satisfaction pieces
and (iii) gap indemnities;
5.2.2 BILL OF SALE. A general bill of sale, assignment and
assumption substantially in the form of EXHIBIT 5.2.2 hereto,
transferring to Purchaser good and indefeasible title to all of the
tangible personal property included in the Purchased Assets, subject
only to Permitted Encumbrances and the Assumed Liabilities and
assigning to Purchaser, to the extent assignable, Seller's right, title
and interest in each of the contracts, permits and other agreements
included in the Purchased Assets, together with all consents of third
parties that are required to make each such assignment effective to
such third parties;
5.2.3 TITLE CERTIFICATES. Certificates of title to all
vehicles included in the Purchased Assets with assignments to
Purchaser;
5.2.4 PROPERTY TAX STATEMENTS. To the extent not delivered
prior to Closing, all real estate and personal property tax statements
or bills for or relating to the Real Property or any of the other
Purchased Assets for the applicable current tax year or years, and all
tax assessments or notices thereof upon which such taxes are based;
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5.2.5 PLANS AND SPECIFICATIONS. To the extent not delivered
prior to Closing, all plans, specifications and other drawings used in
the construction of the Facility or any renovations thereof (including,
without limitation, any as-built plans and architectural
specifications) and all guarantees and warranties made by third parties
with respect to the improvements, buildings, personalty or any of the
other Purchased Assets;
5.2.6 PERMITS; SURVEYS; STUDIES. To the extent not delivered
prior to Closing, all building permits, zoning permits, occupancy
permits, subdivision plans, surveys, engineering reports, geotechnical
reports, soils studies and hazardous waste or other environmental
studies prepared within two years before the date hereof, for or
relating to the Facility;
5.2.7 CONTRACTS AND OTHER PERMITS. To the extent not delivered
prior to Closing, all Contracts, Permits, or other instruments or
agreements relating to the ownership, operation, use, occupancy,
licensure, accreditation or maintenance of the Business;
5.2.8 RENT ROLL. The rent roll of Seller listing all residents
of the Facility and their respective rent payments current as of two
days prior to Closing;
5.2.9 CLOSING DOCUMENTS. To the extent not delivered prior to
Closing, the documents referred to in Section 8.1.2 and Section 8.1.8;
and
5.2.10 OTHER DOCUMENTS. The Ancillary Agreements, and such
additional instruments of conveyance and transfer as Purchaser may
reasonably require in order to more effectively vest in it, and put it
in possession of, the Purchased Assets.
5.2.11 EASEMENT AGREEMENT. An Easement Agreement in favor of
Purchaser in a form acceptable to Purchaser in its reasonable
discretion, by which the Keefers grant to Purchaser a permanent right
to draw water from that certain well on the Adjacent Parcel for the
purpose of operating the Facility's sprinkler system and a permanent
easement in, under and through the Adjacent Parcel (together the
"Easement") to the extent necessary to effectuate said operation and to
maintain the Easement.
5.3 REASONABLE STEPS. Seller shall make such reasonable efforts as may
be appropriate so that on the Closing Date, Purchaser shall be placed in actual
possession and control of all of the Purchased Assets.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller represents and warrants
to Purchaser, that each of the following representations and warranties is true
and correct as of the date hereof:
6.1 ORGANIZATION, GOOD STANDING AND POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, and has all requisite corporate power and authority to execute
and deliver this Agreement and the Ancillary
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Agreements to which it is a party, to consummate the transactions contemplated
hereby and thereby and to perform all the terms and conditions hereof and
thereof and to be performed by it.
6.2 AUTHORIZATION OF AGREEMENT. Seller has taken all necessary
corporate action to authorize the execution and delivery of this Agreement and
the Ancillary Agreements to which it is a party, the performance by it of all
terms and conditions hereof and thereof to be performed by it and the
consummation of the transactions contemplated hereby and thereby.
6.3 ENFORCEABILITY. This Agreement constitutes, and the Ancillary
Agreements to which Seller is party, upon Seller's execution and delivery
thereof, will constitute the legal, valid and binding obligations of Seller,
enforceable in accordance with their terms except to the extent that
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws presently or hereafter in effect relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
6.4 NO VIOLATION; CONSENTS. The execution, delivery and performance by
Seller of this Agreement and the Ancillary Agreements to which Seller is a
party, and the consummation of the transactions contemplated hereby and thereby
will not (with or without the giving of notice or the lapse of time, or both)
(i) violate any provision of the charter or bylaws of Seller; (ii) except with
respect to notices and consents (if any) required to be given by Seller to any
Accreditation Body or Governmental Authority in connection with the sale and
change of ownership of the Purchased Assets and the Business, violate or require
any consent, authorization or approval of, or exemption by, or filing under any
provision of any law, statute, rule or regulation to which Seller, the Business
or the Purchased Assets are subject; (iii) violate any judgment, order, writ or
decree of any court applicable to Seller, the Business or the Purchased Assets;
(iv) except as identified on SCHEDULE 2.1.4, conflict with, result in a breach
of, constitute a default under (or a default that might, with the passage of
time or the giving of notice or both, constitute a default), or accelerate or
permit the acceleration of the performance required by, or require any consent,
authorization or approval under any contract or other instrument, document or
undertaking to which Seller is a party or any of the Purchased Assets is bound
or (v) result in the creation or imposition of any Encumbrances upon the
Purchased Assets.
6.5 FINANCIAL STATEMENTS. Seller has delivered to Purchaser true and
complete copies of the reviewed (i) balance sheets of the Business at June 30 ,
1997, 1996 and 1995, and the related statements of income and cash flows for the
years then ended and (ii) monthly statements of profit and loss for the first
four months of fiscal year 1998 with respect to the operation of the Facility
and, in addition, Seller shall provide Purchaser, as promptly as the same become
available through the Closing Date, but no later than 15 days after the last day
of each month, monthly statements of profit and loss of Seller for the Facility.
In the event that the Closing Date occurs within the first 15 days of a month,
notwithstanding anything to the contrary herein, Seller shall furnish Purchaser
statements of profit and loss for the then immediately preceding month no later
than three days prior to the Closing Date. True and correct copies of such
financial statements are attached hereto as SCHEDULE 6.5. The foregoing
financial statements have been prepared from the Books and Records of Seller in
accordance with GAAP consistently applied throughout the periods involved except
as may be noted therein. Such financial statements,
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including the related notes, are true and correct and fairly present the
financial position of the Business at the dates indicated and the results of
operations and cash flows of the Business for the periods then ended in
accordance with GAAP.
6.6 RESERVED.
6.7 INVENTORY. The Inventory was or will be acquired and maintained in
accordance with the regular business practices of Seller, consists or will
consist of new and unused items of a quality and quantity usable or salable in
the ordinary course of business consistent with past practice, and is or will be
valued in accordance with GAAP consistently applied.
6.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SCHEDULE 6.8 hereto, since June 30, 1997 in connection with the Business, Seller
has not:
(i) amended in any material respect or terminated any
Contract or Permit other than in the ordinary course
of business consistent with past practice;
(ii) suffered the occurrence of any events that,
individually or in the aggregate, have had, or could
reasonably be expected to have, a material adverse
effect on results of operations of the Business,
including any damage or destruction by fire, storm or
similar casualty, whether or not covered by
insurance;
(iii) sold, transferred, replaced or leased any of the
Purchased Assets, except for transactions in the
ordinary course of business consistent with past
practice;
(iv) waived or released any material rights with respect
to the Purchased Assets or the Business;
(v) transferred or granted any rights to any Proprietary
Rights;
(vi) entered into any transaction or made any commitments
(for capital expenditures or otherwise) other than in
the ordinary course of business consistent with past
practice;
(vii) changed its methods of accounting;
(viii) increased the compensation of any of the Employees,
except following normal review procedures or as
reasonably deemed necessary in the ordinary course of
business consistent with past practice;
(ix) suffered any major or key personnel changes;
(x) materially altered its conduct in its relations with
suppliers and residents; or
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(xi) materially altered its marketing efforts with respect
to the Business.
6.9 REAL PROPERTY.
6.9.1 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
Seller owns and will transfer or assign to Purchaser at Closing good,
marketable and indefeasible title to all of the Purchased Assets owned
by Seller subject to Closing, including, without limitation, the
leasehold interest in the Real Property, free and clear of all
Encumbrances, other than Permitted Encumbrances. Seller has the right
to quiet enjoyment of all Real Property in which Seller holds a
leasehold interest for the full term, including all renewal rights, of
the lease or similar agreement relating thereto. Copies of all title
insurance policies and surveys written in favor of Seller relating to
the Real Property have been delivered to Purchaser.
6.9.2 STRUCTURES AND IMPROVEMENTS. To Seller's Knowledge,
Seller represents and warrants that all structures and other
improvements on the Real Property are in good order and repair and free
from any structural defects.
6.9.3 BOUNDARIES; LOCATION. Seller represents and warrants
that the structures and other improvements on the Real Property are
within the lot lines and do not encroach on the properties of any other
Person. Seller further represents and warrants that each parcel of Real
Property is considered a separate parcel of land for taxing and
conveyancing purposes and that no portion of the Real Property is
located in a flood plain, flood hazard area or designated wetlands
area.
6.9.4 USE AND OPERATION. Seller represents and warrants that
the use and operation of the Real Property conforms to all applicable
building, zoning, safety and subdivision laws, Environmental Laws and
other Legal Requirements, and all restrictive covenants and
restrictions and conditions affecting title.
6.9.5 UTILITIES. Seller represents and warrants that all
utilities (including water gas, electric, storm, sanitary sewer and
telephone utilities) required to operate the Facility are available to
the Facility and such utilities enter the boundaries of such Facility
through adjoining public streets, permanent easements or rights-of-way
of record in favor of Seller. To Seller's Knowledge, such utilities are
all connected pursuant to valid permits, if required, and are all in
good working order and permit full compliance with all Legal
Requirements. Excluding water, and to Seller's Knowledge, all utilities
are adequate to service the operations of the Facility as currently
conducted. Seller represents and warrants that Seller has not received
any written notice of any proposed, planned or actual curtailment of
service of any utility supplied to the Facility.
6.9.6 ASSESSMENTS; NOTICES. Seller has not received any
written or oral notice of assessments for public improvements against
the Real Property or any written or oral notice or order by any
Governmental Authority, any insurance company that has issued a policy
with respect to any of such properties or any board of fire
underwriters or other body exercising similar functions that relates to
violations of building, safety or fire
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ordinances or regulations, that claims any defect or deficiency with
respect to any of such properties or requests the performance of any
repairs, alterations or other work to or in any of such properties or
in the streets bounding the same.
6.9.7 CONDEMNATION. Seller represents and warrants that there
is no pending condemnation, expropriation, eminent domain or similar
proceeding affecting all or any portion of the Real Property.
6.9.8 ACCESS. Seller represents and warrants that all present
driveways and other access routes to the Real Property are from public
streets and no other Person has any right to use any such driveways or
other access routes.
6.10 PROPRIETARY RIGHTS.
6.10.1 LOGOS AND TRADENAMES. SCHEDULE 2.1.8 hereto sets forth
a correct and complete list of all patents, logos, trademarks, trade
names, service marks, copyrights and applications or registrations
therefor used in and material to the Business (collectively, the
"Proprietary Rights").
6.10.2 LICENSES. Except as disclosed in SCHEDULE 2.1.8: (i)
Seller owns or possesses adequate licenses or other valid rights to use
(without the making of any payment to others or the obligation to grant
rights to others in exchange) all the Proprietary Rights; (ii) the
Proprietary Rights included in the Purchased Assets constitute all the
material rights necessary to conduct the Business in accordance with
past practice and are being conveyed to Purchaser together with the
other Purchased Assets; (iii) the validity of the Proprietary Rights
and the rights therein of Seller have not been questioned in any
litigation to which Seller is a party, nor, to Seller's Knowledge, is
any such litigation threatened; and (iv) the conduct of the Business
does not conflict with patent rights, licenses, trademark rights, trade
name rights, copyrights or other intellectual property rights of
others.
6.10.3 INFRINGEMENT. Except as disclosed in SCHEDULE 2.1.8
hereto, Seller does not have Knowledge that any material use of any
Proprietary Rights owned by Seller has heretofore been, or is now
being, made by any Person other than Seller, and Seller has no
Knowledge of any infringement of any Proprietary Rights owned or
licensed by Seller. No present or former director, officer, Employee or
consultant of Seller has any interest in any of the Proprietary Rights.
6.11 CONTRACTS AND COMMITMENTS. Except as listed and described on
SCHEDULE 1.67A and SCHEDULE 2.1.4, Seller is not with respect to the Business a
party to any written or oral:
(i) Contract for the future purchase of, or payment for,
supplies or products, or for the performance of
services by another party, involving in any one case
$10,000 or more;
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(ii) Contract to sell or supply products or to perform
services, involving in any one case $10,000 or more
(except for any Resident's Agreement);
(iii) Contract continuing over a period of more than six
months from the date hereof or exceeding $10,000 in
value (except for any Resident's Agreement);
(iv) representative, sales agency, dealer or distributor
Contract;
(v) lease under which Seller is lessor or lessee other
than with respect to the Real Property;
(vi) note, debenture, bond, conditional sale agreement,
equipment trust agreement, letter of credit
agreement, loan agreement or other Contract or for
the borrowing or lending of money (including without
limitation loans to or from Employees) or guarantee,
pledge or undertaking of the indebtedness of any
other Person;
(vii) Contract for any charitable or political
contribution;
(viii) Contract limiting or restraining Seller or any
successor or assign from engaging or competing in any
likeness of business with any Person;
(ix) license, franchise, distributorship or other
agreement, including those that relate in whole or in
part to any patent, trademark, trade name, service
mark or copyright or to any ideas, technical
assistance or other know-how of or used by the
Business;
(x) Contract or commitment to assign, option, sell,
transfer or otherwise convey any right, title or
interest of Seller in and to all or any portion of
the Business; or
(xi) any other material Contract not made in the ordinary
course of business consistent with past practice.
To Seller's Knowledge, each of the contracts and other instruments,
documents and undertakings listed on SCHEDULE 1.67A, SCHEDULE 2.1.4, and
SCHEDULE 1.64 is valid and enforceable in accordance with its terms, the parties
thereto are in compliance with the provisions thereof, neither party is in
default in the performance, observance or fulfillment of any material
obligation, covenant or condition contained therein, and no event has occurred
that with or without the giving of notice or lapse of time, or both, would
constitute a default thereunder and (ii) except as set forth on SCHEDULE 1.67A,
SCHEDULE 2.1.4, SCHEDULE 1.64 and SCHEDULE 1.65, no advance payments have been
received by Seller by or on behalf of any party to any of the contracts and
other instruments, documents and undertakings listed thereon for services to be
rendered or products to be delivered by such party after the Closing Date. Any
contracts that cannot be transferred or require consent or approval for the
transfer thereof are specifically
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identified on SCHEDULE 1.67A, SCHEDULE 2.1.4, SCHEDULE 1.64 and SCHEDULE 1.65
hereto as nontransferable or requiring such consent or approval.
6.12 PERMITS, LICENSES. Seller has all Permits that are required to
operate the Business and the Facility as a personal care home facility as that
term is defined by the Department of Welfare (including without limitation those
required under any Environmental Law) and Seller is in substantial compliance
with the terms and conditions of the Permits. SCHEDULE 2.1.6 hereto sets forth a
correct and complete list of all Permits, each one of which is in full force and
effect. To Seller's Knowledge, no suspension or cancellation of any of the
Permits is threatened and no cause exists for such suspension or cancellation.
Any Permits that cannot be transferred or require consent or approval for the
transfer thereof are specifically identified on SCHEDULE 2.1.6 hereto as
nontransferable or requiring such consent or approval.
6.13 COMPLIANCE WITH LAWS. Except as described in SCHEDULE 6.13 hereto,
Seller has at all times conducted, and is presently conducting, the Business so
as to comply in all material respects with all Legal Requirements applicable to
the conduct of operation of the Business or the ownership or use of the
Purchased Assets.
6.14 LEGAL PROCEEDINGS. Except as described in SCHEDULE 6.14 hereto,
there is no claim, action, suit, proceeding, investigation or inquiry pending
before any Governmental Authority or, to Seller's Knowledge, threatened against
Seller with respect to the Business or any of the Purchased Assets owned or used
by it in connection therewith, or relating to the transactions contemplated by
this Agreement, nor to Seller's Knowledge is there any basis for any such claim,
action, suit, proceeding, investigation, or inquiry. Except as set forth on
Schedule 6.14 hereto, Seller is not a party to or subject to the provisions of
any judgment, order, writ, injunction, decree or award of any court, arbitrator
or governmental, regulatory or administrative official, body or authority that
relates to the Business or the Purchased Assets owned or used by Seller in
connection therewith that might affect the transactions contemplated by this
Agreement.
6.15 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 6.15, Seller has no liabilities or obligations (as defined in Section
4.1) relating to the Business except (i) those liabilities and obligations
reserved and reflected on the financial statements of Seller previously provided
to Purchaser in the amounts shown therein and not heretofore paid or discharged;
(ii) those liabilities and obligations arising in the ordinary course of
business consistent with past practice under any Contract or commitment
specifically disclosed on SCHEDULE 2.1.4 hereto and not required to be disclosed
because of the term or amount involved; and (iii) those liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the financial statements dated June 30, 1997 provided to
Purchaser, and none of which, individually or in the aggregate, has had or will
have a material adverse effect on the Business or the financial condition of
Seller or the Facility.
6.16 BOOKS AND RECORDS. All books of account and other financial
records of Seller directly relating to the Business (the "Books and Records")
are materially complete and correct and have been made available to Purchaser.
All of the Books and Records have been prepared and maintained in accordance
with good business practices and, where applicable, in conformity
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with GAAP (except as otherwise stated therein) and in compliance in all material
respects with all Legal Requirements.
6.17 EMPLOYEES. SCHEDULE 1.21 sets forth a true and correct list of the
following for the Facility: (i) all individuals employed by Seller in the
conduct of the Business; (ii) total wage costs; (iii) wage/salary grade
structure and (iv) each Employee's (A) present position and department, (B) job
description, (C) rate of compensation and (D) service credited for purposes of
vesting and eligibility under each Benefit Plan.
6.18 LABOR DISPUTES. Except as described in SCHEDULE 6.18 hereto, there
are no material discrimination complaints nor any other kind of employment or
labor related disputes against Seller in connection with the Business pending
before or, to Seller's Knowledge, threatened before any federal, state or local
court or agency, and to Seller's Knowledge, no material dispute respecting
minimum wage or overtime claims or other conditions or terms of employment
exists. The Business has not experienced any material labor disputes or any
material work stoppage due to labor disagreements within the past three years.
With respect to the Business and except to the extent set forth in SCHEDULE
6.18: (i) there is no unfair labor practice charge or complaint against Seller
pending or, to Seller's Knowledge, threatened, before the National Labor
Relations Board; (ii) there is no labor strike, slowdown or stoppage pending or,
to Seller's Knowledge, threatened against or affecting Seller; and (iii) no
question concerning representation has been raised within the past three years,
or to Seller's Knowledge, is threatened respecting the Employees.
6.19 EMPLOYEE BENEFITS.
6.19.1 BENEFIT PLANS. SCHEDULE 6.19 contains a complete list
of each employee benefit plan (written and unwritten) subject to ERISA
and any other (written or unwritten) profit sharing, pension, savings,
deferred compensation, fringe benefit, insurance, medical, medical
reimbursement, life, disability, accident, post-retirement health or
welfare benefit, stock option, stock purchase, sick pay, vacation,
employment, severance, termination or other plan or arrangement (each,
a "Benefit Plan") maintained by or with respect to which Seller has any
liability or obligation, whether actual or contingent, funded or
unfunded, with respect to the Employees or their respective
beneficiaries.
6.19.2 PLAN LIABILITY. Seller has not taken any action that
may result in Purchaser being a party to, or bound by, an ERISA Plan,
and Purchaser shall have no liability under, or be subject to any
liability on account of, any ERISA Plan or Benefit Plan following the
consummation of the transaction contemplated hereby.
6.19.3 RETIREMENT BENEFITS. No ERISA Plan or other employee
arrangement has provided for the payment of retiree benefits by
Purchaser.
6.20 NO FINDER. Seller has not taken any action that would give to any
Person a right to a finder's fee or any type of brokerage commission in relation
to, or in connection with, the transactions contemplated by this Agreement.
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6.21 CONDITION OF EQUIPMENT. To Seller's Knowledge, except as set forth
on SCHEDULE 6.21, all equipment that is part of the Purchased Assets is in good
operating condition and repair (subject only to routine maintenance and repair)
and usable in the conduct of the Business consistent with past practice.
6.22 AFFILIATE TRANSACTIONS. Except as set forth in SCHEDULE 6.22
hereto, Seller and its Affiliates provide no services or products to the
Business.
6.23 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 6.23:
6.23.1 COMPLIANCE; NO LIABILITY. Seller has operated the
Business and each parcel of Real Property in material compliance with
all applicable Environmental Laws. Seller is not subject to any
liability, penalty or expense (including legal fees), and Purchaser
will not suffer or incur any loss, liability, penalty or expense
(including legal fees) by virtue of any violation of any Environmental
Law occurring prior to the Closing, any environmental activity
conducted on or with respect to any property by Seller at or prior to
the Closing or any environmental condition existing on or with respect
to any property at or prior to the Closing, in each case whether or not
Seller permitted or participated in such act or omission.
6.23.2 TREATMENT; CERCLA. Seller has not treated, stored,
recycled or disposed of any hazardous material, and to Seller's
Knowledge, no other Person has treated, stored, recycled or disposed of
any hazardous material on any part of the Real Property. To Seller's
Knowledge, there has been no release of any hazardous material at, on
or under any Real Property. Seller has not transported any hazardous
material or arranged for the transportation of any hazardous material
to any location that is listed or proposed for listing on the National
Priorities List pursuant to Superfund, on CERCLA or any other location
that is the subject of federal, state or local enforcement action or
other investigation that may lead to claims against Seller for cleanup
costs, remedial action, damages to natural resources, to other property
or for personal injury including claims under Superfund. None of the
Real Property is listed or, to Seller's Knowledge, proposed for listing
on the National Priorities List pursuant to Superfund, CERCLA or any
state or local list of sites requiring investigation or cleanup.
6.23.3 NOTICES; EXISTING CLAIMS; CERTAIN HAZARDOUS MATERIALS;
STORAGE TANKS. Seller has not received any request for information,
notice of claim, demand or other notification that it is or may be
potentially responsible with respect to any investigation, abatement or
cleanup of any threatened or actual release of any hazardous material.
Seller is not required to place any notice or restriction relating to
the presence of any hazardous material at any Real Property or in any
deed to any Real Property. Seller has provided to Purchaser a list of
all sites to which Seller has transported any hazardous material for
recycling, treatment, disposal, other handling or otherwise. There has
been no past, and there is no pending or contemplated, claim by Seller
under any Environmental Law or Legal Requirement based on actions of
others that may have impacted on the Real Property, and Seller has not
entered into any agreement with any Person regarding any Environmental
Law, remedial action or other environmental liability or expense. All
storage tanks located on the Real Property, whether underground
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or aboveground, are disclosed on SCHEDULE 6.23, and, to Seller's
Knowledge, all such tanks and associated piping are in sound condition
and are not leaking and have not leaked.
6.24 INSURANCE. SCHEDULE 6.24 sets forth a complete list of all
insurance policies with respect to which Seller is the owner, insured or
beneficiary for the past three years and all insurance policies known by Seller
to have been maintained by any other Person which may provide any coverage for
liabilities relating in any manner to any Environmental Law. SCHEDULE 6.24 also
sets forth a true and correct summary of the loss experiences for the past three
years under each such policy. Seller will have no liability after Closing for
retrospective or retroactive premium adjustments. All of Seller's insurance
policies covering products liability and general liability have been
"occurrence" policies and not "claims made" policies. Following the Closing,
Seller shall, to the extent that coverage under its insurance policies extends
to include the Business, (i) take no action to eliminate or reduce such
coverage, other than normal elimination or reduction of coverage as they occur
by virtue of the filing of claims in the ordinary course under such insurance
policies, (ii) pay when due any premiums under such policies for periods,
including retrospective or retroactive premium adjustments and (iii) use its
best efforts to assist in filing and processing claims under and otherwise
cooperate with Purchaser to allow Purchaser, in its own name, or on behalf of
Seller, to obtain all coverage benefits applicable to the Business under such
insurance policies, including the execution of assignments or powers of attorney
for the benefit of Purchaser. Any proceeds of insurance paid by an insurer to
Seller for claims of Purchaser made in accordance with this Section shall be
promptly paid to Purchaser.
6.25 NO SIGNIFICANT ITEMS EXCLUDED. Except for Excluded Assets, there
are no assets, properties, contracts, permits or other items of Seller or any
Related Party that are of material importance to the ongoing operation of the
Business by Purchaser in substantially the same manner in which the Business has
been conducted by Seller prior to the date of this Agreement.
6.26. SURVEYS. Seller has provided Purchaser with copies of Seller's
federal and/or state surveys or inspections and any plans of correction for the
current year and the two immediately preceding years for the Facility. Each such
survey or inspection was prepared in material compliance with all applicable
Legal Requirements.
6.27. OCCUPANCY REPORTS. Seller has provided Purchaser with copies of
Seller's occupancy reports for the Facility for the last year. Each such
occupancy report was prepared based on the number of operational beds (i.e.,
double occupancy rooms were only counted as such when both beds were occupied).
6.28 DISCOUNTED RATES; RATE LIMITATIONS; FREE CARE. Attached hereto is
SCHEDULE 6.28 that sets forth a true and complete list of the following for the
Facility: (i) any services that are provided based on a discount factor from the
rates regularly charged at the Facility; (ii) any restrictions or limitations on
rates which may be charged to private pay patients for services provided at the
Facility; (iii) any percentage of beds or slots in any program at the Facility
that must be reserved for Medicare or Medicaid eligible patients and (iv) any
amount of welfare, free or charity care or discounted government assisted
patient care provided at the Facility.
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6.29. TAX RETURNS. Seller has filed or caused to be filed, or will file
or cause to be filed, all Tax Returns that are required to be filed by it prior
to or on the Closing Date, pursuant to all Legal Requirements of each
Governmental Authority with taxing power over it. All such Tax Returns were or
will be, as the case may be, correct and complete in all material respects.
Seller has paid or will pay all Taxes that have or will become due as shown on
such Tax Returns or pursuant to any assessment received as an adjustment to such
Tax Returns, except (i) such Taxes, if any, as are being contested in good faith
and disclosed on SCHEDULE 6.29, (ii) such Taxes that are fully reserved against
on the financial statements of Seller previously provided to Purchaser and
(iii)Taxes accruing that are not yet due. Except as set forth on SCHEDULE 6.29,
Seller is not currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has been made by any taxing authority of a
jurisdiction other than one in which the Facility is located. Seller has paid,
or will withhold and pay, all Taxes required to have been withheld in connection
with amounts paid or owing to any Employee, independent contractor, creditor,
stockholder or other third party.
6.30 COMPLETENESS AND ACCURACY. All information set forth on any
Schedule hereto is true, correct and complete. No representation or warranty of
Seller contained in this Agreement contains or will contain any untrue statement
of material fact, or omits or will omit to state any material fact necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. All Contracts, Permits and other documents and
instruments furnished or made available to Purchaser by Seller are or will be
true, complete and accurate originals or copies of originals and include all
amendments, supplements, waivers and modifications thereto.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, Purchaser represents and
warrants to Seller, that each of the following representations and warranties is
true and correct as of the date hereof:
7.1 ORGANIZATION, GOOD STANDING, POWER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own and
lease the Purchased Assets, to carry on the Business and to execute and deliver
this Agreement and the Ancillary Agreements to which Purchaser is a party, to
consummate the transactions contemplated hereby and thereby and to perform all
the terms and conditions hereof and thereof to be performed by it.
7.2 AUTHORIZATION OF AGREEMENT AND ENFORCEABILITY. Purchaser has taken
all necessary corporate action to authorize the execution and delivery of this
Agreement and the Ancillary Agreements to which Purchaser is a party, the
performance by it of all terms and conditions hereof and thereof to be performed
by it and the consummation of the transactions contemplated hereby and thereby.
This Agreement constitutes, and the Ancillary Agreements, upon Purchaser's
execution and delivery thereof, will constitute, the legal, valid and binding
obligations of Purchaser, enforceable in accordance with their terms except to
the extent that enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws presently or hereafter in effect relating to or
affecting the enforcement of creditors' rights
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generally and by general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).
7.3 NO VIOLATIONS; CONSENTS. Except as set forth on SCHEDULE 7.3, the
execution, delivery and performance by Purchaser of this Agreement and the
Ancillary Agreements to which Purchaser is a party and the consummation of the
transactions contemplated hereby and thereby will not (with or without the
giving of notice or the lapse of time, or both) (i) violate any provision of the
charter or bylaws of Purchaser, (ii) except with respect to notices and consents
required to be given by Purchaser to any Accreditation Body or Governmental
Authority in connection with the sale and change of ownership of the Purchased
Assets and the Business, violate, or require any consent, authorization or
approval of, or exemption by, or filing under any provision of any contract,
law, statute, rule or regulation to which Purchaser is subject, (iii) violate
any judgment, order, writ or decree of any court applicable to Purchaser, (vi)
conflict with, result in a breach of, constitute a default under (or a default
that might, with the passage of time or the giving of notice or both, constitute
a default), or accelerate or permit the acceleration of the performance required
by, or require any consent, authorization or approval under any agreement,
contract, commitment, lease or other instrument, document or undertaking to
which Purchaser is a party or (v) result in the creation or imposition of any
Encumbrance upon its assets.
7.4. LEGAL PROCEEDINGS. There is no claim, action, suit, proceeding,
investigation or inquiry pending before any Governmental Authority or, to
Purchaser's Knowledge, threatened against Purchaser or any of Purchaser's
properties, assets, operations or businesses that might prevent or delay the
consummation of the transactions contemplated hereby.
7.5 NO FINDER. Purchaser has not taken any action which would give to
any Person a right to a finder's fee or any type of brokerage commission in
relation to, or in connection with, the transactions contemplated by this
Agreement.
ARTICLE VIII. COVENANTS OF SELLER PRIOR TO CLOSING DATE
8.1 REQUIRED ACTIONS. Between the date of this Agreement and the
Closing Date, Seller covenants that it will:
8.1.1 ACCESS TO INFORMATION. Give to Purchaser and its
counsel, accountants, environmental consultants, engineers, architects
and other representatives, for the purpose of audit, review and
copying, reasonable access, during normal business hours, to such of
the properties, books, accounts and records of Seller as are relevant
to the Purchased Assets and the Business, and furnish or otherwise make
available to Purchaser all such information concerning the Purchased
Assets and the Business as Purchaser may reasonably request.
8.1.2 SURVEYS; OCCUPANCY; OPERATIONS. Provide Purchaser with
the following:
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(i) occupancy reports for the Facility, as soon as the
same become available through the Closing Date, but
no later than the last day of any given week (which
reports shall be prepared based on the number of
operational beds);
(ii) rent rolls for the Facility, as soon as the same
become available through the Closing Date, but no
later than five days after the end of any given
month;
(iii) federal and/or state surveys or inspections and any
plans of correction for the Facility, as soon as the
same become available through the Closing Date, but
no later than 15 days after received by Seller;
(iv) monthly statements of profit and loss of Seller for
the Facility, as soon as the same become available
through the Closing Date, but no later than 15 days
after the last day of each month;
8.1.3 CONDUCT OF BUSINESS. Operate the Business in the usual,
regular and ordinary manner as such Business was conducted prior to the
date hereof and, to the extent consistent with such operation, use its
best efforts until the Closing Date to (i) preserve and keep intact the
Business; (ii) keep available the services of the Employees; (iii)
preserve its relationships with patients, referring physicians,
suppliers and others having business dealings with Seller in connection
with the Business and (iv) maintain current marketing activities.
8.1.4 MAINTENANCE OF PROPERTIES. Maintain the Purchased
Assets, whether owned or leased, in their good repair, order and
condition, in accordance with Seller's past practices, reasonable wear
and tear excepted;
8.1.5 MAINTENANCE OF BOOKS AND RECORDS. Maintain the Books and
Records in the usual, regular and ordinary manner, on a basis
consistent with past practice;
8.1.6 COMPLIANCE WITH APPLICABLE LAW. Comply in all material
respects with all Legal Requirements applicable to the Purchased Assets
and to the conduct of the Business;
8.1.7 PERFORMANCE OF OBLIGATIONS. Perform all the material
obligations of Seller relating to the Purchased Assets and the Business
in accordance with the past practices;
8.1.8 APPROVALS, CONSENTS. Use its best efforts to obtain in
writing as promptly as possible any approvals and consents as required
to be obtained by Seller in order to effectuate the transactions
contemplated hereby and deliver to Purchaser copies of such approvals
and consents. Accordingly, Seller shall cooperate with Purchaser's
efforts to obtain the necessary licenses to operate the Facility from
the appropriate Accreditation Bodies, including, without limitation,
the Department of Welfare. Upon execution and delivery of this
Agreement, Seller shall promptly:
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(i) provide Purchaser with copies of all Permits;
(ii) notify each Accreditation Body and Third Party Payor
as required by any Legal Requirement of the pending
change of ownership of the Facility; and
(iii) provide such other notices as required by all Legal
Requirements including, if required, (i) notices to
the Facility's patients and (ii) notices to referral
or human service agencies. Prior to sending the
notices, Seller shall provide copies to Purchaser for
review and approval, which approval shall not be
unreasonably withheld;
8.1.9 NOTICE OF MATERIAL DAMAGE. Give to Purchaser prompt
notice in writing of any fact that, if known on the date hereof, would
have been required to be set forth or disclosed in or pursuant to this
Agreement, or which would result in the breach in any material respect
by Seller of any of its representations, warranties, covenants or
agreements hereunder;
8.1.10 PAY EMPLOYEES TO CLOSING DATE. Pay all wages, salaries
and other sums due Employees through the close of business on the day
prior to the Closing Date;
8.1.11 TRANSFER OF EMPLOYEES. Take all reasonably necessary
steps to transfer to Purchaser the employment of all Employees electing
to continue their employ with Purchaser as of the Closing Date;
8.1.12 COMPLIANCE WITH AGREEMENT. Not undertake any course of
action inconsistent with satisfaction of the conditions applicable to
it set forth in this Agreement, and use all reasonable efforts to do
all such acts and take all such measures as may be reasonably necessary
to comply with the representations, agreements, conditions and other
provisions of this Agreement;
8.1.13 COMPLIANCE WITH BULK SALES LAWS. (i) Provide notice to
the Pennsylvania Department of Revenue and the Pennsylvania Department
of Labor and Industry, at least ten days prior to Closing, of the sale
of the Business and the Purchased Assets contemplated hereunder, in
accordance with 72 P.S. Section 1403 and 43 P.S. Section 788.3, and
shall provide Purchaser with a copy of said notice; and (ii) file all
State Tax reports with the Pennsylvania Department of Revenue and the
Pennsylvania Department of Labor and Industry to and including the
Closing Date, pay all taxes due to the Commonwealth in accordance
therewith, and provide Purchaser with evidence of such payment on or
before the Closing Date; and
8.1.14 UPDATE SCHEDULE. Promptly disclose to Purchaser any
information contained in the representations and warranties of Seller
contained in Article VI or in the Schedules to this Agreement which is
no longer complete or correct (including furnishing updated financial
statements); provided that no such disclosure shall be deemed to
modify, amend or supplement Seller's representations and warranties.
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8.2 PROHIBITED ACTIONS. Between the date of this Agreement and the
Closing Date, Seller shall not, except as otherwise agreed by Purchaser in
writing:
8.2.1 SALE OF PURCHASED ASSETS. Sell, transfer, assign, lease,
encumber or otherwise dispose of any of the Purchased Assets other than
in the ordinary course of business consistent with past practices;
8.2.2 BUSINESS CHANGES. Change in any material respect the
character of the Business;
8.2.3 INCURRENCE OF MATERIAL OBLIGATIONS. Incur any material
fixed or contingent obligation or enter into any material agreement,
commitment or other transaction or arrangement, commitment or other
transaction or arrangement that is not the ordinary course of business
consistent with past practices and with respect to which Purchaser will
be bound subsequent to Closing;
8.2.4 INCURRENCE OF LIENS. Subject to lien, security interest
or any other Encumbrance, other than Permitted Encumbrances, any of the
Purchased Assets;
8.2.5 CHANGE IN EMPLOYEE COMPENSATION AND BENEFITS. Increase
the rate of compensation paid, or pay any bonus, to anyone connected
with the Business, or enter into any employment or consulting agreement
that is not terminable at will and without penalty, except in the
ordinary course of business consistent with past practices, or
establish or adopt any new Benefit Plan or other employee benefit
arrangement of any kind whatsoever covering or affecting Employees;
8.2.6 PUBLICITY; ADVERTISEMENT. Except as required by law,
publicize, advertise or announce to any third-party, except as required
pursuant to this Agreement to obtain the consent of such third-party,
the entering into of this Agreement, the terms of this Agreement or the
transactions contemplated hereby;
8.2.7 NO RELEASE. Except in the ordinary course of business
consistent with past practices, cancel, release or relinquish any
material debts of or claims against others held by Seller with respect
to the Business or waive any material rights relating to the Business;
and
8.2.8 NO TERMINATION OR MODIFICATION. Terminate or materially
modify any material contract or permit (including, without limitation,
those items listed on SCHEDULE 1.67A, SCHEDULE 2.1.4, SCHEDULE 1.64 and
SCHEDULE 1.65) or other authorization or agreement affecting the
Purchased Assets or the Business or the operation thereof.
ARTICLE IX. COVENANTS OF PURCHASER PRIOR TO CLOSING DATE
9.1 REQUIRED ACTIONS. Between the date of this Agreement and the
Closing Date, Purchaser shall, except as otherwise agreed by Seller in writing:
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<PAGE> 30
9.1.1 ADVISE OF CHANGES. Advise Seller promptly in writing of
any fact that, if known at the Closing Date, would have been required
to be set forth or disclosed in or pursuant to this Agreement, or which
would result in the breach by Purchaser of any of its representations,
warranties, covenants or agreements hereunder;
9.1.2 COMPLIANCE WITH AGREEMENT. Not undertake any course of
action inconsistent with satisfaction of the conditions applicable to
it set forth in this Agreement, and Purchaser shall use its best
efforts to do all such acts and take all such measures as may be
reasonably necessary to comply with the representations, agreements,
conditions and other provisions of this Agreement;
9.1.3 EXAMINATIONS. Promptly undertake all examinations,
inspections, surveys and audits, including, without limitation, title
searches and surveys of the Real Property, environmental assessments
and audits and engineering surveys, as Purchaser deems necessary in
connection with the acquisition of the Purchased Assets or the
Business; and
9.1.4 SELLER'S EMPLOYEES. Take all reasonable steps to ensure
that the transfer of employment of all of the Employees electing to
continue their employ with Purchaser as are able to be accomplished
prior to or on the Closing Date.
9.2 INVESTIGATION. Purchaser shall use reasonable efforts to conduct an
investigation of the Business of Seller in such a manner as to prevent
disruption of relations with the Employees, patients and suppliers of Seller,
which investigation shall include such due diligence as is customary for
transactions of the type contemplated herein.
9.3 APPROVALS, CONSENTS. Purchaser shall use its best efforts to obtain
in writing as promptly as possible any approvals and consents as required to be
obtained by Purchaser in order to effectuate the transactions contemplated
hereby and deliver to Purchaser copies of such approvals and consents.
Accordingly, Purchaser take all reasonable action to obtain the necessary
licenses to operate the Facility from the Department of Welfare, including:
(i) providing notice to each Accreditation Body and Third
Party Payor as required by any Legal Requirement of
the pending change of ownership of the Facility; and
(ii) providing such other notices as required by all Legal
Requirements including, if required, (i) notices to
the Facility's residents and (ii) notices to referral
and human service agencies. Prior to sending the
notices, Purchaser shall provide copies to Seller for
review and approval, which approval shall not be
unreasonably withheld.
9.4 PUBLICITY; ADVERTISEMENT. Except as required by law, Purchaser
shall not publicize, advertise or announce to any third-party, except as
required pursuant to this Agreement to obtain the consent of such third-party,
the entering into of this Agreement, the terms of this Agreement or the
transactions contemplated hereby; provided, however, the foregoing shall not
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be applicable to disclosures made by Purchaser to Purchaser's lender in response
to such lender's reasonable requests.
ARTICLE X. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to proceed with Closing under this
Agreement is subject to the fulfillment prior to the specified date or at the
time of Closing of the following conditions with respect to Seller, any one or
more of which may be waived in whole or in part by Purchaser:
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Seller contained in this Agreement and the Ancillary Agreement
to which Seller is a party shall have been true in all material respects on the
date hereof and shall be true in all material respects on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date.
10.2 PERFORMANCE OF AGREEMENT. Seller shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement and the
Ancillary Agreements to which Seller is a party to be performed or complied with
by it at or prior to the Closing Date.
10.3 SELLER'S CERTIFICATE. Purchaser shall have received a certificate
from Seller, dated as of the Closing Date, reasonably satisfactory in form and
substance to Purchaser and its counsel, certifying as to the matters specified
in Section 10.1 and Section 10.2 hereof. The matters set forth in such
certificate shall constitute representations and warranties of Seller hereunder.
10.4 SECRETARY'S CERTIFICATE. Purchaser shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Seller with respect to:
(i) the resolutions of the board of directors of Seller
and, if necessary, the stockholders of Seller,
authorizing the execution and delivery of this
Agreement and the Ancillary Agreements to which
Seller is a party and the performance by Seller of
the transactions contemplated hereby and thereby;
(ii) the incumbency and specimen signature of each officer
or representative of Seller executing this Agreement,
the certificate referred to in Section 10.3 and the
Ancillary Agreements to which Seller is a party; and
(iii) the effect that the governing documents of Seller
delivered pursuant to Section 10.6 were in effect at
the date of adoption of such resolutions, the date of
execution of this Agreement and the Closing Date.
10.5 INJUNCTION. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein
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provided and no suit, action, investigation, inquiry or other legal or
administrative proceeding by any Governmental Authority or other Person shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby or which if successfully asserted might
otherwise have a material adverse effect on the conduct of the Business or
impose any additional material financial obligation on, or require the surrender
of any material right by, Purchaser.
10.6 ACTIONS AND PROCEEDINGS. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental hereto and all other related legal matters shall be
reasonably satisfactory to counsel for Purchaser, and such counsel shall have
been furnished with such certified copies of such corporate actions and
proceedings and such other instruments and documents as it shall have reasonably
requested, including, without limitation:
(i) certificates of the appropriate public officials to
the effect that Seller is a validly existing
corporation in good standing in its state of
incorporation as of a date not more than 10 days
prior to the Closing Date;
(ii) incumbency and specimen signature certificates dated
the Closing Date, signed by the officers of Seller
and certified by its Secretary; and
(iii) true and correct copies of (A) the charter documents
of Seller as of a date not more than 10 days prior to
the Closing Date, certified by the Secretary of State
of its state of incorporation and (B) the bylaws of
Seller as of the Closing Date, certified by the
Secretary of Seller.
10.7 CONSENTS. Any third-party consents, approvals, authorizations or
Permits (including, without limitation, those required by any Governmental
Authorities) necessary for the conveyance of the Purchased Assets or valid
consummation of the transactions contemplated hereby shall have been obtained.
10.8 ARRANGEMENTS WITH EMPLOYEES. Substantially all of Seller's
Employees shall have accepted employment with Purchaser effective as of the
Closing Date and Purchaser shall have entered into arrangements with key
Employees of Seller satisfactory to Purchaser in its sole discretion.
10.9 BUSINESS INVESTIGATION. Purchaser shall have completed its
investigation as contemplated in Section 9.2, the results of which shall be
satisfactory to Purchaser in its sole discretion.
10.10 PHYSICAL INSPECTION. At its own cost and expense, Purchaser shall
have inspected and approved the physical condition of the Real Property
including the improvements and the HVAC, electrical, plumbing and other systems,
and shall receive the written report in form and substance satisfactory to
Purchaser from a qualified engineering firm approved by Purchaser or any
engineer employed by Purchaser to the effect that the improvements on the Real
Property have been constructed in compliance with, and currently are in
compliance with, all
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governmental requirements, including without limitation the Americans With
Disabilities Act, and with all restrictions of record applicable thereto which
materially affect the Purchaser's intended use of the Real Property.
10.11 ENVIRONMENTAL REPORT. At its own cost and expense, Purchaser
shall have obtained a written report from a qualified geotechnical or
engineering firm, in a form and substance, satisfactory to Purchaser, concerning
the presence, handling, treatment and disposal of Regulated Substances on, in or
under the Real Property and disclosing (i) the results of a review of prior uses
of the Real Property disclosed by local public records, including the chain of
title; (ii) contacts with local officials to determine whether any records exist
with respect to the disposal of Regulated Substances on the Real Property; and
(iii) if recommended to or required by Purchaser, soil samples and groundwater
samples consistent with good engineering practice.
10.12 TITLE INSURANCE. Purchaser shall have obtained for all Real
Property final marked commitments to issue to Purchaser ALTA (1990-Form B with
appropriate state endorsements) owner's or leasehold policies of title insurance
in coverage amounts equal to the fair market values of such Real Property,
insuring good and marketable title to such Real Property with mechanic's liens
coverage and such endorsements as Purchaser may reasonably request and with
exceptions only for ALTA standard printed exceptions (other than mechanic's and
materialmen's liens and rights of possession) and Permitted Encumbrances.
10.13 ESTOPPEL CERTIFICATES. Purchaser shall have received estoppel
certificates from the Seller and any other lessor of the Real Property, in form
and substance satisfactory to Purchaser.
10.14 CLOSING DOCUMENTS. Purchaser shall have received the other
documents referred to in Section 5.2 which shall be in form and substance
satisfactory to Purchaser in its reasonable discretion.
10.15 OTHER DELIVERIES. At its own cost and expense, Purchaser shall
have received with respect to the Real Property:
10.15.1 SURVEYS. Surveys of such property which conform to the
standards set forth in the ALTA/American Congress on Surveying and
Mapping Minimum Standard Detail Requirements for Land Title Surveys and
which disclose no state of facts inconsistent with the representations
and warranties of Seller set forth in Section 6.9 hereof and are
otherwise acceptable to Purchaser;
10.15.2 AFFIDAVITS. ALTA extended coverage
statements/affidavits in form and substance satisfactory to Purchaser's
title insurer regarding title, mechanic's liens and such other
customary matters as may be reasonably requested by Purchaser or
Purchaser's title insurer; and
10.15.3 FIRPTA CERTIFICATES. A certificate, duly executed and
acknowledged by Seller under penalties of perjury, in the form
prescribed by Treasury Regulation Section 1.1445-2(b)(2)(iii), stating
Seller's name, address and Federal tax identification
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number, and that Seller is not a "foreign person" within the meaning of
Section 1445 of the Code.
10.16 FINANCING. Purchaser shall have received, on terms that shall be
satisfactory to Purchaser in its sole discretion, a written binding commitment
from a real estate investment trust or other financing source in an amount
sufficient to enable Purchaser to pay the Purchase Price in full (the "Financing
Commitment").
10.17 AL ASSET PURCHASE AGREEMENT. All conditions to the closing set
forth in Article X of the Gethsemane SNF Asset Purchase Agreement shall have
been satisfied in full.
10.18 OPINION OF COUNSEL. Purchaser shall have received the favorable
opinion of Latsha, Davis & Yohe, counsel for Seller, addressed to Purchaser and
Purchaser's lender, reasonably satisfactory to Purchaser and its counsel as to
the matters set forth in Sections 6.1, 6.2 and 6.3 hereof.
10.19 AUTHORIZATION. On or before October 31, 1997, Purchaser shall
have obtained final approval of the transactions contemplated herein by its
board of directors and shareholders (if necessary).
10.20 PERMANENT EASEMENT. The Keefers shall have delivered to Purchaser
an Easement Agreement in a form acceptable to Purchaser in its reasonable
discretion, granting the Easement in, under and through the Adjacent Parcel to
the extent necessary to draw water from the well thereon and to enter the
Adjacent Parcel to maintain said easement.
ARTICLE XI. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligation of Seller to proceed with the Closing under this
Agreement is subject to the fulfillment prior to the specified date or at the
time of Closing of the following conditions with respect to Purchaser, any one
or more of which may be waived in whole or in part by Seller:
11.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Purchaser contained in this Agreement shall have been true in
all material respects on the date hereof and shall be true in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
11.2 PERFORMANCE OF AGREEMENT. Purchaser shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement to be
performed or complied with by it at or prior to the Closing Date.
11.3 PURCHASER'S CERTIFICATE. Seller shall have received a certificate
from Purchaser, dated as of the Closing Date, reasonably satisfactory in form
and substance to Seller and their counsel, certifying as to the fulfillment of
all matters specified in Section 11.1 and Section 11.2 hereof. The matters set
forth in such certificate shall constitute representations and warranties of
Purchaser hereunder.
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11.4 SECRETARY'S CERTIFICATE. Seller shall have received a certificate,
dated as of the Closing Date, of the Secretary or any Assistant Secretary of
Purchaser with respect to:
(i) the resolutions of the board of directors of
Purchaser and, if necessary, the stockholders of
Purchaser, authorizing the execution and delivery of
this Agreement and the Ancillary Agreements to which
Purchaser is a party and the performance by Purchaser
of the transactions contemplated hereby and thereby;
(ii) the incumbency and specimen signature of each officer
or representative of Purchaser executing this
Agreement, the certificate referred to in Section
11.3 and the Ancillary Agreements to which Purchaser
is a party; and
(iii) the effect that the governing documents of Purchaser
delivered pursuant to Section 11.6 were in effect at
the date of adoption of such resolutions, the date of
execution of this Agreement and the Closing Date.
11.5 INJUNCTION. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted,
threatened or anticipated which questions the validity or legality of the
transactions contemplated hereby.
11.6 ACTIONS AND PROCEEDINGS. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental hereto and all other related legal matters shall be
reasonably satisfactory to counsel for Seller, and such counsel shall have been
furnished with such certified copies of such corporate actions and proceedings
and such other instruments and documents as it shall have reasonably requested,
including, without limitation:
(i) certificates of the appropriate public officials to
the effect that Purchaser is a validly existing
corporation in good standing in its state of
incorporation as of a date not more than 10 days
prior to the Closing Date;
(ii) incumbency and specimen signature certificates dated
the Closing Date, signed by the officers of Purchaser
and certified by its Secretary; and
(iii) true and correct copies of (A) the charter documents
of Purchaser as of a date not more than 10 days prior
to the Closing Date, certified by the Secretary of
State of its state of incorporation and (B) the
bylaws of Purchaser as of the Closing Date, certified
by the Secretary of Purchaser.
11.7 FINANCING COMMITMENT. Purchaser shall have received the Financing
Commitment or shall have otherwise demonstrated, to the reasonable satisfaction
of Seller, that Purchaser has the ability to pay the Purchase Price in full as
evidenced at Closing by (i)
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Purchaser's balance sheet, (ii) other firm lending commitments or (iii) a
combination of items (i) and (ii).
11.8 AL ASSET PURCHASE AGREEMENT. All conditions to the closing set
forth in Article XI of the Gethsemane SNF Asset Purchase Agreement shall have
been satisfied in full.
ARTICLE XII. OBLIGATIONS AFTER THE CLOSING DATE
12.1 COVENANT NOT TO INTERFERE. Seller covenants and agrees that for a
period of three years after the Closing Date, Seller will not solicit for
employment by Seller or any Affiliates any Person who is an Employee of the
Business as of the Closing Date.
12.2 NONCOMPETITION. For a period of three years following the Closing
Date, Seller will not, directly or indirectly, unless acting in accordance with
Purchaser's written consent, own, manage, operate, finance or participate in the
ownership, management, operation or financing of or permit its name to be used
by or in connection with any business or enterprise engaged in the Business
acquired by Purchaser hereunder and located within a 25-mile radius of the
Facility. Seller acknowledges that the provisions of this Section are reasonable
and necessary to protect the interests of Purchaser, that any violation of this
Section will result in an irreparable injury to Purchaser and that damages at
law would not be reasonable or adequate compensation to Purchaser for violation
of this Section and that, in addition to any other available remedies, Purchaser
shall be entitled to have the provisions of this Section specifically enforced
by preliminary and permanent injunctive relief without the necessity of proving
actual damages or posting a bond or other security to an equitable accounting of
all earnings, profits and other benefits arising out of any violation of this
Section. In the event that the provision of this Section shall ever be deemed to
exceed the time, geographic scope or other limitations permitted by applicable
law, then the provisions shall be deemed reformed to the maximum extent
permitted by applicable law.
12.3 TRANSITION OF EMPLOYEES. From and after the Closing Date,
Purchaser and Seller shall cooperate to ensure an orderly transition of the
Employees who accept employment with Purchaser.
12.4 CERTAIN TRANSITIONAL MATTERS.
12.4.1 TRANSFER OF ASSETS. Seller agrees that Purchaser, from
and after the Closing Date, shall have the right and authority to
collect for Purchaser's own account all items which shall be
transferred to Purchaser as provided herein.
12.4.2 ENDORSEMENT OF CHECKS. From and after the Closing Date,
Purchaser shall have the right and authority to retain and endorse
without recourse the name of Seller on any check or any other evidence
of indebtedness relating to a period on or after Closing, received by
Purchaser on account of any of the Purchased Assets and the Business
transferred to Purchaser hereunder.
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12.4.3 SELLER'S REMITTANCE OF FUNDS. After the Closing Date,
Seller shall promptly transfer and deliver to Purchaser any cash or
other property, if any, that Seller may receive related to the
Purchased Assets other than the Excluded Assets and the Business.
12.4.4 PURCHASER'S REMITTANCE OF FUNDS. After the Closing
Date, Purchaser shall promptly transfer and deliver to the appropriate
Seller any cash or other property, if any, that Purchaser may receive
related to the Excluded Assets.
12.4.5 ASSUMED LIABILITIES CONTROLLED BY PURCHASER. From and
after the Closing, Purchaser shall have complete control over the
payment, settlement or other disposition of, or any dispute involving
any Assumed Liability, and Purchaser shall have the right to conduct
and control all negotiations and proceedings with respect thereto.
Seller shall notify Purchaser promptly of any claim made with respect
to any Assumed Liability and shall not, except with the prior written
consent of Purchaser, voluntarily make any payment of, or settle or
offer to settle, or consent to any compromise with respect to, any such
Assumed Liability. Seller shall cooperate with Purchaser in connection
with any negotiations or proceedings involving any Assumed Liability.
12.4.6 INSURANCE. From the Closing Date through June 30, 1998,
Purchaser shall retain an insurance policy which shall include business
interruption insurance, the proceeds of which shall be added to
Seller's net operating income in determining Seller's annualized net
operating income under Section 3.3 for purposes of Purchaser's paying
to Seller the post-closing adjustment as defined therein.
12.5 AUDITS. To the extent reasonably requested by Purchaser, following
the Closing Date, at Purchaser's cost and expense, Seller shall cooperate and
request Seller's accountants to cooperate, with Purchaser and its independent
auditors in the preparation of audited financial statements of the Facility for
the years ended June 30, 1997, 1996 and 1995 prepared in accordance with GAAP
or, to the extent required, in connection with any registration statement or
other form filed by Purchaser with the Securities and Exchange Commission under
the Securities Act of 1933 for a public offering and sale of securities of
Purchaser.
12.6 ADDITIONAL WELL. To the extent feasible, Purchaser shall drill or
cause to be drilled a well on the Real Property to accommodate and supply water
to the sprinkler system of the Facility, within six months after the Closing
Date.
12.7 FURTHER ASSURANCES OF SELLER. From and after the Closing Date,
Seller shall, at the request of Purchaser, execute, acknowledge and deliver to
Purchaser, without further consideration, all such further assignments,
conveyances, endorsements, deeds, special powers of attorney, consents and other
documents, and take such other action, as Purchaser may reasonably request (i)
to transfer to and vest in Purchaser, and protect its rights, title and interest
in, all the Purchased Assets and (ii) otherwise to consummate the transactions
contemplated by this Agreement. In addition, from and after the Closing Date,
Seller shall afford Purchaser and its attorneys, accountants and other
representatives access, during normal business hours, to any
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Books and Records relating to the Business that Seller may retain as may
reasonably be required in connection with the preparation of financial
information or tax returns of Purchaser.
12.8 FURTHER ASSURANCES OF PURCHASER. From and after the Closing Date,
Purchaser shall afford to Seller and its attorneys, accountants and other
representatives access, during normal business hours, to such Books and Records
relating to the Business as may reasonably be required in connection with the
preparation of financial information or Tax Returns for periods concluding on or
prior to the Closing Date. Purchaser shall cooperate in all reasonable respects
with Seller with respect to its former interest in the Business and in
connection with financial account closing and reporting and claims and
litigation asserted by or against third parties, including, but not limited to,
making Purchaser's employees available at reasonable times to assist with, or
provide information in connection with financial account closing and reporting
and claims and litigation, provided that Seller reimburses Purchaser for its
reasonable out-of-pocket expenses (including costs of employees so assisting) in
connection therewith.
ARTICLE XIII. TERMINATION
13.1 TERMINATION OF AGREEMENT. This Agreement may be terminated:
(i) by the mutual consent of Seller and Purchaser;
(ii) by Purchaser upon notice to Seller if any of the
conditions set forth in Article X hereof have not
been satisfied or become impossible to satisfy by the
specified date or the Closing Date, as the case may
be (other than by reason of the material failure of
Purchaser to fulfill its obligations under this
Agreement);
(iii) by Seller upon notice to Purchaser if any of the
conditions set forth in Article XI hereof have not
been satisfied or become impossible to satisfy by the
Closing Date (other than by reason of the material
failure of Seller to fulfill its obligations under
this Agreement);
(iv) by Seller if Purchaser materially breaches or fails
to fulfill its obligations under this Agreement,
which failure continues and remains uncured for 30
consecutive calendar days after Seller gives written
notice of such failure to Purchaser;
(v) by Purchaser if Seller materially breaches or fails
to fulfill its obligations under this Agreement,
which failure continues and remains uncured for 30
consecutive calendar days after Purchaser gives
written notice of such failure to Seller; and
(vi) by Purchaser or Seller if Closing has not taken place
on or before January 2, 1998 and the Closing Date has
not been extended upon mutual agreement of the
Parties; provided, no Party then in
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material breach of any of its obligations hereunder
shall have the right to terminate.
13.2 RELEASE OF ESCROW DEPOSIT. If this Agreement is terminated, the
Escrow Deposit shall be disbursed as follows and in accordance with the terms
and conditions of the Escrow Agreement:
13.3.1 TO BUYER. If this Agreement is terminated pursuant to
Section 13.1(i), Section 13.1(ii) or Section 13.1(v), the Parties agree
to instruct Escrow Agent to release the Escrow Deposit to Purchaser;
13.3.2 TO SELLER. If this Agreement is terminated pursuant to
Section 13.1(iii) or Section 13.1(iv), the Parties agree to instruct
Escrow Agent to release the Escrow Deposit to Seller; and
13.3.3 TO BUYER AND SELLER. If this Agreement is terminated
pursuant to Section 13.1(vi), the Parties agree to instruct Escrow
Agent to release the one-half of the Escrow Deposit to Purchaser and
one-half of the Escrow Deposit to Seller.
13.3 RETURN OF DOCUMENTS. If this Agreement is terminated for any
reason pursuant to this Article XIII, each Party shall return to the other Party
all documents and copies thereof which shall have been furnished to it by such
other Party or, with the agreement of the other Party, shall destroy all such
documents and copies thereof.
13.4 REMEDIES. If this Agreement is terminated by Purchaser or Seller
as permitted under Section 13.1 and not as a result of a breach of a
representation or warranty or the failure of any Party to perform its
obligations hereunder, except for the return of the Escrow Deposit pursuant to
Section 13.3, such termination shall be without liability of any Party. If a
Party terminates this Agreement as a result of a breach of a representation or
warranty by the other Party or the failure of the other Party to perform its
obligations hereunder, the nonbreaching Party, in addition to any other legal
remedies that may be available, shall be entitled to a return of the Escrow
Deposit pursuant to Section 13.3 and reimbursement from the breaching Party for
all
ARTICLE XIV. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
14.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Parties shall survive for two (2) years after the Closing
Date; provided that there shall be no termination of any such representation or
warranty as to which a claim has been asserted prior to the termination of such
survival period. Except as otherwise expressly provided in this Agreement, all
covenants, agreements, undertakings and indemnities set forth in this Agreement
shall survive indefinitely. Any Party's right to the indemnification or other
remedies based upon the representations and warranties, covenants, agreements
and undertakings of any other Party will not be affected by any investigation,
knowledge or waiver of any condition by such Party.
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Any investigation by such Party shall be for its own protection only and shall
not affect or impair any right or remedy hereunder.
14.2 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend, save
and hold Purchaser and its officers, directors, employees, agents and Affiliates
(collectively, "Purchaser Indemnitees") harmless from and against all demands,
claims, allegations, assertions, actions or causes of action, assessments,
losses, damages, deficiencies, liabilities, costs and expenses (including
reasonable legal fees, interest, penalties, and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing and whether or not
any such demands, claims, allegations, etc., of third parties are meritorious;
collectively, "Purchaser Damages") asserted against, imposed upon, resulting to,
required to be paid by, or incurred by any Purchaser Indemnitees, directly or
indirectly, in connection with, arising out of, which could result in, or which
would not have occurred but for, a breach of any representation or warranty made
by Seller in this Agreement, in any certificate or document furnished pursuant
hereto by Seller or any Ancillary Agreement to which Seller is or is to become a
party, a breach or nonfulfillment of any covenant or agreement made by Seller in
or pursuant to this Agreement and in any Ancillary Agreement to which Seller is
or is to become a party, and any Retained Liability.
14.3 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify, defend,
save and hold Seller and its officers, directors, Employees, Affiliates and
agents, as the case may be (collectively, "Seller Indemnitees") harmless from
and against any and all demands, claims, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing and
whether or not any such demands, claims, allegations, etc., of third parties are
meritorious; collectively, "Seller Damages") asserted against, imposed upon,
resulting to, required to be paid by, or incurred by any Seller Indemnitees,
directly or indirectly, in connection with, arising out of, which could result
in, or which would not have occurred but for, a breach of any representation or
warranty made by Purchaser in this Agreement or in any certificate or document
furnished pursuant hereto by Purchaser or any Ancillary Agreement to which
Purchaser is a party, a breach or nonfulfillment of any covenant or agreement
made by Purchaser in or pursuant to this Agreement and in any Ancillary
Agreement to which Purchaser is a party, and, with respect to Seller, any
Assumed Liability.
14.4 NOTICE OF CLAIMS. If any Purchaser Indemnitee or Seller Indemnitee
(an "Indemnified Party") believes that it has suffered or incurred or will
suffer or incur any Purchaser Damages or Seller Damages, as the case may be
("Damages") for which it is entitled to indemnification under this Article XIV,
such Indemnified Party shall so notify the party or parties from whom
indemnification is being claimed (the "Indemnifying Party") with reasonable
promptness and reasonable particularity in light of the circumstances then
existing. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Party intends to claim any
Damages, such Indemnified Party shall promptly notify the Indemnifying Party of
such action or suit. The failure of an Indemnified Party to give any notice
required by this Section shall not affect any of such party's rights under this
Article XIV or otherwise except and to the extent that such failure is actually
prejudicial to the rights or obligations of the Indemnified Party.
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14.5 THIRD PARTY CLAIMS. The Indemnified Party shall have the right to
conduct and control, through counsel of its choosing, the defense of any third
party claim, action or suit, and the Indemnified Party may compromise or settle
the same, provided that the Indemnified Party shall give the Indemnifying Party
advance notice of any proposed compromise or settlement. The Indemnified Party
shall permit the Indemnifying Party to participate in the defense of any such
action or suit through counsel chosen by the Indemnifying Party, provided that
the fees and expenses of such counsel shall be borne by the Indemnifying Party.
If the Indemnified Party permits the Indemnifying Party to undertake, conduct
and control the conduct and settlement of such action or suit, the Indemnifying
Party shall not thereby permit to exist any Encumbrance upon any asset of the
Indemnified Party; the Indemnifying Party shall not consent to any settlement
that does not include as an unconditional term thereof the giving of a complete
release from liability with respect to such action or suit to the Indemnified
Party; the Indemnifying Party shall permit the Indemnified Party to participate
in such conduct or settlement through counsel chosen by the Indemnified Party
(at its own cost and expense); and the Indemnifying Party shall agree promptly
to reimburse the Indemnified Party for the full amount of any Damages including
fees and expenses of counsel for the Indemnified Party incurred after giving the
foregoing notice to the Indemnifying Party and prior to the assumption of the
conduct and control of such action or suit by the Indemnifying Party.
14.6 OTHER REMEDIES. The indemnification rights of any Indemnified
Party under this Article XIV are independent of and in addition to such rights
and remedies as such Indemnified Party may have at law, in equity or otherwise
for any misrepresentation, breach of warranty or failure to fulfill any covenant
or agreement under or in connection with this Agreement on the part of any
Party, none of which rights or remedies shall be affected or diminished hereby.
ARTICLE XV. GENERAL
15.1 EXPENSES. Except as otherwise provided in this Agreement, and
whether or not the transactions herein contemplated shall be consummated,
Purchaser and Seller shall pay their own fees, expenses and disbursements,
including the fees and expenses of their respective counsel, accountants and
other experts in connection with the subject matter of this Agreement and all
other costs and expenses incurred in performing and complying with all
conditions to be performed under this Agreement.
15.2 PUBLICITY. All notices to third-parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and among Purchaser and Seller. Except as may be
required by law, no Party shall act unilaterally in this regard without prior
written approval of every other Party, such approval not be unreasonably
withheld.
15.3 WAIVERS. The waiver by any Party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
15.4 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of the Parties hereto, and shall be binding upon the Parties hereto and
their respective successors, assigns, heirs, executors, administrators and legal
representatives. Nothing in this Agreement, express or
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implied, is intended to confer on any Person other than the Parties hereto, or
their respective successors, assigns, heirs, executors, administrators and legal
representatives any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
15.5 NOTICES. All notices, requests, demands, elections and other
communications which any Party to this Agreement may be required to give
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, by a reputable courier service which requires a signature
upon delivery, by mailing the same by registered or certified first class mail,
postage prepaid, return receipt requested, or by telecopying with receipt
confirmation (followed by a first class mailing of the same) to the Party to
whom the same is so given or made. Such notice, request, demand, waiver,
election or other communication will be deemed to have been given as of the date
so delivered or electronically transmitted or two days after mailing thereof.
15.5.1 NOTICE TO SELLER.
If to Seller, to:
Gethsemane Assisted Living, Inc.
2820 Shaffer Road
Bloomsburg, PA 17815
Attn: Susan E. Keefer, President
With a required copy to:
Latsha Davis & Yohe, P.C.
P.O. Box 825
Harrisburg, PA 17108-2286
Fax: (717) 761-2286
Attn: Doug Yohe, Esq.
15.5.2 NOTICE TO PURCHASER.
If to Purchaser, to:
Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Fax: (717) 796-6150
Attn: Robin Barber, Esq.
With a required copy to:
Kirkpatrick & Lockhart LLP
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1500 Oliver Building
Pittsburgh, PA 15222
Fax: (412) 355-6501
Attn: John C. Rodney, Esq.
Or to such other addresses as such Party shall have specified by notice to every
other Party hereto.
15.6 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules hereto) and the Ancillary Agreements and documents delivered at
Closing pursuant hereto and thereto constitute the entire agreement and
understanding between the Parties hereto as to the matters set forth herein and
therein and supersede and revoke all prior agreements and understandings, oral
and written, between the Parties hereto or thereto or otherwise with respect to
the subject matter hereof or thereof. No change, amendment, termination or
attempted waiver of any of the provisions hereof or thereof shall be binding
upon any Party unless set forth in an instrument in writing signed by the Party
to be bound or their respective successors in interest.
15.7 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
15.8 HEADINGS. The article, section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement.
15.9 CONSTRUCTION. Within this Agreement, the singular shall include
the plural and the plural shall include the singular, and any gender shall
include all other genders, all as the meaning and the context of this Agreement
shall require.
15.10 GOVERNING LAW AND CHOICE OF FORUM. The validity and
interpretation of this Agreement shall be construed in accordance with, and
governed by the internal laws of the Commonwealth of Pennsylvania. All claims,
disputes or causes of action relating to or arising out of this Agreement shall
be brought, heard and resolved solely and exclusively by and in the federal or
state courts situated in Dauphin County and Cumberland, County, Pennsylvania,
respectively. The Parties hereto agree to submit to the jurisdiction of such
courts and agree that such jurisdiction shall be proper for all purposes of this
Agreement.
15.11 COOPERATION. The Parties hereto shall cooperate fully at their
own expense, except as otherwise provided in this Agreement, with each other and
their respective counsel and accountants in connection with all steps to be
taken as part of their obligations under this Agreement.
15.12 SEVERABILITY. If any term, covenant, condition or provision of
this Agreement or the application thereof to any circumstance shall be invalid
or unenforceable to any extent, the remaining terms, covenants, conditions and
provisions of this Agreement shall not be affected thereby and each remaining
term, covenant, condition and provision of this Agreement shall be
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valid and shall be enforceable to the fullest extent permitted by law. If any
provision of this Agreement is so broad as to be unenforceable, such provision
shall be interpreted to be only as broad as is enforceable.
15.13 ATTORNEYS' FEES. If a dispute arises among the Parties as a
result of which an action is commenced to interpret or enforce any of the terms
of this Agreement, the non-prevailing Parties shall pay the prevailing Party's
reasonable out-of-pocket attorneys' fees, costs and expenses incurred in
connection with the prosecution or defense of such action.
15.14 SUCCESSORS AND ASSIGNS. The covenants, agreements, and conditions
contained herein or granted hereby shall be binding upon and shall inure to the
benefit of Purchaser and Seller, and each of their respective permitted
successors, assigns, heirs, executors, administrators and legal representatives.
Seller shall not assign, or otherwise transfer any interest in this Agreement to
any other Person without the prior written consent of Purchaser, which consent
shall not unreasonably be withheld. Purchaser may assign and transfer its
interest in this Agreement without Seller's consent to any of Purchaser's
Affiliates or to any lender providing financing for the transactions
contemplated hereby. In addition, Purchaser anticipates financing the
transactions contemplated hereby with a real estate investment trust. Purchaser
shall have the right to assign this Agreement, in whole or in part, in such
manner as Purchaser may desire in order to facilitate such financing. Purchaser
will promptly provide Seller with a copy of any such assignment, and Seller
agrees to execute and deliver any consents reasonably required by Purchaser's
lender in connection therewith, provided such assignment does not expand either
of Seller's obligations and liabilities hereunder. Notwithstanding any permitted
assignment of this Agreement by Purchaser, Purchaser shall remain liable to
Seller for all obligations and liabilities to be performed by or on behalf of
Purchaser hereunder with respect to Seller.
[NEXT FOLLOWING PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, intending to be legally bound hereby, the Parties
have caused this Agreement to be signed in their respective names by an officer
thereof duly authorized as of the date first above written.
PURCHASER:
BALANCED CARE CORPORATION
By: /s/ BRIAN L. BARTH
-----------------------------------
Brian L. Barth
Vice President
SELLER:
GETHSEMANE ASSISTED LIVING, INC.
By: /s/ SUSAN E. KEEFER
-----------------------------------
Susan E. Keefer
President
45
<PAGE> 1
EXHIBIT 10.11
FORM OF LEASEHOLD IMPROVEMENT AGREEMENT
<PAGE> 2
SUMMARY OF TABLE OF CONTENTS
1. BACKGROUND.............................................................1
1.1 The Lessee........................................................1
1.2 The Land and Existing Improvements................................1
1.3 The Facility Lease................................................1
1.4 Project...........................................................1
1.5 Lessor's Agreement to Fund the Project and Lessee's Agreement to
Supervise the Project.............................................1
1.6 Plans; the Architect and Architect's Contract.....................2
1.7 Construction Contracts............................................2
1.8 Schedule of Work and Completion Date; Schedule of Draws...........2
1.9 Project Budget....................................................2
1.10 Use of Project Funds..............................................2
1.11 Project Funds.....................................................3
1.12 Guaranties and Indemnities........................................3
2. DEFINITIONS............................................................3
3. LEASEHOLD IMPROVEMENT FEE..............................................3
4. LEASE DOCUMENTS; COLLATERAL SECURITY...................................3
4.1 Lease Documents...................................................3
4.2 Lease Obligations.................................................5
4.3 Collateral Security...............................................5
5. REPRESENTATIONS AND WARRANTIES.........................................6
5.1 Architect's Contract and Construction Contract....................6
5.2 Project Plans.....................................................6
5.3 Prior Construction Work...........................................7
5.4 Suitability of Project Plans......................................7
5.5 Compliance with Legal Requirements and Applicable Agreements......7
5.6 Permits and Contracts.............................................7
5.7 First Advance.....................................................8
6. COVENANTS..............................................................8
6.1 Collection and Enforcement Costs..................................8
6.2 The Lessee's Agreements to Perform Certain Obligations............8
6.3 Continuing Effect of Representation and Warranties................8
6.4 Construction Covenants............................................9
6.4.1 Commencement of Construction...............................9
6.4.2 Quality of Materials and Workmanship.......................9
6.4.3 Project Budget.............................................9
6.4.4 Architect Certificates....................................10
6.4.5 Subcontractors............................................10
6.4.6 The Lessor's Consultant...................................10
<PAGE> 3
6.4.7 Title To Materials and Security Interest Granted to
Lessor......................................................11
6.4.8 Compliance With Legal Requirements And Applicable
Agreements..................................................12
6.4.9 Liens.......................................................13
6.4.10 Books And Records...........................................13
6.4.11 Inspection Of Construction..................................13
6.4.12 Notice Of Delay.............................................13
6.4.13 Bonds.......................................................14
6.4.14 Use of Project Funds........................................14
6.4.15 Occupancy of the Project....................................14
6.4.16 Seller's Improvements.......................................14
7. ADVANCES OF PROJECT FUNDS................................................15
7.1 Conditions Precedent to First Advance of Project Funds..............15
7.2 The Lessor's Right to Advance.......................................17
7.3 Submission of Requests for Advances.................................17
7.4 Advances by Wire Transfer...........................................19
7.5 Conditions Precedent to All Advances................................19
7.6 Completion of the Project...........................................22
8. THE LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER ACTION................22
9. INSURANCE; CASUALTY; TAKING..............................................23
9.1 General Insurance Requirements......................................23
9.2 Fire or Other Casualty or Condemnation..............................23
10. EVENTS OF DEFAULT........................................................23
11. REMEDIES IN EVENT OF DEFAULT.............................................25
12. GENERAL..................................................................26
EXHIBIT A DESCRIPTION OF THE LAND............................................28
EXHIBIT B PLANS AND SPECIFICATIONS...........................................29
EXHIBIT C SCHEDULE OF CONSTRUCTION...........................................30
EXHIBIT D PROJECT BUDGET.....................................................31
EXHIBIT E DEFINITIONS........................................................32
EXHIBIT F FUTURE PERMITS AND CONTRACTS REQUIRED FOR COMPLETION OF
CONSTRUCTION AND COMMENCEMENT OF OPERATION...................................37
EXHIBIT G SURVEY.............................................................41
EXHIBIT H SURVEYOR'S CERTIFICATE.............................................
EXHIBIT I ENGINEER'S/ARCHITECT'S CERTIFICATE.................................47
EXHIBIT J LESSEE'S REQUISITION CERTIFICATE...................................50
EXHIBIT K GENERAL CONTRACTOR'S REQUISITION CERTIFICATE.......................52
EXHIBIT L ARCHITECT'S REQUISITION CERTIFICATE................................54
<PAGE> 4
FORM OF LEASEHOLD IMPROVEMENT AGREEMENT
THIS LEASEHOLD IMPROVEMENT AGREEMENT is made as of _________________
by and among _______________, a _____________ corporation (the "Lessee"), and
MEDITRUST ACQUISITION CORPORATION II, a Delaware corporation (the "Lessor").
1. BACKGROUND
1.1 THE LESSEE.
The Lessee is a corporation which is a wholly-owned Subsidiary of the
Guarantor (as hereinafter defined). The Guarantor is a Delaware corporation.
1.2 THE LAND AND EXISTING IMPROVEMENTS.
The Lessor is the owner of a certain parcel of land located in _______ and more
particularly described on EXHIBIT A (the "Land"), together with the
existing buildings and other improvements, if any, located thereon
(collectively, the "Existing Improvements")
1.3 THE FACILITY LEASE.
The Lessor and the Lessee have entered into that certain Facility
Lease Agreement of even date herewith (the "Facility Lease") relating to the
Land and the Improvements (as hereinafter defined), a Notice of which is to be
recorded with the Clerk/Prothonotary of _____________________________.
1.4 PROJECT.
The Lessee proposes to cause BCC Development and Management Co., a Delaware
corporation and a wholly-owned Subsidiary of the Guarantor (the "Developer") to
construct a personal care home consisting of and other improvements,
including, without limitation, accessory parking and landscaping on the Land
(collectively, the "Improvements"). The Land, the Existing Improvements and the
Improvements are collectively referred to herein as the "Project".
1.5 LESSOR'S AGREEMENT TO FUND THE PROJECT AND LESSEE'S
AGREEMENT TO SUPERVISE THE PROJECT.
The Lessee and the Lessor have agreed that the Project will be a
benefit to the premises demised under the Facility Lease and to the Lessee's
and the Lessor's respective interests therein. The Lessor and the Lessee have
further agreed that, pursuant to, and in accordance with, the terms and
conditions of this Agreement, the Lessor shall fund an amount not to exceed
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__________________ of the cost of the Project (the "Project Funds"). The
Lessee has agreed to supervise and manage, or to cause the Developer to
supervise and manage, the construction of the Project and the Lessor has agreed
to advance the Project Funds to pay for the cost of the construction of the
Project; all pursuant to the terms and conditions of this Agreement.
1.6 PLANS; THE ARCHITECT AND ARCHITECT'S CONTRACT.
The Project is to be constructed and equipped in accordance with the plans and
specifications (collectively, the "Project Plans"), listed on EXHIBIT B
prepared by _________________(the "Architect") pursuant to the contract dated
_________________, by and between the Developer and the Architect (the
"Architect's Contract").
1.7 CONSTRUCTION CONTRACTS.
All of the Improvements are to be constructed pursuant to a guaranteed
maximum price contract (the "Construction Contract") by and between the
Developer and _______________________________ (the "General Contractor"). The
Construction Contract shall be in form and substance identical to the draft
contract between the Developer and the General Contractor previously delivered
to the Lessor for review.
1.8 SCHEDULE OF WORK AND COMPLETION DATE; SCHEDULE OF DRAWS.
The work necessary to complete and fully equip the Project is to be
(A) undertaken and completed in accordance with the schedule which is annexed
hereto as EXHIBIT C and (B) substantially completed by (the
"Completion Date").
1.9 PROJECT BUDGET.
The Lessee has submitted to the Lessor a line item budget (the "Project
Budget"), a copy of which is annexed hereto as EXHIBIT D, setting forth a
total cost of _____________________________________ for the acquisition cost of
the Land and the design and construction of the Project, including (A) the cost
of the Land, (B) a breakdown of construction costs (itemized as to trade
category, subdivision of the work to be performed and the names of each
contractor), (C) a breakdown of all soft costs in connection with the
construction of the Project, including, without limitation, costs for such
items as real estate taxes, legal and accounting fees, survey costs, permits
and inspection fees, insurance premiums, architect's and engineer's fees,
marketing, management, leasing and advertising expenses, and all amounts due in
connection with the advance of Project Funds pursuant to this Agreement, (D) a
projected draw schedule and (E) a projected progress schedule for the
construction of the Project.
1.10 USE OF PROJECT FUNDS.
The Project Funds are to be used, to the extent sufficient therefore,
solely for the payment of Project costs set forth in the Project Budget.
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1.11 PROJECT FUNDS.
Subject to all of the terms, conditions and provisions of this
Agreement, and of the agreements and instruments referred to herein, the Lessor
agrees to advance the Project Funds and the Lessee agrees to supervise and
manage, or cause the Developer to supervise and manage, the construction of the
Project and to pay the Rent (as hereinafter defined) due under the Facility
Lease (as the same may from time to time be adjusted pursuant to the terms and
conditions set forth therein); it being understood that the Lessee shall be
liable for the payment of Rent regarding such sums as shall have been advanced
from time to time under this Agreement to the Lessee.
1.12 GUARANTIES AND INDEMNITIES.
As an inducement to the Lessor to acquire the Land, enter into this
Agreement, advance the Project Funds and enter into the Facility Lease, the
Guarantor and the Developer have agreed to furnish certain guaranties as
hereinafter described.
2. DEFINITIONS
In this Agreement, except as otherwise expressly provided in the text
of this Agreement or unless the context otherwise requires, all capitalized
terms shall have the meaning ascribed to them in EXHIBIT E.
3. LEASEHOLD IMPROVEMENT FEE.
The Lessee shall pay the Leasehold Improvement Fee to the Lessor
simultaneously with the execution of this Agreement; provided, however, that,
at the Lessor's option, the Leasehold Improvement Fee shall be held in an
escrow account established with a Person designated by the Lessor pursuant to
an escrow arrangement satisfactory to the Lessor, with interest thereon
benefiting the Lessor. If the Lessor exercises its option to require that the
Leasehold Improvement Fee be held in such an escrow account (A) the Leasehold
Improvement Fee shall be disbursed from said escrow account only upon the joint
instructions of the Lessee and the Lessor (which instructions from the Lessee
shall be immediately given upon the request of the Lessor) and in no event
shall the Leasehold Improvement Fee be disbursed therefrom, in whole or in
part, unless and until so requested by the Lessor and (B) the Lessor shall bear
the risk of loss of or misappropriation of the Leasehold Improvement Fee by
such escrow agent.
4. LEASE DOCUMENTS; COLLATERAL SECURITY
4.1 LEASE DOCUMENTS.
The Project Funds shall be advanced, evidenced, administered, secured
and governed by all of the terms, conditions and provisions of each of the
following:
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A. this Agreement;
B. the Facility Lease;
C. a Collateral Assignment of Permits, Approvals, Licenses, and
Contracts of even date granted by the Lessee to the Lessor
(the "Lessee Permits Assignment") and related UCC Financing
Statements;
D. a Collateral Assignment of Permits, Approvals, Licenses, and
Contracts of even date granted by the Developer to the Lessor
(the "Developer Permits Assignment") and related UCC
Financing Statements;
E. a Security Agreement of even date by and between the Lessee
and the Lessor (the "Security Agreement");
F. a Guaranty of even date executed by the Guarantor for the
benefit of the Lessor guarantying the completion of the
Project and the satisfaction of the other Guarantied
Obligations (the "Balanced Care Guaranty");
G. a Guaranty of even date executed by the Developer for the
benefit of the Lessor guarantying the completion of the
Project and the satisfaction of the other Guarantied
Obligations (the "Developer Guaranty");
H. an Environmental Indemnity Agreement of even date by and
among the Lessee, the Guarantor, the Developer, and the
Lessor (the "Environmental Indemnity Agreement");
I. a Deposit Pledge Agreement of even date by and between the
Lessee and the Lessor (the "Deposit Pledge Agreement");
J. a Pledge Agreement of even date by and among the Lessee, the
Lessor and the Guarantor, pursuant to which the Guarantor
granted the Lessor a security interest in all of the
outstanding capital stock of the Lessee (the "Pledge
Agreement") and related stock powers;
K. an Assignment of Construction Contract to be granted by the
Lessee to the Lessor and containing the consent of the
General Contractor (the "Construction Assignment");
L. an Assignment of Architect's Contract of even date granted by
the Developer to the Lessor and containing the consent of the
Architect (the "Architect's Assignment");
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M. an Affiliated Party Subordination Agreement of even date by
and among the Lessee, the Guarantor, the Developer, various
other Affiliates of the Lessee and the Lessor (the
"Affiliated Party Subordination Agreement");
N. an Amended and Restated Agreement Regarding Related Lease
Transactions dated as of November 1, 1996, by and among the
Lessee, the Lessor and any Related Party that is a party to
any Related Lease, as amended by First Amendment to Amended
and Restated Agreement Regarding Related Lease Transactions
of even date (the "Agreement Regarding Related Lease
Transactions");
O. the Assignment Agreement; and
P. all other documents, instruments, or agreements now or
hereafter evidencing or securing the obligations under this
Agreement and/or the Facility Lease.
Items (A) through (P) above, as the same from time to time may be hereinafter
amended, modified or supplemented, are referred to herein as the "Lease
Documents".
4.2 LEASE OBLIGATIONS.
The Lessee agrees to pay and perform all indebtedness, covenants,
liabilities, obligations, agreements and undertakings (other than the Lessor's
obligations) under this Agreement and all of the other Lease Documents
(collectively, the "Lease Obligations").
4.3 COLLATERAL SECURITY.
The Lease Obligations shall be secured by the following:
A. a perfected first priority security interest in all Permits
and Contracts pursuant to the Permits Assignments;
B. a perfected first priority security interest in Tangible
Personal Property, Receivables and certain other Collateral
pursuant to the Security Agreement;
C. the Guaranties;
D. the Environmental Indemnity Agreement;
E. a perfected first priority security interest in all of the
outstanding capital stock of the Lessee pursuant to the
Pledge Agreement;
F. a perfected first priority interest in the Cash Collateral
pursuant to the Deposit Pledge Agreement;
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G. all other security interests in such other property for which
provision is made in the Lease Documents or at law or in
equity; and
H. certain other Related Party Agreements.
All of the property in which security interests are granted (I) as described in
items (A) through (H) above and (II) pursuant to any other Lease Document is
collectively referred to herein as the "Collateral".
5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lessor to advance the Project Funds pursuant to
the terms and conditions of this Agreement, the Lessee represents and warrants
to the Lessor that:
5.1 ARCHITECT'S CONTRACT AND CONSTRUCTION CONTRACT.
The Architect's Contract has been validly executed by and is binding
upon the parties thereto and is in full force and effect in accordance with the
terms thereof. All of the parties to the Architect's Contract have faithfully
performed all of their respective obligations thereunder to the extent accrued
as of the date hereof, and none of the parties to the Architect's Contract has
asserted any claim of default thereunder;
5.2 PROJECT PLANS.
The two (2) copies of the Project Plans delivered to the Lessor by the
Lessee (A) are true and correct and satisfactory to the Lessee and (B) have
been filed with and approved by all appropriate Governmental Authorities. All
necessary Permits relating to the Project Plans to be issued or granted by any
applicable Governmental Authority having or claiming jurisdiction over the
Leased Property have been obtained and all such Permits are in full force and
effect, are not subject to any unexpired appeal periods or any appeals or
challenges which have not been fully resolved in favor of the Lessee, and do
not contain any conditions or terms relating to the Leased Property which have
not been fully satisfied or which will not be fully satisfied by the completion
of the construction of the Project (in accordance with the Project Plans and
the terms and provisions of this Agreement). Furthermore, the Project Plans
have been approved in writing by the Lessor, any construction heretofore
performed on the Project has been performed in accordance with the Project
Plans and all future construction on the Project shall be performed in
accordance with the Project Plans and the terms and conditions of this
Agreement. There are no structural defects in the Project of which the Lessee
has been advised or of which the Lessee has notice or knowledge. The Lessee has
not received any notice claiming that, and the Lessee has no knowledge that,
the Project Plans violate any Legal Requirement;
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<PAGE> 10
5.3 PRIOR CONSTRUCTION WORK.
No Person has performed any construction work or furnished any
services in connection with any construction carried on or to be carried on at
the Leased Property who or which remains unpaid at the time of execution of
this Agreement, except as indicated in the requisition submitted simultaneously
herewith or otherwise expressly approved by the Lessor;
5.4 SUITABILITY OF PROJECT PLANS.
The Project Plans provide for the construction and renovation of all
buildings and related improvements necessary, both legally and practically, for
the proper and efficient construction of the Project in accordance with the
terms of this Agreement and, after the completion of the construction thereof,
for the operation of the Project for its Primary Intended Use;
5.5 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE
AGREEMENTS.
Upon the completion of construction of the Project, which shall be
constructed in accordance with the Project Plans and the terms and provisions
of this Agreement, the Project shall be in compliance with (A) all Legal
Requirements; (B) all Permits and Contracts and (C) all applicable by-laws,
codes, rules, regulations and restrictions of the Board of Fire Underwriters or
other insurance underwriters or similar bodies.
5.6 PERMITS AND CONTRACTS.
All Permits and Contracts required by or entered into with any
Governmental Authority or quasi-governmental authority or agency for, or in
connection with, the construction of the Project that can be obtained in the
ordinary course as of the date hereof have been obtained or executed, as the
case may be. All such Permits and Contracts are in full force and effect, are
not subject to any unexpired appeal periods or any appeals or challenges which
have not been conclusively resolved in favor of any member of the Leasing
Group, and do not contain any conditions or terms which have not been fully
satisfied or which will not be fully satisfied by the completion of the
construction of the Project (if constructed in accordance with the Project
Plans and the terms and provisions of this Agreement). There is no action
pending, or, to the best knowledge and belief of the Lessee, recommended by the
applicable Governmental Authority having jurisdiction thereof, either to
revoke, repeal, cancel, modify, withdraw or suspend any such Permit or Contract
relating to the construction of the Project, or any other action of any other
type which would have a material adverse effect on the Project. All other
Permits and Contracts required for the completion of the construction of the
Project and the commencement of the operation of the Facility are described on
EXHIBIT F and the Lessee knows of no impediment to the future issuance or
execution of such Permits and Contracts and has no reason to believe that such
Permits and Contracts will not be obtained as and when needed.
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5.7 FIRST ADVANCE.
As of the date of the first advance of Project Funds to the Lessee
pursuant to this Agreement, the amount of the money expended by the Lessee on
account of the construction of the Project in accordance with the Project Plans
and the items listed on Project Budget will not be less than the amount of such
first advance.
6. COVENANTS
6.1 COLLECTION AND ENFORCEMENT COSTS.
Upon demand, the Lessee shall reimburse the Lessor for all costs and
expenses, including, without limitation, attorneys' fees and expenses and court
costs, paid or reasonably incurred by the Lessor in connection with the
collection of any sum due hereunder, or in connection with the enforcement of
any of the Lessor's rights or any member of the Leasing Group's obligations
under this Agreement or any of the other Lease Documents. Any amount due and
payable to the Lessor pursuant to the provisions of this Section shall be a
demand obligation and, to the extent permitted by law, shall be added to the
Lease Obligations and shall be secured by the Liens created by the Lease
Documents as fully and effectively and with the same priority as every other
obligation of the Lessee secured thereby and, if not paid within ten (10) days
after demand, shall thereafter, to the extent permitted by applicable law, bear
interest at the Overdue Rate until the date of payment. The obligation of the
Lessee to pay all costs, charges and sums due hereunder or under any of the
other Lease Documents shall continue in full force and effect and in no way
shall be impaired, until the actual payment thereof to the Lessor. In the event
of (A) a sale, conveyance, transfer or other disposition of the Leased
Property, (B) any further agreement given to secure the payment of the
obligations set forth herein or (C) any agreement or stipulation extending the
time or modifying the terms of payment set forth herein; the Lessee shall
nevertheless remain obligated to pay the indebtedness evidenced by this
Agreement, as extended or modified by any such agreement or stipulation, unless
the Lessee is released and discharged from such obligation by a written
agreement executed by the Lessor.
6.2 THE LESSEE'S AGREEMENTS TO PERFORM CERTAIN
OBLIGATIONS.
The Lessee agrees faithfully to perform, pay and observe all
agreements, covenants, indebtedness, obligations and liabilities of the Lessee
to the Lessor, whether such agreements, covenants, indebtedness, obligations
and liabilities are direct or indirect, absolute or contingent, due or to
become due, existing or hereafter arising, including, without limitation, all
of the Lessee's obligations under all of the Lease Documents. The payment of
all obligations and the performance of all covenants of and agreements by the
Lessee under the Lease Documents shall be absolute and unconditional,
irrespective of any defense or any rights or set-off, recoupment or
counterclaim the Lessee might otherwise have against the Lessor, and the Lessee
shall pay absolutely net during the Term all payments to be made as prescribed
in the all of the Lease Documents, free of any deductions and without
abatement, diminution or set-off.
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6.3 CONTINUING EFFECT OF REPRESENTATION AND WARRANTIES.
All representations and warranties contained in this Agreement shall
constitute continuing representations and warranties which shall remain true,
correct and complete throughout the Term.
6.4 CONSTRUCTION COVENANTS.
6.4.1 COMMENCEMENT OF CONSTRUCTION.
If construction of the Project has not already begun, the
Lessee shall commence construction of the Project within thirty (30)
day from the date hereof. The Lessee shall diligently and continuously
cause the Project to be constructed and completed and made ready for
occupancy and use in accordance with the Project Plans all in a manner
satisfactory to the Lessor on or before the Completion Date.
Notwithstanding anything to the contrary contained herein, the Lessee
shall be and shall remain unconditionally liable to the Lessor for (A)
the complete construction of the Project in accordance with the
Project Plans on or before the Completion Date and whether or not
proceeds of the Project Funds remaining to be disbursed hereunder, if
any, are sufficient to cover all costs of construction and (B) the
complete performance of all other obligations, covenants, agreements
and liabilities of the Lessee hereunder.
6.4.2 QUALITY OF MATERIALS AND WORKMANSHIP.
The materials used in the Project shall be of the quality
called for by the Project Plans, and the workmanship shall be in
conformity with the Construction Contract and this Agreement, and both
the quality of such materials and such workmanship shall be
satisfactory to the Lessor. The Lessee shall not make any changes in,
and shall not permit the Developer, the General Contractor or the
Architect to make any changes in, the quality of such materials, the
Project Plans or the Project Budget, whether by change order or
otherwise, without the prior written consent of the Lessor, in each
instance (which consent may be withheld in the Lessor's sole and
absolute discretion); provided, however, that such consent shall not
be required for any individual change (necessitated by job conditions)
which has been approved by the Architect, which does not materially
affect the structure or exterior of the Project, and the cost of which
does not exceed TWENTY-FIVE THOUSAND DOLLARS ($25,000) or which
changes, in the aggregate, do not exceed TWO HUNDRED THOUSAND DOLLARS
($200,000) in cost. Notwithstanding the foregoing, prior to making any
change in Project Plans, copies of all change orders shall be
submitted by the Lessee to the Lessor and the Lessee shall also
deliver to the Lessor evidence satisfactory to the Lessor, in its
reasonable discretion, that all necessary Permits and/or Contracts
required by any Governmental Authority in connection therewith have
been obtained or entered into, as the case may be.
6.4.3 PROJECT BUDGET.
Upon the request of the Lessor, the Lessee shall furnish the
Lessor with revisions for the Project Budget to reflect (A) any
changes approved by the Lessor to the Project
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Budget, (B) the total cost of the construction of the Project
completed through any specific date and (C) the remaining cost to
complete the construction of the Project in accordance with the
Project Plans and the terms and provisions of this Agreement.
6.4.4 ARCHITECT CERTIFICATES.
The Lessee agrees to cause the Architect to furnish such
statements as to progress and certificates of completion as the Lessor
may reasonably require from time to time during such period as this
Agreement may be in effect, all without expense to the Lessor. The
Lessee agrees to cause the Architect to make the Project Plans
available to the Lessor without expense to the Lessor, and to agree
that, in the event that the Lessor shall take over the Project by
reason of an occurrence of a Lease Default, the Lessor shall be
entitled to use said Project Plans without any additional compensation
to the Architect above what is required (and was not previously paid)
under the Architect's Contract.
6.4.5 SUBCONTRACTORS.
Prior to the initial advance of Project Funds contemplated by
this Agreement, the Lessee agrees to provide the Lessor with a list of
the major subcontractors working on the Project, including an
identification by trade and the amount of each subcontract. The Lessor
reserves the right of reasonable approval of all subcontractors
(collectively, the "Major Subcontractors") under any subcontract the
aggregate amount due under which is equal to or greater than ONE
HUNDRED THOUSAND DOLLARS ($100,000). The Lessee further agrees that
the Lessee shall not permit any Major Subcontractors working on the
Project to change without the Lessor's prior written consent, in each
instance, which consent shall not be unreasonably withheld.
6.4.6 THE LESSOR'S CONSULTANT.
The Lessee agrees to pay the costs and expenses reasonably
incurred by the Lessor to retain the Consultants to perform various
services to the Lessor in connection with the construction of the
Project and the advances of Project Funds contemplated hereunder,
including, without limitation, the following:
A. to review and analyze the Project Plans and advise
the Lessor whether the same are satisfactory for the
intended purposes thereof;
B. to make periodic inspections of the Leased Property
for the purpose of assuring that construction
performed in connection with the Project prior to
the date of such inspection has been completed in
accordance with the Project Plans and this
Agreement;
C. to review the Lessee's then current requisition to
determine whether it is consistent with the
obligations of the Lessee under this Agreement, and
to advise the Lessor of the anticipated costs of,
and the time for, the
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completion of the Project in accordance with the
Project Plans, and the adequacy of reserves and
contingencies related thereto;
D. to review and analyze any proposed changes to the
Project Plans and advise the Lessor regarding the
same;
E. to review and analyze the Project Budget and advise
the Lessor as to the sufficiency thereof; and
F. to review and analyze the Architect's Contract,
Construction Contract and all subcontracts entered
into by the Lessee, the Developer or the General
Contractor in connection with the construction of
the Project and advise the Lessor regarding the
same.
Except as otherwise expressly provided herein, the Lessee
agrees promptly to make such changes or corrections, or to cause the
Developer to make such changes or corrections, in the construction of
the Project as may be required by the Lessor, based on the
recommendation of any of the Consultants, unless the Lessee
demonstrates to the Lessor's satisfaction that such corrective work is
inconsistent with the Project Plans.
6.4.07 TITLE TO MATERIALS AND SECURITY INTEREST GRANTED TO LESSOR.
Except as otherwise expressly provided herein, the Lessee
shall not suffer the use in connection with any construction relating
to the Project of any materials, fixtures or equipment intended to
become part of the Project which are purchased upon lease or
conditional bill of sale or to which the Lessee does not have absolute
and unencumbered title. The Lessee covenants to cause to be paid
punctually all sums becoming due for labor, materials, fixtures or
equipment used or purchased in connection with any such construction
and, in recognition of the fact that it is intended that the Project
Funds be used to pay for the cost of the construction of the Project
on behalf of the Lessor, the Lessee agrees that title to all
materials, fixtures and equipment that are incorporated into the
Improvements shall automatically pass to the Lessor upon such
incorporation without the need for the execution or delivery of any
further instrument of conveyance.
Notwithstanding the foregoing, in order to more fully secure
the Lessor with reference to all advances of Project Funds made
hereunder, the Lessee hereby conveys to the Lessor a security interest
in all of the Lessee's right, title and interest in materials on the
Leased Property which are not at any relevant time incorporated into
the Project
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and materials, wherever located, intended for incorporation into the
Project. The Lessee agrees:
A. that the Lessor shall have all the rights, with
reference to such security, as a secured party is
entitled to hold with reference to any security
interest under the UCC;
B. that such security interest shall cover cash and
non-cash proceeds of such materials;
C. that such materials will not be held for sale to
others or disposed of by the Lessee without the
prior written consent of the Lessor and, if at any
time located on the Leased Property shall be
suitably stored, secured and insured and
furthermore, shall not be removed from the Leased
Property; and
D. that such security interest shall be prior to the
rights of any other Person other than the Permitted
Prior Security Interests.
The undertakings of the Lessee in this Section shall also be
applicable to any personal property owned by the Lessee and used (or
to be used) in connection with the Project, whether or not the
purchase thereof was financed by advances of Project Funds made by the
Lessor.
The Lessee agrees to execute such instruments as the Lessor
may from time to time request to perfect the security interest of the
Lessor in any and all rights under this Agreement and the other Lease
Documents, and any and all property of the Lessee which, under
applicable provisions of this Agreement and/or any of the other Lease
Documents, may or shall stand as security for advances of Project
Funds under this Agreement and for the complete payment and
performance of the Lease Obligations.
6.4.08 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE AGREEMENTS.
The Lessee, the Project Plans and the Leased Property and all
uses thereof (including, without limitation, the construction of the
Project) shall comply with (A) all Legal Requirements, (B) all Permits
and Contracts, (C) all applicable by-laws, codes, rules, regulations
and restrictions of the Board of Fire Underwriters or other insurance
underwriters or similar body and (D) the Lease Documents, except to
the extent that any of the matters referred to in clauses (a) or (c)
are being duly contested in accordance with the terms of the Lease.
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6.4.9 LIENS.
The Leased Property shall at all times be free from any
attachment, encumbrance, lis pendens, mechanic's or materialmen's lien
or notice arising from the furnishing of materials or labor and, with
the exception of the Permitted Encumbrances, all other Liens of any
kind, except to the extent that any such Liens are being duly
contested in accordance with the terms of the Facility Lease or the
terms hereof. The Lessee shall not permit the recording of any notice
of contract or mechanic's or materialmen's lien relating to
construction of the Project or otherwise affecting the Leased
Property. Notwithstanding the foregoing provisions of this Section
6.3.09, the existence of an attachment or lis pendens for a period not
in excess of thirty (30) days shall not be deemed to be a default
hereunder provided that (A) there shall be no cessation of
construction of the Project, (B) a Lease Default has not occurred and
(C) the Lessee shall proceed promptly to cause such attachment or lis
pendens to be removed, but the Lessor shall not be obliged to make any
further advance under this Agreement while such attachment or lis
pendens remains outstanding, unless a bond, satisfactory to the
Lessor, has been posted as security for such attachment or lis
pendens.
6.4.10 BOOKS AND RECORDS.
The Lessee shall cause to be kept and maintained, and shall
permit the Lessor and its representatives to inspect at all reasonable
times, accurate books of accounts in which complete entries will be
made in accordance with GAAP reflecting all financial transactions of
the Lessee (showing, without limitation, all materials ordered and
received and all disbursements, accounts payable and accounts
receivable in connection with the construction of the Project and the
operation of the Leased Property). Such books and records must
accurately reflect that all funds advanced hereunder for construction
of the Project have been used solely for the payment of obligations
and expenses properly incurred in connection with said construction in
accordance with the terms of the Project Budget.
6.4.11 INSPECTION OF CONSTRUCTION.
The Lessor and its representatives including, without
limitation, the Consultants, shall, at all times as long as this
Agreement remains in effect, have the right to enter the Leased
Property, upon reasonable notice to the Lessee and at reasonable times
(except in the event of an emergency) for the purpose of inspecting
the Project and the progress of the work and materials thereon, and if
any such inspection reveals that the Lessee is not in compliance
herewith (in its sole and absolute discretion), then the Lessor shall
not be obligated to make any further advances under this Agreement to
the Lessee.
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6.4.12 NOTICE OF DELAY.
The Lessee shall give to the Lessor prompt written notice of
any fire, explosion, accident, flood, storm, earthquake or other
casualty or strike, lock out, act of God or interruption of the
construction of the Project which is reasonably anticipated to
interfere with the ability of the Lessee to complete the Project by
the Completion Date.
6.4.13 BONDS.
Performance, payment and lien bonds, in form and substance
and guaranteed by sureties satisfactory to the Lessor (in its sole and
absolute discretion), shall be furnished to the Lessor in connection
with the Construction Contract in an amount at least equivalent to the
contract sum due under the Construction Contract, naming the Lessor as
a dual obligee, shall be furnished to the Lessor prior to the
commencement of any work pursuant to the Construction Contract.
6.4.14 USE OF PROJECT FUNDS.
The Lessee shall utilize all advances by the Lessor pursuant
to the terms of this Agreement only for those items for which
requisitions are permitted under this Agreement or for reimbursement
of expenditures already made for items for which requisitions are so
permitted. The Lessee agrees to hold all advances by the Lessor
hereunder as a trust fund for the purpose of payment of the costs and
expenses permitted under this Agreement.
6.4.15 OCCUPANCY OF THE PROJECT.
The Lessee shall not permit any occupancy of the Project
(other than such occupancy as is required in connection with the
construction thereto) prior to (A) the substantial completion of that
portion of the Project being occupied and (B) the issuance by the
appropriate Governmental Authorities of a Certificate of Occupancy (or
its equivalent) permitting the occupancy of the Project for its
Primary Intended Use. The Project shall not be deemed to have been
completed unless and until constructed in accordance with this
Agreement and a Certificate of Occupancy (or its equivalent)
permitting the occupancy of the Project for its Primary Intended Use
has been issued by the applicable Governmental Authorities.
6.4.16 SELLER'S IMPROVEMENTS.
The Lessee shall cause the Seller's Improvements to be
constructed and completed in accordance with the terms of the Option
Puchase Agreement and the Municipal Improvements Agreement.
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6.5 CONSTRUCTION CONTRACT.
Upon the full execution of the Construction Contract, it
shall be binding upon the parties thereto in accordance with the terms
thereof and shall thereafter remain in full force and effect. All of
the parties to the Construction Contract shall faithfully perform all
of their obligations thereunder.
7. ADVANCES OF PROJECT FUNDS
7.1 CONDITIONS PRECEDENT TO FIRST ADVANCE OF PROJECT
FUNDS.
Prior to the first advance of Project Funds contemplated by this
Agreement, and as a condition of the Lessee's right to receive any of the
proceeds of the Project Funds, there shall have been furnished to the Lessor:
A. An owner's title insurance policy in form and substance
satisfactory to the Lessor, in its sole and absolute
discretion, issued by a title insurance company or companies
satisfactory to the Lessor (the "Title Company") with such
endorsements, reinsurance and/or co-insurance as the Lessor
may require, insuring the Lessor's fee title to the Leased
Property free from all Liens and without exception for (I)
filed or unfiled mechanics' liens, (II) survey matters, (III)
rights of parties in possession, (IV) environmental liens and
(V) any other matters of any kind or nature whatsoever other
than the Permitted Encumbrances (the "Title Policy");
B. Such evidence as the Lessor may require that the use
contemplated for the Project, and all of the improvements and
construction contemplated by the Project Plans, comply with
all applicable Legal Requirements, to the extent in force and
applicable;
C. Insurance policies and/or Certificates of Insurance required
pursuant to the terms and provisions of the Facility Lease;
D. Such evidence as the Lessor may require to determine that the
total cost of completion of the Project in all respects,
including all related direct and indirect costs as previously
approved by the Lessor, will not exceed the total amount set
forth in the Project Budget;
E. Such evidence as the Lessor may require that the Lessee's
representations and warranties contained herein and in all of
the other Lease Documents are true and correct in every
material respect;
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F. Such evidence as the Lessor may require as to the
satisfaction of such of the terms and conditions of this
Agreement and of the other Lease Documents as may by their
nature be satisfied prior to the making of such advance;
G. Such evidence as the Lessor may require that all outstanding
Impositions pertaining to the Leased Property have been paid
in full;
H. A current instrument survey, satisfactory in form and content
to the Lessor, prepared in accordance with the requirements
set forth in EXHIBIT G (the "Survey") and a certificate
substantially in the form of EXHIBIT H (the "Surveyor's
Certificate"), prepared and signed by a surveyor licensed to
do business in the state where the Leased Property is located
with his or her seal affixed thereto;
I. True and correct copies of the executed Architect's Contract,
all major subcontracts in effect with respect to the Project,
the form of Construction Contract to be executed by the
Developer and the General Contractor, as well as all
receipted bills paid by the Lessee or the Developer to the
General Contractor and the Architect for goods and/or
services rendered with respect to the Project prior to the
date hereof;
J. True and correct copies of (I) the Project Budget and (II)
the Project Plans, each of which shall be in form and content
satisfactory to the Lessor (in its sole and absolute
discretion);
K. A certificate from an engineer and/or architect, registered
as such in the state where the Leased Property is located,
substantially in the form attached hereto as EXHIBIT I,
certifying as to the (I) compliance of the Leased Property
with all applicable Legal Requirements, (II) the availability
and adequacy of access/egress to and from the Leased Property
and (III) the availability and adequacy of sewer, drainage,
water, electric and other utility services to the lot line of
the Leased Property; together with such other assurances
concerning the design of the Project as the Lessor may
require;
L. Opinions, in forms satisfactory to the Lessor (in its sole
and absolute discretion), from the Lessee's counsel and the
Guarantor's counsel, regarding (I) the due execution,
authority and enforceability of the Lease Documents; (II) the
compliance of the Leased Property and the Project, in all
material respects, with those provisions of applicable zoning
and other land-use Legal Requirements relating to the use of
the Leased Property and the Project for the Primary Intended
Use; (III) the valid issuance of the Certificate of Need and
all other Permits required for the construction of the
Project, the continuing effectiveness of said Certificate of
Need and other Permits and the Lessee's and Project's
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compliance therewith and (IV) such other matters as the
Lessor may reasonably request (collectively, the
"Opinions")];
M. Payment of the Leasehold Improvement Fee (subject, however,
to the provisions of Section 3 hereof);
N. True and correct copies of all Permits and Contracts relating
to the construction and operation of the Project (including,
without limitation, an unconditional building permit or a
building permit that is subject only to such conditions as
will be fully satisfied by the completion of the construction
of the Project in accordance with the Project Plans and this
Agreement);
O. Such evidence as the Lessor may require that there has been
no material adverse change in the financial condition and
strength of the Lessee, the Guarantor and the Developer, and
that the Leased Property shall have sustained no impairment,
reduction, loss or damage which has not been fully restored
and repaired, and that no Condemnation proceedings or other
governmental action is or shall be pending against or with
respect thereto;
P. Such evidence as the Lessor may require that the General
Contractor and the Architect maintain adequate insurance, as
determined in the Lessor's reasonable discretion;
Q. [Intentionally Deleted];
R. [Intentionally Deleted]; and
S. A fully executed and authorized Architect's Assignment, in
form and substance satisfactory to the Lessor.
7.2 THE LESSOR'S RIGHT TO ADVANCE THE PROJECT FUNDS.
Without at any time waiving any of the Lessor's rights hereunder, the
Lessor shall have the right to make the first advance of a portion of the
Project Funds hereunder without the satisfaction of each and every condition
precedent to the Lessor's obligation to make such advance, and the Lessee
agrees to accept such advance as the Lessor may elect to make. The making of
any advance hereunder shall not constitute an approval or acceptance by the
Lessor of any work on the Project theretofore completed.
7.3 SUBMISSION OF REQUESTS FOR ADVANCES OF THE PROJECT
FUNDS.
Advances under this Agreement shall be made not more than once each
month and at least ten (10) Business Days before the date upon which an advance
is requested, the Lessee
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shall give notice to the Lessor, specifying the total advance which will be
desired, accompanied by:
A. Itemized requisitions for advances or, at the Lessee's
option, for reimbursements to the Lessee for prepaid items,
signed by the Lessee, the Architect and the General
Contractor on A.I.A. Forms G702, G702A or G703 or such other
form(s) as the Lessor may reasonably require (together with
copies of invoices or receipted bills relating to items
covered by such requisitions when so requested by the
Lessor). All such requisitions shall include an
indemnification of the Lessor by the Developer, the General
Contractor and the Lessee, jointly and severally, to the
extent such indemnification is available from the General
Contractor upon the Lessee's best efforts to obtain such
indemnification, against any and all claims of any
subcontractors, laborers and suppliers;
B. A certificate executed by the Lessee substantially in the
form attached hereto as EXHIBIT J;
C. A certificate executed by the General Contractor
substantially in the form attached hereto as EXHIBIT K;
D. A certificate executed by the Architect substantially in the
form attached hereto as EXHIBIT L.
E. At the Lessor's request, certificates executed by the
Consultants in such form as the Lessor may reasonably
require;
F. An endorsement of the Title Policy issued by the Title
Company, satisfactory in form and substance to the Lessor,
redating the Title Policy to the date that the then current
advance will be made, increasing the coverage afforded by the
Title Policy so that the same shall constitute insurance in
an amount at least equal to the sum of the amount of the
insurance then existing under the Title Policy plus the
amount of the then current advance of Project Funds to be
disbursed to the Lessee under this Agreement and subject to
no additional exceptions other than the Permitted
Encumbrances;
G. If and when reasonably requested by the Lessor, satisfactory
assurance that the construction of the Project has been
performed in accordance with the requirements of the
Construction Contract, the Project Plans, this Agreement and
all of the other Lease Documents and has been inspected and
found satisfactory by the parties hereto;
H. If and when reasonably requested by the Lessor, an updated
Surveyor's Certificate substantially in the form attached
hereto as EXHIBIT H and/or
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updated Engineer's/Architect's Certificate substantially in
the form attached hereto as EXHIBIT I;
I. If and when reasonably requested by the Lessor, updated
Opinions from the Lessee's counsel and the Guarantor's
counsel (in form and substance satisfactory to the Lessor in
its sole and absolute discretion);
J. If and when requested by the Lessor, satisfactory evidence
that the Project Funds remaining unadvanced under this
Agreement are sufficient for the payment of all related
direct and indirect costs for the completion of the Project
in accordance with the terms and provisions hereof. If the
evidence furnished shall not be reasonably satisfactory to
the Lessor, in its sole and absolute discretion, it shall be
a condition to the making of any further advance hereunder
that the Lessee will provide the Lessor with such financial
guaranties (whether in the form of a bond, cash deposit,
letter of credit or otherwise) as are acceptable to the
Lessor, in its sole and absolute discretion, to assure the
completion of the construction of the Project in accordance
with the Project Plans and the terms and conditions of this
Agreement. In the event that the Lessor requires a cash
deposit from the Lessee, the Lessee shall deposit with the
Lessor such funds, to be held in an interest bearing account
with the interest accruing thereon to the benefit of the
Lessee, which, together with such unadvanced Project Funds,
shall be sufficient to pay all of the aforesaid costs. All
funds so deposited with the Lessor, along with the proceeds
thereof, shall be disbursed prior to any further advance
hereunder;
K. A certification of work completed by any major contractor
working on the Project, together with a statement of the
payment due therefor;
L. Partial lien waivers from the General Contractor, all other
contractors and all subcontractors and suppliers for all work
theretofore performed;
M. If and when reasonably requested, the Lessee shall deliver to
the Lessor an updated Survey of the Leased Property,
acceptable to the Lessor (in its reasonable discretion); and
N. Such evidence as the Lessor may require that there has been
no material adverse change in the financial condition and
strength of the Lessee, the Developer and the Guarantor, and
that the Leased Property shall have sustained no impairment,
reduction, loss or damage which has not been fully restored
and repaired and that no condemnation is or shall be pending
against or with respect thereto.
The Lessee hereby designates David Barber with authority to approve
requisitions and to execute certificates to be delivered pursuant to Section
7.3B on behalf of the Lessee.
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7.4 ADVANCES BY WIRE TRANSFER.
All advances hereunder shall be made by wire transfer of funds into a
bank account maintained by either the Lessee or an authorized agent of the
Lessee.
7.5 CONDITIONS PRECEDENT TO ALL ADVANCES.
A. Advances hereunder shall be made solely for the payment of
the costs and expenses incurred by the Lessee directly in
connection with the construction of the Project, consistent
with the Project Budget, which are required to be paid out-
of-pocket to all other Persons and no advances of Project
Funds may be used to refund any part of expenditures from the
Lessee's own resources on the Project, except to the extent
that any Project Funds are used to reimburse the Lessee for
out-of-pocket expenses incurred by it in accordance with the
terms of the Project Budget. No funds advanced by the Lessor
shall be utilized for any purpose other than as specified
herein and none of the Project Funds shall be paid over to
any officer, partner, stockholder or employee of any member
of the Leasing Group or to any of the Persons collectively
constituting any member of the Leasing Group or those holding
a beneficial interest any member of the Leasing Group, or any
employee thereof, except to the extent that Project Funds are
used to pay compensation to an employee for and with respect
to activity of such employee in construction of the Project.
B. The amount of each requisition shall represent (I) the cost of
the work completed on the Project as of the date of such
requisition which has not been covered by prior requisitions,
(II) the cost of all equipment, fixtures and furnishings
included within the Project Budget, but not incorporated into
any contract approved by the Lessor, which have been delivered
to the Leased Property for incorporation into the Project and
have not been covered by prior requisitions; provided, that,
in the Lessor's judgment, such materials are suitably stored,
secured and insured and that the Lessee can furnish the Lessor
with evidence satisfactory to the Lessor of the Lessee's
unencumbered title thereto and (III) approved soft costs,
which have not been covered by prior requisitions.
C. All requisitions shall be subject to a ten percent (10%)
retainage for the completion of the Project. It is understood
that such retainage is intended to provide a contingency fund
to assure that the construction of the Project shall be fully
completed in accordance with the Project Plans and the terms
and provisions of this Agreement. All amounts so withheld
shall be disbursed after (I) construction of the Project has
been fully completed in accordance with the Project Plans and
the terms and provisions of this Agreement, (II) all of the
items set forth in Section 7.6 hereof have been delivered to
the Lessor and (III) the expiration of the period during
which liens may be perfected with respect to any work
performed or labor or materials supplied in connection with
the construction
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of the Project or the receipt of such evidence as may be
required to assure the Lessor that no claim may thereafter
arise with respect to any work performed or labor or
materials supplied in connection with the construction of the
Project.
D. At the time of each advance, no event which constitutes, or
which, with notice or lapse of time, or both, could
constitute, a Lease Default shall have occurred and be
continuing.
E. Without at any time waiving any of the Lessor's rights under
this Agreement, the Lessor shall always have the right to
make an advance hereunder without satisfaction of each and
every condition upon the Lessor's obligation to make an
advance under this Agreement, and the Lessee agrees to accept
any advance which the Lessor may elect to make under this
Agreement. Notwithstanding the foregoing, the Lessor shall
have the right, notwithstanding a waiver relative to the
first advance or any subsequent advance hereunder, to refuse
to make any and all subsequent advances under this Agreement
until each and every condition set forth in this Section has
been satisfied. The making of any advance hereunder shall not
constitute an approval or acceptance by the Lessor of any
work on the Project theretofore completed.
F. If, while this Agreement is in effect, a claim is made that
the Project does not comply with any Legal Requirement or an
action is instituted before any Governmental Authority with
jurisdiction over the Leased Property or the Lessee in which
a claim is made as to whether the Project does so comply, the
Lessor shall have the right to defer any advance of Project
Funds which the Lessor would otherwise be obligated to make
until such time as any such claim is finally disposed of
favorably to the position of the Lessee, without any
obligation on the part of the Lessor to make a determination
of, or judgment on, the merits of any such claim. For the
purposes of the foregoing sentence, the term "claim" shall
mean an assertion by any Governmental Authority or Person as
to which, in each case, the Lessor has made a good faith
determination that the assertion may properly be made by the
party asserting the same, that the assertion, on its face, is
not without foundation and that the interests of the Lessor
require that the assertion be treated as presenting a bona
fide risk of liability or adverse effect on the Project.
If any such proceeding is not favorably resolved within
thirty (30) days after the commencement thereof, the Lessor
shall also have the right, at its option, to treat the
commencement of such action as a Lease Default, for which the
Lessor shall have all rights herein specified for a Lease
Default. As aforesaid, the Lessor shall have no obligation to
make a determination with reference to the merits of any such
claim. No waiver of the foregoing right shall be implied
from any forbearance by the Lessor in making such election or
any continuation by the Lessor in making advances under this
Agreement.
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In all events, the Lessee agrees to notify the Lessor
forthwith upon learning of the assertion of any such claim or
the commencement of any such proceedings.
G. It is contemplated that all advances of the Project Funds
will be made by the Lessor to the Lessee pursuant to this
Agreement.
H. No inspections or any approvals of the Project during or
after construction shall constitute a warranty or
representation by the Lessor or any of the Consultants as to
the technical sufficiency, adequacy or safety of any
structure or any of its component parts, including, without
limitation, any fixtures, equipment or furnishings, or as to
the subsoil conditions or any other physical condition or
feature pertaining to the Leased Property. All acts,
including any failure to act, relating to the Leased Property
by any agent, representative or designee of the Lessor
(including, without limitation, the Consultants) are
performed solely for the benefit of the Lessor to assure the
payment and performance of the Obligations and are not for
the benefit of the Lessee or the benefit of any other Person.
I. Notwithstanding anything to the contrary hereunder or under
any of the other Lease Documents, the Lessor shall have no
obligation to make any advance hereunder, other than the
first advance on the date hereof, unless and until the Lessee
delivers to the Lessor (I) a fully executed Construction
Contract, (II) true and correct copies of all payment,
performance and completion bonds required pursuant to Section
6.4.13 hereof and (III) a fully executed Construction
Assignment in form and substance satisfactory to the Lessor.
7.6 COMPLETION OF THE PROJECT.
Upon the completion of the construction of the Project in accordance
with the Project Plans and the terms and provisions of this Agreement, the
Lessee shall provide the Lessor with (A) true, correct and complete copies of
(I) a final unconditional Certificate of Occupancy (or its equivalent) issued
by the appropriate governmental authorities, permitting the occupancy and use
of the Project for its Primary Intended Use and (II) all Permits issued by the
appropriate Governmental Authorities which are necessary in order to operate
the Project as a fully-licensed personal care home consisting of 56 units with
62 beds, (B) a certification from the Architect or the Consultants stating that
the Project was completed in accordance with the Project Plans, (C) an updated
Survey of the Leased Property, acceptable to the Lessor (in its sole and
absolute discretion), (D) updated Opinions and (E) such other items relating to
the operation and/or construction of the Project as may be reasonably requested
by the Lessor.
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8. THE LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER ACTION
The Lessor may, after ten (10) Business Days' prior notice to the
Lessee of its intention so to do (except in an emergency when such shorter
notice shall be given as is reasonable under the circumstances), pay any sums
due or claimed to be due for labor or materials furnished in connection with
the ownership, construction, development, maintenance, management, repair, use
or operation of the Leased Property, and any other sums which in the reasonable
opinion of the Lessor, or its attorneys, it is expedient to pay, and may take
such other and further action which in the reasonable opinion of the Lessor is
necessary in order to secure (A) the completion of the Project in accordance
with the Project Plans and the terms and conditions of this Agreement, (B) the
protection and priority of the security interests granted to the Lessor
pursuant to the Lease Documents and (C) the performance of all obligations
under the Lease Documents. The Lessor, in its sole and absolute discretion, may
charge any such payments against any advance that may otherwise be due
hereunder to the Lessee or may otherwise collect such amounts from the Lessee,
and the Lessee agrees to repay to the Lessor all such amounts, notwithstanding
that the aggregate indebtedness of the Lessee to the Lessor hereunder may
exceed the aggregate amount the Lessor has agreed to advance hereunder as the
Project Funds. Any amount which is not so charged against advances due
hereunder and all costs and expenses reasonably incurred by the Lessor in
connection therewith (including, without limitation, attorneys' fees and
expenses and court costs) shall be a demand obligation of the Lessee and, to
the extent permitted by applicable law, shall be added to the Lease Obligations
and secured by the Liens created by the Lease Documents, as fully and
effectively and with the same priority as every other obligation of the Lessee
thereunder and, if not paid within ten (10) days after demand, shall
thereafter, to the extent permitted under applicable law, bear interest at the
Overdue Rate until the date of payment.
If the Lessee fails to observe or cause to be observed any of the
provisions of this Section and such failure continues beyond any applicable
notice or cure period provided for under this Agreement, the Lessor or a
lawfully appointed receiver of the Leased Property, at their respective
options, from time to time may perform, or cause to be performed, any and all
repairs and such other work as they deem necessary to bring the Leased Property
into compliance with the provisions of this Agreement may enter upon the Leased
Property for any of the foregoing purposes, and the Lessee hereby waives any
claim against the Lessor or such receiver arising out of such entry or out of
any other act carried out pursuant to this Section. All amounts so expended or
incurred by the Lessor and by such receiver and all costs and expenses
reasonably incurred in connection therewith (including, without limitation,
attorneys' fees and expenses and court costs), shall be a demand obligation of
the Lessee to the Lessor or such receiver, and, to the extent permitted by law,
shall be added to the Obligations and shall be secured by the Liens created by
the Lease Documents as fully and effectively and with the same priority as
every other obligation of the Lessee secured thereunder and, if not paid within
ten (10) days after demand, shall thereafter, to the extent permitted by
applicable law, bear interest at the Overdue Rate until the date of payment.
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9. INSURANCE; CASUALTY; TAKING
9.1 GENERAL INSURANCE REQUIREMENTS.
The Lessee, at its sole cost and expense, shall keep the Leased
Property and the business operations conducted thereon insured as required
under the Facility Lease.
9.2 FIRE OR OTHER CASUALTY OR CONDEMNATION.
In the event of any damage or destruction to the Leased Property by
reason of fire or other hazard or casualty (a "Casualty") or a taking by power
of eminent domain or conveyance in lieu thereof of all or any portion of the
Leased Property (a "Condemnation"), the Lessee shall give immediate written
notice thereof to the Lessor and comply with the provisions of the Facility
Lease governing Casualties and Condemnations.
10. EVENTS OF DEFAULT
Each of the following shall constitute an "Event of Default" hereunder
and shall entitle the Lessor to exercise its remedies hereunder and under any
of the other Lease Documents:
A. any failure of the Lessee to pay any amount due hereunder or
under any of the other Lease Documents within ten (10) days
following the date when such payment was due;
B. any failure in the observance or performance of any other
covenant, term, condition or warranty provided in this
Agreement or any of the other Lease Documents, other than the
payment of any monetary obligation and other than as
specified in subsections (C) through (F) below (referred to
herein as a "Failure to Perform"), continuing for thirty (30)
days after the giving of notice by the Lessor to the Lessee
specifying the nature of the Failure to Perform; except as to
matters not susceptible to cure within thirty (30) days,
provided that with respect to such matters, (I) the Lessee
commences the cure thereof within thirty (30) days after the
giving of such notice by the Lessor to the Lessee, (II) the
Lessee continuously prosecutes such cure to completion, (III)
such cure is completed within ninety (90) days after the
giving of such notice by the Lessor to the Lessee and (IV)
such Failure to Perform does not impair the Lessor's rights
with respect to the Leased Property or otherwise impair the
Collateral or the Lessor's security interest therein;
C. the occurrence of any default or breach of condition
continuing beyond the expiration of the applicable notice and
grace periods, if any, under any of the other Lease
Documents;
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D. if any representation, warranty or statement contained herein
proves to be untrue in any material respect as of the date
when made or at any time during the Term if such
representation or warranty, other than those contained in
Sections 5.2, 5.5 and in the third sentence of Section 5.6,
is a continuing representation or warranty pursuant to
Section 6.3;
E. Without limiting any of the terms of the other Lease
Documents, if any representation, warranty or statement
contained in Section 5.2, 5.5 or in the third sentence of
Section 5.6 proves to be untrue in any material respect at
any time during the Term after the date when made, beyond the
notice and grace periods set forth in Section 10(B).
F. except as a result of any Casualty or a partial or complete
Condemnation, if a suspension of any work in connection with
the construction of the Project occurs for a period in excess
of ten (10) Business Days, irrespective of the cause thereof,
provided that the Lessee shall not be deemed to be in default
under this Subsection if such suspension is for circumstances
not reasonably within its control, but only if the Lessor, in
its sole and absolute discretion, shall determine that such
suspension shall not create any risk that the construction of
the Project will not be completed (in accordance with the
Project Plans and the terms and conditions of this Agreement)
on or before the Completion Date; and
G. if construction of the Project shall not be completed in
accordance with the Project Plans and this Agreement
(including, without limitation, satisfaction of the
conditions set forth in Section 7.6) on or before the
Completion Date.
11. REMEDIES IN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, at the option of the
Lessor, which may be exercised at any time after an Event of Default shall have
occurred, the Lessor shall have all rights and remedies available to it, at law
or in equity, including, without limitation, all of the rights and remedies
under the Facility Lease and the other Lease Documents. Subject to the
requirements of applicable law, all materials at that time on or near the
Leased Property which are the property of the Lessee and which are to be used
in connection with the completion of the Project shall be subject to the Liens
created by the Lease Documents.
In addition to, and without limitation of, the foregoing, the Lessor
is authorized to charge all money expended for completion of the Project
against sums hereunder which have not already been advanced (even if the
aggregate amount of such sums expended and all amounts previously advanced
hereunder exceed the amount of the Project Funds which the Lessor has agreed to
advance hereunder); and the Lessee agrees to pay to the Lessor Rent under the
Facility Lease (calculated, in part, thereunder based upon all sums advanced
hereunder, including, without limitation, all sums expended in good faith by
the Lessor in connection with the completion of the Project), and, in addition
thereto, the Lessee agrees to pay to the Lessor (as Rent under the
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Facility Lease), for services in connection with said completion of the
Project, such additional sums as shall compensate the Lessor for the time and
effort the Lessor and its employees shall have expended in connection
therewith. The Lessor is authorized, but not obligated in any event, to do all
such things in connection with the construction of the Project as the Lessor,
in its sole and absolute discretion, may deem advisable, including, without
limitation, the right to make any payments with respect to any obligation of
the Lessee to the Lessor or to any other Person in connection with the
completion of construction of the Project and to make additions and changes in
the Project Plans to employ contractors, subcontractors and agents and to take
any and all such action, either in the Lessor's own name or in the name of the
Lessee, and the Lessee hereby grants the Lessor an irrevocable power of
attorney to act in its name in connection with the foregoing. This power of
attorney, being coupled with an interest, shall be irrevocable until all of the
Obligations are fully paid and performed and shall not be affected by any
disability or incapacity which the Lessee may suffer and shall survive the
same. The power of attorney conferred on the Lessor by the provisions of this
Section 11 is provided solely to protect the interests of the Lessor and shall
not impose any duty on the Lessor to exercise any such power and neither the
Lessor nor such attorney-in-fact shall be liable for any act, omission, error
in judgment or mistake of law, except as the same may result from its gross
negligence or wilful misconduct. In the event that the Lessor takes possession
of the Leased Property and assumes control of the Project as aforesaid, it
shall not be obligated to continue the construction of the Project for any
period of time longer than the Lessor shall see fit (in its sole and absolute
discretion), and the Lessor may thereafter, at any time, abandon its efforts
and refuse to make further payments for the account of the Lessee, whether or
not the Project has been completed.
In addition, at the Lessor's option and without demand, notice or
protest, the occurrence of any Event of Default shall also constitute a default
under any one or more of the Related Party Agreements.
12. GENERAL
The provisions set forth in Articles 22 and 23 and Sections 2.2, 16.8
through 16.10, 24.2 through 24.6, and 24.8 through 24.12 of the Facility Lease
are hereby incorporated herein by reference, mutatis, mutandis, and shall be
applicable to this Agreement as if set forth in full herein.
In the event of any conflict between the provisions hereof and the
provisions of the Lease, the provisions of the Facility Lease shall control.
-26-
<PAGE> 30
EXECUTED as a sealed instrument as of the day and year first above
mentioned.
WITNESS: LESSOR:
MEDITRUST ACQUISITION CORPORATION II,
a Delaware corporation
- ---------------------------- By:
Name: Name:
Title:
WITNESS: LESSEE:
-------------------------------
- ---------------------------- By:
Name: Name:
Title:
-27-
<PAGE> 31
EXHIBIT E
DEFINITIONS
AFFILIATE: As defined in the Facility Lease.
AFFILIATED PARTY SUBORDINATION AGREEMENT: As defined in Section 4.1.
AGREEMENT REGARDING RELATED LEASE TRANSACTIONS: As defined in Section 4.1.
ARCHITECT: As defined in Section 1.6.
ARCHITECT'S ASSIGNMENT: As defined in Section 4.1.
ARCHITECT'S CONTRACT: As defined in Section 1.6.
ASSIGNMENT AGREEMENT: As defined in the Facility Lease.
BALANCED CARE GUARANTY: As defined in Section 4.1.
BUSINESS DAY: As defined in the Facility Lease.
CASH COLLATERAL: As defined in the Deposit Pledge Agreement.
CASUALTY: As defined in Section 9.2.
COLLATERAL: As defined in Section 4.3.
COMPLETION DATE: As defined in Section 1.8.
CONDEMNATION: As defined in Section 9.2.
CONSTRUCTION ASSIGNMENT: As defined in Section 4.1.
CONSTRUCTION CONTRACT: As defined in Section 1.7.
CONSULTANTs: Collectively, the architects, engineers, inspectors, surveyors and
other consultants that are engaged, from time to time, by the Lessor to perform
services for the Lessor in connection with the construction of the Project
contemplated under this Agreement.
CONTRACTS: As defined in the Facility Lease.
DEPOSIT PLEDGE AGREEMENT: As defined in Section 4.1.
DEVELOPER: As defined in Section 1.4.
<PAGE> 32
DEVELOPER GUARANTY: As defined in Section 4.1.
DEVELOPER PERMITS ASSIGNMENT: As defined in Section 4.1.
DOLLARS: Lawful money of the United States of America.
ENVIRONMENTAL INDEMNITY AGREEMENT: As defined in Section 4.1.
EVENT OF DEFAULT: As defined in Section 10.
EXISTING IMPROVEMENTS: As defined in Section 1.2.
FACILITY LEASE: As defined in Section 1.3.
FAILURE TO PERFORM: As defined in Section 10.
FINANCING STATEMENTS: Uniform Commercial Code financing statements evidencing
the security interests granted to the Lessor in connection with the Lease
Documents.
GENERAL CONTRACTOR: As defined in Section 1.7.
GOVERNMENTAL AUTHORITIES: As defined in the Facility Lease.
GUARANTOR: Balanced Care Corporation, a Delaware corporation, and its
successors and assigns.
GUARANTIED OBLIGATIONS: As defined in the Guaranties.
GUARANTIES: Collectively, the Balanced Care Guaranty and the Developer
Guaranty.
IMPOSITIONS: As defined in the Facility Lease.
IMPROVEMENTS: As defined in Section 1.4.
INSURANCE REQUIREMENTS: As defined in the Facility Lease.
LAND: As defined in Section 1.2.
LEASE DEFAULT: The occurrence of a default or breach of condition continuing
beyond the expiration of any applicable notice and/or grace period, if any,
under the terms of any of the Lease Documents.
LEASE DOCUMENTS: As defined in Section 4.1.
LEASE OBLIGATIONS: As defined in Section 4.2 and, including, without
limitation, the Guarantied Obligations.
<PAGE> 33
LEASED PROPERTY: As defined in the Facility Lease.
LEASEHOLD IMPROVEMENT FEE: THIRTY-EIGHT THOUSAND TWO HUNDRED SIXTY-
NINE AND TEN/100 DOLLARS ($38,269.10).
LEASING GROUP: As defined in the Facility Lease.
LEGAL REQUIREMENTS: As defined in the Facility Lease.
LESSEE: As defined in the preamble of this Agreement and its successors and
assigns.
LESSEE PERMITS ASSIGNMENT: As defined in Section 4.1.
LESSOR: As defined in the preamble of this Agreement and its successors and
assigns.
LESSOR'S ADDRESS: 197 First Avenue, Needham Heights, MA 02194 or such other
address as the Lessor shall designate in writing.
LIEN: With respect to any real or personal property, any mortgage, easement,
restriction, lien, pledge, collateral assignment, hypothecation, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether or not choate, vested or perfected.
MAJOR SUBCONTRACTORS: As defined in Section 6.4.05.
MUNICIPAL IMPROVEMENTS AGREEMENT: That certain Municipal Improvements Agreement
dated as of February 4, 1997 by and between the Seller and the Township.
OBLIGATIONS: Collectively, the Lease Obligations and the Related Party
Obligations.
OPINIONS: As defined in Section 7.1.
OVERDUE RATE: As defined in the Facility Lease.
PERMITS: As defined in the Facility Lease.
PERMITS ASSIGNMENTS: Collectively, the Lessee Permits Assignment and the
Developer Permits Assignment.
PERMITTED ENCUMBRANCES: As defined in the Facility Lease.
PERMITTED PRIOR SECURITY INTERESTS: As defined in the Facility Lease.
PERSON: As defined in the Facility Lease.
PLEDGE AGREEMENT: As defined in Section 4.1.
<PAGE> 34
PRIMARY INTENDED USE: The use of the Project as a personal care home with
______________ licensed units and such ancillary uses as are permitted by
applicable law and may be necessary in connection therewith or incidental
thereto.
PROJECT: As defined in Section 1.4.
PROJECT BUDGET: As defined in Section 1.7.
PROJECT FUNDS: As defined in Section 1.5.
PROJECT PLANS: As defined in Section 1.6.
PURCHASE OPTION AGREEMENT: As defined in the Facility Lease.
RECEIVABLES: As defined in the Security Agreement.
RELATED PARTY AGREEMENT: As defined in the Facility Lease.
RELATED PARTY OBLIGATIONS: As defined in the Facility Lease.
RENT: As defined in the Facility Lease.
SECURITY AGREEMENT: As defined in Section 4.1
SELLER: As defined in the Facility Lease.
SELLER'S IMPROVEMENTS: As defined in the Option Purchase Agreement.
SUBSIDIARY: As defined in the Facility Lease.
SURVEY: As defined in Section 17.1.
SURVEYOR'S CERTIFICATE: As defined in Section 17.1.
TANGIBLE PERSONAL PROPERTY: As defined in the Facility Lease.
TERM: As defined in the Facility Lease.
TITLE COMPANY: As defined in Section 7.1.
TITLE POLICY: As defined in Section 7.1.
TOWNSHIP: The Township of ___________________.
UCC: Uniform Commercial Code as adopted in the Commonwealth of Pennsylvania.
<PAGE> 35
SCHEDULE TO EXHIBIT 10.11 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
LEASEHOLD IMPROVEMENT AGREEMENT
-------------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES DATE OF LESSOR'S SUBSTANTIAL
------- ------- ------- -------- -----------
AGREEMENT INVESTMENT COMPLETION
--------- ---------- ----------
DATE
----
<S> <C> <C> <C> <C>
Reading, PA Meditrust Acquisition 2/27/97 $4,217,940.00 8/27/98
Corporation II (Lessor) and
BCC at Reading, Inc. (Lessee)
State College, PA Meditrust Acquisition 8/2/96 $3,637,006.00 2/2/98
Corporation II (Lessor) and
BCC at State College, Inc.
(Lessee)
Allegheny, PA Meditrust Acquisition 8/2/96 $3,637,018.00 2/2/98
Corporation II (Lessor) and
BCC at Altoona, Inc. (Lessee)
Blytheville, AR Meditrust Acquisition 11/1/96 $3,516,500.00 4/30/98
Corporation II (Lessor) and
Balanced Care at Blytheville,
Inc. (Lessee)
Maumelle, AR Meditrust Acquisition 11/1/96 $3,796,500.00 4/30/98
Corporation II (Lessor) and
Balanced Care at Maumelle,
Inc. (Lessee)
Mountain Home, AR Meditrust Acquisition 11/1/96 $3,656,700.00 4/30/98
Corporation II (Lessor) and
Balanced Care at Mountain
Home, Inc. (Lessee)
Pocahontas, AR Meditrust Acquisition 11/1/96 $3,455,500.00 4/30/98
Corporation II (Lessor) and
Balanced Care at Pocahontas,
Inc. (Lessee)
Sherwood, AR Meditrust Acquisition 11/1/96 $3,987,000.00 4/30/98
Corporation II (Lessor) and
Balanced Care at Sherwood,
Inc. (Lessee)
</TABLE>
<PAGE> 36
SCHEDULE TO EXHIBIT 10.11 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
LEASEHOLD IMPROVEMENT AGREEMENT
-------------------------------
<TABLE>
<CAPTION>
SUBSTANTIAL
DEVELOPMENT LEASEHOLD WORKING CAPITAL DATE OF COMPLETION
PROJECT PARTIES PROJECT BUDGET FEE IMPROVEMENT FEE RESERVE AGREEMENT DATE
- ------- ------- -------------- ------------ --------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lima, OH BCC Development and $4,463,373.00 $350,000.00 $9,800.00 $470,000.00 9/30/97 3/31/99
Management Company
(Developer), TC Realty
Corporation I (Lessee) and
Meditrust Acquisition
Corporation II (Lessor)
Mansfield, OH BCC Development and $6,125,618.00 $350,000.00 $13,100.00 $390,000.00 9/30/97 3/31/99
Management Company
(Developer), TC Realty
Corporation II (Lessee) and
Meditrust Acquisition
Corporation II (Lessor)
Scranton, PA BCC Development and $3,705,700.00 $200,000.00 $6,000.00 $297,000.00 9/30/97 3/31/99
Management Company
(Developer), TC Realty
Corporation III (Lessee) and
Meditrust Acquisition
Corporation II (Lessor)
Xenia, OH BCC Development and $8,615,245.00 $450,000.00 $30,500.00 $950,000.00 9/30/97 3/31/99
Management Company
(Developer), TC Realty
Corporation IV (Lessee) and
Meditrust Acquisition
Corporation II (Lessor)
</TABLE>
<PAGE> 1
EXHIBIT 10.12
FORM OF
F A C I L I T Y L E A S E A G R E E M E N T
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 LEASED PROPERTY; TERM; CONSTRUCTION; EXTENSIONS.................................................1
1.1 Leased Property.................................................................................1
1.2 Term............................................................................................2
1.3 Extended Terms..................................................................................2
ARTICLE 2 DEFINITIONS AND RULES OF CONSTRUCTION...........................................................3
2.1 Definitions.....................................................................................3
2.2 Rules of Construction..........................................................................20
ARTICLE 3 RENT...........................................................................................20
3.1 Base Rent for Land, Leased Improvements, Related
Rights and Fixtures............................................................................20
3.2 [Intentionally Deleted]........................................................................22
3.3 [Intentionally Deleted]........................................................................22
3.4 Additional Charges.............................................................................22
3.5 [Intentionally Deleted]........................................................................22
3.6 Net Lease......................................................................................22
3.7 No Lessee Termination or Offset................................................................23
3.7.1 No Termination........................................................................23
3.7.2 Waiver................................................................................23
3.7.3 Independent Covenants.................................................................23
3.8 Abatement of Rent Limited......................................................................23
ARTICLE 4 IMPOSITIONS; TAXES; UTILITIES; INSURANCE PAYMENTS..............................................24
4.1 Payment of Impositions.........................................................................24
4.1.1 Lessee To Pay.........................................................................24
4.1.2 Installment Elections.................................................................24
4.1.3 Returns and Reports...................................................................24
4.1.4 Refunds...............................................................................25
4.1.5 Protest...............................................................................25
4.2 Notice of Impositions..........................................................................25
4.3 Adjustment of Impositions......................................................................25
4.4 Utility Charges................................................................................25
4.5 Insurance Premiums.............................................................................26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.6 Deposits.......................................................................................26
4.6.1 Lessor's Option.......................................................................26
4.6.2 Use of Deposits.......................................................................26
4.6.3 Deficits..............................................................................27
4.6.4 Other Properties......................................................................27
4.6.5 Transfers.............................................................................28
4.6.6 Security..............................................................................28
4.6.7 Return................................................................................28
4.6.8 Receipts..............................................................................28
ARTICLE 5 OWNERSHIP OF LEASED PROPERTY AND PERSONAL
PROPERTY; INSTALLATION, REMOVAL AND REPLACEMENT
OF PERSONAL PROPERTY;..........................................................................28
5.1 Ownership of the Leased Property...............................................................28
5.2 Personal Property; Removal and Replacement of
Personal Property..............................................................................29
5.2.1 Lessee To Equip Facility..............................................................29
5.2.2 Sufficient Personal Property..........................................................29
5.2.3 Removal and Replacement; Lessor's Option to
Purchase..............................................................................29
ARTICLE 6 SECURITY FOR LEASE OBLIGATIONS.................................................................30
6.1 Security for Lessee's Obligations; Permitted
Prior Security Interests.......................................................................30
6.1.1 Security..............................................................................30
6.1.2 Purchase-Money Security Interests, Receivables
and Equipment Leases..................................................................30
6.2 Guaranties.....................................................................................31
ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY; MANAGEMENT
AGREEMENTS.....................................................................................31
7.1 Condition of the Leased Property...............................................................31
7.2 Use of the Leased Property; Compliance;
Management.....................................................................................32
7.2.1 Obligation to Operate.................................................................32
7.2.2 Permitted Uses........................................................................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
7.2.3 Compliance with Insurance Requirements................................................32
7.2.4 No Waste..............................................................................33
7.2.5 No Impairment.........................................................................33
7.2.6 No Liens..............................................................................33
7.3 Compliance with Legal Requirements.............................................................33
7.4 Management Agreements..........................................................................33
ARTICLE 8 REPAIRS; RESTRICTIONS..........................................................................34
8.1 Maintenance and Repair.........................................................................34
8.1.1 Lessee's Responsibility...............................................................34
8.1.2 No Lessor Obligation..................................................................35
8.1.3 Lessee May Not Obligate Lessor........................................................35
8.2 Encroachments; Title Restrictions..............................................................36
ARTICLE 9 MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS..............................................................................37
9.1 Lessor's Approval..............................................................................37
9.2 General Provisions as to Capital Additions and
Certain Material Structural Work.............................................................37
9.2.1 No Liens..............................................................................37
9.2.2 Lessee's Proposal Regarding Capital Additions
and Material Structural Work........................................................37
9.2.3 Lessor's Options Regarding Capital Additions
and Material Structural Work........................................................37
9.2.4 Lessor May Elect to Finance Capital Additions
or Material Structural Work.........................................................38
9.3 Capital Additions Financed by Lessor...........................................................38
9.3.1 Lessee's Financing Request............................................................38
9.3.2 Lessor's General Requirements.........................................................38
9.3.3 Payment of Costs......................................................................40
9.4 General Limitations............................................................................40
9.5 Non-Capital Additions..........................................................................41
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE 10 WARRANTIES AND REPRESENTATIONS.......................................................................41
10.1 Representations and Warranties.................................................................41
10.1.1 Existence; Power; Qualification.......................................................41
10.1.2 Valid and Binding.....................................................................42
10.1.3 Single Purpose........................................................................42
10.1.4 No Violation..........................................................................42
10.1.5 Consents and Approvals................................................................42
10.1.6 No Liens or Insolvency Proceedings....................................................42
10.1.7 No Burdensome Agreements..............................................................43
10.1.8 Commercial Acts.......................................................................43
10.1.9 Adequate Capital, Not Insolvent.......................................................43
10.1.10 Not Delinquent........................................................................43
10.1.11 No Affiliate Debt.....................................................................43
10.1.12 Taxes Current.........................................................................44
10.1.13 Financials Complete and Accurate......................................................44
10.1.14 Pending Actions, Notices and Reports..................................................44
10.1.15 Compliance with Legal and Other Requirements..........................................45
10.1.16 No Action By Governmental Authority...................................................46
10.1.17 Property Matters......................................................................46
10.1.18 Third Party Payor Agreements..........................................................47
10.1.19 Rate Limitations......................................................................47
10.1.20 Free Care.............................................................................47
10.1.21 No Proposed Changes...................................................................48
10.1.22 ERISA.................................................................................48
10.1.23 No Broker.............................................................................48
10.1.24 No Improper Payments..................................................................48
10.1.25 Nothing Omitted.......................................................................49
10.1.26 No Margin Security....................................................................49
10.1.27 No Default............................................................................49
10.1.28 Principal Place of Business...........................................................49
10.1.29 Labor Matters.........................................................................49
10.1.30 Intellectual Property.................................................................50
10.1.31 Management Agreements.................................................................50
10.1.32 Option Purchase Documents.............................................................50
10.2 Continuing Effect of Representations and Warranties............................................50
ARTICLE 11 FINANCIAL AND OTHER COVENANTS........................................................................50
11.1 Status Certificates............................................................................50
11.2 Financial Statements; Reports; Notice and Information..........................................51
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
11.2.1 Obligation to Furnish.................................................................51
11.2.2 Responsible Officer...................................................................55
11.2.3 No Material Omission..................................................................55
11.2.4 Confidentiality.......................................................................55
11.3 Financial Covenants............................................................................56
11.3.1 Rent Coverage Ratio of Lessee.........................................................56
11.3.2 Current Ratio - Guarantor.............................................................56
11.3.3 Tangible Net Worth - Guarantor........................................................56
11.3.4 No Indebtedness.......................................................................56
11.3.5 No Guaranties.........................................................................57
11.4 Affirmative Covenants..........................................................................57
11.4.1 Maintenance of Existence..............................................................57
11.4.2 Materials.............................................................................57
11.4.3 Compliance with Legal Requirements and
Applicable Agreements.................................................................57
11.4.4 Books and Records.....................................................................58
11.4.5 Participation in Third Party Payor Programs...........................................58
11.4.6 Conduct of its Business...............................................................58
11.4.7 Address...............................................................................58
11.4.8 Subordination of Affiliate Transactions...............................................58
11.4.9 Inspection............................................................................59
11.4.10 Additional Property...................................................................59
11.4.11 Annual Facility Upgrade Expenditures..................................................59
11.5 Additional Negative Covenants..................................................................59
11.5.1 Restrictions Relating to Lessee.......................................................59
11.5.2 No Liens..............................................................................60
11.5.3 Limits on Affiliate Transactions......................................................60
11.5.4 Non-Competition.......................................................................61
11.5.5 No Default............................................................................62
11.5.6 Restrictions Relating to the Guarantor and the Developer..............................62
11.5.7 [Intentionally Deleted]...............................................................62
11.5.8 ERISA.................................................................................62
11.5.9 Forgiveness of Indebtedness...........................................................63
11.5.10 Value of Assets.......................................................................63
11.5.11 Changes in Fiscal Year and Accounting Procedures......................................63
11.5.12 Option Purchase Documents.............................................................63
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
ARTICLE 12 INSURANCE AND INDEMNITY..............................................................................63
12.1 General Insurance Requirements.................................................................63
12.1.1 Types and Amounts of Insurance........................................................63
12.1.2 Insurance Company Requirements........................................................65
12.1.3 Policy Requirements...................................................................65
12.1.4 Notices; Certificates and Policies....................................................66
12.1.5 Lessor's Right to Place Insurance.....................................................66
12.1.6 Payment of Proceeds...................................................................66
12.1.7 Irrevocable Power of Attorney.........................................................67
12.1.8 Blanket Policies......................................................................67
12.1.9 No Separate Insurance.................................................................67
12.1.10 Assignment of Unearned Premiums.......................................................68
12.2 Indemnity......................................................................................68
12.2.1 Indemnification.......................................................................68
12.2.2 Indemnified Parties...................................................................69
12.2.3 Limitation on Lessor Liability........................................................69
12.2.4 Risk of Loss..........................................................................69
ARTICLE 13 FIRE AND CASUALTY....................................................................................70
13.1 Restoration Following Fire or Other Casualty...................................................70
13.1.1 Following Fire or Casualty............................................................70
13.1.2 Procedures............................................................................70
13.1.3 Disbursement of Insurance Proceeds....................................................71
13.2 Disposition of Insurance Proceeds..............................................................75
13.2.1 Proceeds To Be Released To Pay For Work...............................................75
13.2.2 Proceeds Not To Be Released...........................................................76
13.2.3 Lessee Responsible for Short-Fall.....................................................76
13.3 Tangible Personal Property.....................................................................77
13.4 Restoration of Certain Improvements and the
Tangible Personal Property...................................................................77
13.5 No Abatement of Rent...........................................................................77
13.6 Termination of Certain Rights..................................................................77
13.7 Waiver.........................................................................................77
13.8 Application of Rent Loss and/or Business Interruption Insurance................................77
13.9 Obligation To Account..........................................................................78
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C>
ARTICLE 14 CONDEMNATION.........................................................................................78
14.1 Parties' Rights and Obligations................................................................78
14.2 Total Taking...................................................................................78
14.3 Partial or Temporary Taking....................................................................78
14.4 Restoration....................................................................................79
14.5 Award Distribution.............................................................................79
14.6 Control of Proceedings.........................................................................79
ARTICLE 15 PERMITTED CONTESTS...................................................................................80
15.1 Lessee's Right to Contest......................................................................80
15.2 Lessor's Cooperation...........................................................................81
15.3 Lessee's Indemnity.............................................................................81
ARTICLE 16 DEFAULT..............................................................................................81
16.1 Events of Default..............................................................................81
16.2 Remedies.......................................................................................85
16.3 Damages........................................................................................89
16.4 Lessee Waivers.................................................................................90
16.5 Application of Funds...........................................................................90
16.6 [Intentionally Deleted]........................................................................90
16.7 Lessor's Right to Cure.........................................................................90
16.8 No Waiver by Lessor............................................................................90
16.9 Right of Forbearance...........................................................................91
16.10 Cumulative Remedies............................................................................91
ARTICLE 17 SURRENDER OF LEASED PROPERTY OR LEASE;
HOLDING OVER...................................................................................92
17.1 Surrender......................................................................................92
17.2 Transfer of Permits and Contracts..............................................................92
17.3 No Acceptance of Surrender.....................................................................93
17.4 Holding Over...................................................................................93
ARTICLE 18 PURCHASE OF THE LEASED PROPERTY......................................................................93
18.1 Purchase of the Leased Property................................................................93
18.2 Appraisal......................................................................................94
18.2.1 Designation of Appraisers.............................................................94
18.2.2 Appraisal Process.....................................................................94
18.2.3 Specific Enforcement and Costs........................................................95
</TABLE>
vii
<PAGE> 9
<TABLE>
<S> <C> <C>
18.3 [Intentionally Deleted]........................................................................95
18.4 Lessee's Option to Purchase....................................................................95
18.4.1 Conditions to Option..................................................................95
18.4.2 Exercise of Option....................................................................95
18.4.3 Conveyance............................................................................96
18.4.4 Calculation of Purchase Price.........................................................96
18.4.5 Payment of Purchase Price.............................................................96
18.4.6 Place and Time of Closing.............................................................96
18.4.7 Condition of Leased Property..........................................................96
18.4.8 Quality of Title......................................................................96
18.4.9 Lessor's Inability to Perform.........................................................96
18.4.10 Merger by Deed........................................................................97
18.4.11 Use of Purchase Price to Clear Title..................................................97
18.4.12 Lessee's Default......................................................................97
ARTICLE 19 SUBLETTING AND ASSIGNMENT............................................................................97
19.1 Subletting and Assignment......................................................................97
19.2 Permitted Subleases............................................................................98
19.3 Attornment.....................................................................................98
ARTICLE 20 TITLE TRANSFERS AND LIENS GRANTED BY LESSOR..........................................................98
20.1 No Merger of Title.............................................................................98
20.2 Transfers by Lessor............................................................................98
20.3 Lessor May Grant Liens.........................................................................98
20.4 Subordination and Non-Disturbance..............................................................99
ARTICLE 21 LESSOR OBLIGATIONS..................................................................................100
21.1 Quiet Enjoyment...............................................................................100
21.2 Memorandum of Lease...........................................................................100
21.3 Default by Lessor.............................................................................100
ARTICLE 22 NOTICES.............................................................................................100
ARTICLE 23 LIMITATION OF MEDITRUST LIABILITY...................................................................102
ARTICLE 24 MISCELLANEOUS PROVISIONS............................................................................103
24.1 Broker's Fee Indemnification..................................................................103
24.2 No Joint Venture or Partnership...............................................................103
24.3 Amendments, Waivers and Modifications.........................................................103
</TABLE>
viii
<PAGE> 10
<TABLE>
<S> <C> <C>
24.4 Captions and Headings.........................................................................104
24.5 Time is of the Essence........................................................................104
24.6 Counterparts..................................................................................104
24.7 Entire Agreement..............................................................................104
24.8 WAIVER OF JURY TRIAL..........................................................................104
24.9 Successors and Assigns........................................................................105
24.10 No Third Party Beneficiaries..................................................................105
24.11 Governing Law.................................................................................105
24.12 General.......................................................................................106
EXHIBIT A LEGAL DESCRIPTION OF THE LAND
EXHIBIT B PERMITTED ENCUMBRANCES
EXHIBIT C LIST OF SHAREHOLDERS
EXHIBIT D NATIONAL ACCOUNTS AND LOCAL DISCOUNTS
EXHIBIT E [INTENTIONALLY DELETED]
EXHIBIT F RATE LIMITATIONS
EXHIBIT G FREE CARE REQUIREMENTS
EXHIBIT H INTENTIONALLY DELETED
EXHIBIT I RENT COVERAGE RATIO CALCULATION
EXHIBIT J [INTENTIONALLY DELETED]
EXHIBIT K RELATED PARTY OBLIGATIONS
</TABLE>
ix
<PAGE> 11
FORM OF FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is dated as of _______________
and is between __________________ ("Lessor"), and ("Lessee"), _________________,
having its principal office at 5021 Louise Drive, Suite 200, Mechanicsburg,
Pennsylvania 17055.
ARTICLE 1
LEASED PROPERTY; TERM; CONSTRUCTION; EXTENSIONS
1.1 LEASED PROPERTY. Upon and subject to the terms and conditions
hereinafter set forth, Lessor leases to Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and interests in and to the following real and
personal property (collectively, the "Leased Property"):
(A) the real property described in EXHIBIT A attached hereto
(the "Land");
(B) all buildings, structures, Fixtures (as hereinafter
defined) and other improvements of every kind including, but not
limited to, alleyways and connecting tunnels, sidewalks, utility
pipes, conduits and lines, and parking areas and roadways appurtenant
to such buildings and structures presently or hereafter situated upon
the Land (collectively, the "Leased Improvements");
(C) all easements, rights and appurtenances of every nature
and description now or hereafter relating to or benefitting any or all
of the Land and the Leased Improvements; and
(D) all equipment, machinery, building fixtures, and other
items of property (whether realty, personalty or mixed), including all
components thereof, now or hereafter located in, on or used in
connection with, and permanently affixed to or incorporated into the
Leased 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 oxygen and vacuum systems, all of which, to the greatest
extent permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto, but specifically excluding all
items included within the category of Tangible Personal Property (as
hereinafter defined) which are not permanently affixed to or
incorporated in the Leased Property (collectively, the "Fixtures").
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The Leased Property is leased in its present condition, AS IS, without
representation or warranty of any kind, express or implied, by Lessor and
subject to: (I) the rights of parties in possession; (II) the existing state of
title including all covenants, conditions, Liens (as hereinafter defined) and
other matters of record (including, without limitation, the matters set forth
in EXHIBIT B); (III) all applicable laws and (IV) all matters, whether or not
of a similar nature, which would be disclosed by an inspection of the Leased
Property or by an accurate survey thereof.
1.2 TERM. The term of this Lease shall consist of: the "Initial Term",
which shall commence on ________________ (the "Commencement Date") and end on
the date (the "Expiration Date"), that constitutes the tenth (10th) anniversary
of the first "Conversion Date" to occur under the Related Leases (as
hereinafter defined); provided, however, that this Lease may be sooner
terminated as hereinafter provided. In addition, Lessee shall have the
option(s) to extend the Term (as hereinafter defined) as provided for in
Section 1.3.
1.3 EXTENDED TERMS. Provided that this Lease has not been previously
terminated, and as long as there exists no Lease Default (as hereinafter
defined) at the time of exercise and on the last day of the Initial Term or the
then current Extended Term (as hereinafter defined), as the case may be, Lessee
is hereby granted the option to extend the Initial Term of this Lease for three
(3) additional periods (collectively, the "Extended Terms") as follows: three
(3) successive five (5) year periods for a maximum Term, if all such options
are exercised, which ends on the fifteenth (15th) anniversary of the Expiration
Date. Lessee's extension options shall be exercised by Lessee by giving written
notice to Lessor of each such extension at least one hundred eighty (180) days,
but not more than three hundred sixty (360) days, prior to the termination of
the Initial Term or the then current Extended Term, as the case may be. Lessee
shall have no right to rescind any such notice once given. Lessee may not
exercise its option for more than one Extended Term at a time. During each
effective Extended Term, all of the terms and conditions of this Lease shall
continue in full force and effect, except that the Base Rent (as hereinafter
defined) for each such Extended Term shall be adjusted as set forth in Section
3.1(b).
Notwithstanding anything to the contrary set forth herein, Lessee's
rights to exercise the options granted in this Section 1.3 are subject to the
further condition that concurrently with the exercise of any extension option
hereunder, Lessee shall have exercised its option to extend the terms of all of
the Related Leases in accordance with the provisions of the Agreement Regarding
Related Lease Transactions and the provisions of Section 1.3 of each of the
Related Leases.
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ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this Lease and the other Lease
Documents (as hereinafter defined), 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 and (II) all references in this Lease or any of the other
Lease Documents to designated "Articles", "Sections" and other subdivisions are
to the designated Articles, Sections and other subdivisions of this Lease or
the other applicable Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: CARF, JCAHO, the Department of Public Welfare and
all other Persons having or claiming jurisdiction over the accreditation,
certification, evaluation or operation of the Facility.
ADDITIONAL BASE RENT ADJUSTMENT DATE: As defined in Section 3.1.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
AFFILIATE: With respect to any Person (I) any other Person which,
directly or indirectly, controls or is controlled by or is under common control
with such Person, (II) any other Person that owns, beneficially, directly or
indirectly, twenty-five percent (25%) or more of the outstanding capital stock,
shares or equity interests of such Person or (III) any officer, director,
employee, general partner or trustee of such Person, or any other Person
controlling, controlled by, or under common control with, such Person
(excluding trustees and Persons serving in a fiduciary or similar capacity who
are not otherwise an Affiliate of such Person). For the 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 voting securities, partnership interests or other
equity interests.
AFFILIATED PARTY SUBORDINATION AGREEMENT: That certain Affiliated
Party Subordination Agreement of even date by and among Lessee, the Developer,
the Guarantor and Lessor.
AGREEMENT REGARDING RELATED LEASE TRANSACTIONS: That certain Amended
and Restated Agreement Regarding Related Lease Transactions dated as of
November 1, 1996 by and among Lessor and any Related Party that is a party to
any Related Lease, as amended by
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the First Amendment to Amended and Restated Agreement Regarding Related Lease
Transactions of even date by and among Lessee, Lessor and any Related Party
that is a party to any Related Lease. Lessor and Lessee anticipate that the
Agreement Regarding Related Lease Transactions will be further amended from
time to time in connection with future transactions in order to include
Affiliates of Lessor and/or Affiliates of Lessee as parties thereto and to
expand or otherwise modify the definition of "Related Leases" set forth
therein.
AMOUNTS DUE: As defined in Section 16.2(e).
ANNUAL FACILITY UPGRADE EXPENDITURE: The aggregate amount spent on
Upgrade Renovations during any Lease Year.
APPURTENANT AGREEMENTS: Collectively, all instruments, documents and
other agreements that now or hereafter create any utility, access or other
rights or appurtenances benefiting or relating to the Leased Property.
ARCHITECT'S ASSIGNMENT: As defined in the Leasehold Improvement
Agreement.
ARCHITECT'S CONTRACT: As defined in the Leasehold Improvement
Agreement.
ASSIGNMENT AGREEMENT: That certain Assignment Agreement of even date
herewith by and between the Guarantor, Lessor and Seller relating to the Option
Purchase Agreement.
AWARD: All compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
BALANCED CARE GUARANTY: That certain Guaranty of even date executed
by Guarantor in favor of Lessor, relating to the Lease Obligations.
BASE RENT: The Pre-Conversion Base Rent from the Commencement Date
through the day preceding the Conversion Date and the Post-Conversion Base Rent
from the Conversion Date through the remainder of the Term.
BUSINESS DAY: Any day which is not a Saturday or Sunday or a public
holiday under the laws of the United States of America, the Commonwealth of
Massachusetts, the State or the state in which Lessor's depository bank is
located.
CARF: The Commission on Accreditation of Rehabilitation Facilities.
CAPITAL ADDITIONS: Collectively, all new buildings and additional
structures annexed to any portion of any of the Leased Improvements and
material expansions of any of the Leased Improvements which are constructed on
any portion of the Land during the Term, including, without limitation, the
construction of a new wing or new story, the renovation of
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any of the Leased Improvements on the Leased Property in order to provide a
functionally new facility that is needed or used to provide services not
previously offered and any expansion, construction, renovation or conversion or
in order to (I) increase the unit capacity of a Facility, (II) change the
purpose for which such units are utilized and/or (III) change the utilization
of any material portion of any of the Leased Improvements.
CAPITAL ADDITION COST: The cost of any Capital Addition made by Lessee
whether paid for by Lessee or Lessor. Such cost shall include all costs and
expenses of every nature whatsoever incurred directly or indirectly in
connection with the development, permitting, construction and financing of a
Capital Addition as reasonably determined by, or to the reasonable satisfaction
of, Lessor.
CASH COLLATERAL: As defined in the Deposit Pledge Agreement.
CASH FLOW: The Consolidated Net Income (or Consolidated Net Loss)
before federal and state income taxes for any period plus (I) the amount of the
provision for depreciation and amortization actually deducted on the books of
the applicable Person for the purposes of computing such Consolidated Net
Income (or Consolidated Net Loss) for the period involved, plus (II) Rent and
interest on all other Indebtedness which is fully subordinated to the Lease
Obligations, plus (III) any indebtedness which is fully subordinated to the
Lease Obligations pursuant to the Affiliated Party Subordination Agreement.
CASUALTY: As defined in Section 13.1.
CHAMPUS: The Civilian Health and Medical Program of the Uniform
Service, a program of medical benefits covering retirees and dependents of
members or former members of a uniformed service provided, financed and
supervised by the United States Department of Defense and established by 10 USC
Section 1071 et seq.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.4.
CODE: The Internal Revenue Code of 1986, as amended.
COLLATERAL: All of the property in which security interests are
granted to Lessor and the other Meditrust Entities pursuant to the Lease
Documents and the Related Party Agreements to secure the Lease Obligations,
including, without limitation, the Cash Collateral and the Receivables.
COMMENCEMENT DATE: As defined in Section 1.2.
COMPLETION DATE: As defined in the Leasehold Improvement Agreement.
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CONDEMNATION: With respect to the Leased Property or any interest
therein or right accruing thereto or use thereof (I) the exercise of any
Governmental Authority, 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 Taking or while legal proceedings for
Condemnation or Taking are pending.
CONDEMNOR: Any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
CONSOLIDATED AND CONSOLIDATING: The consolidated and consolidating
accounts of the relevant Person and its Subsidiaries consolidated in accordance
with GAAP.
CONSOLIDATED FINANCIALS: For any fiscal year or other accounting
period for any Person 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, and disclosing all
liabilities of such Person and its consolidated Subsidiaries, including,
without limitation, contingent liabilities.
CONSTRUCTION ASSIGNMENT: As defined in the Leasehold Improvement
Agreement.
CONSTRUCTION CONTRACT: As defined in the Leasehold Improvement
Agreement.
CONSULTANTS: Collectively, the architects, engineers, inspectors,
surveyors and other consultants that are engaged from time to time by Lessor to
perform services for Lessor in connection with this Lease.
CONSUMER PRICE ADJUSTMENT FACTOR: A fraction, the numerator of which
is the Consumer Price Index in effect as of first day of the Lease Year for
which the Annual Facility Upgrade Expenditure increase is being calculated and
the denominator of which is the Consumer Price Index in effect as of the
Commencement Date.
CONSUMER PRICE INDEX: The Consumer Price Index for Urban Wage Earners
and Clerical Workers, All Items-U.S. City Average (1982-84=100), published by
the Bureau of Labor Statistics, U.S. Department of Labor. If the Bureau of
Labor Statistics should cease to publish such Price Index in its present form
and calculated on the present basis, then the most similar index published by
the same Bureau shall be used for the same purpose. If there is no such similar
index, a substitute index which is then generally recognized as being similar
to the Consumer Price Index shall be used, with such substitute index to be
reasonably selected by Lessor.
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CONTRACTS: All agreements (including, without limitation, Provider
Agreements), contracts, (including without limitation, construction contracts,
subcontracts, and architects' contracts,) contract rights, warranties and
representations, franchises, and records and books of account benefiting,
relating to or affecting the Leased Property or the ownership, construction,
development, maintenance, management, repair, use, occupancy, possession, or
operation thereof, or the operation of any programs or services in conjunction
with the Leased Property and all renewals, replacement and substitutions
therefor, now or hereafter issued by or entered into with any Governmental
Authority, Accreditation Body or Third Party Payor or maintained or used by any
member of the Leasing Group or entered into by any member of the Leasing Group
with any third Person.
CONVERSION DATE: The earlier to occur of (I) the Completion Date, (II)
the completion of the Project in accordance with the Project Plans and the
Leasehold Improvement Agreement and the issuance by the appropriate
Governmental Authorities of a Certificate of Occupancy (or its equivalent) or
(III) the date that the first resident is admitted to the Facility.
CURRENT ASSETS: All assets of any Person which would, in accordance
with GAAP, be classified as current assets of a Person conducting a business
the same as or similar to that of such Person, excluding however, any and all
advances to or Current Liabilities owed to such Person by its Subsidiaries.
CURRENT LIABILITIES: All liabilities of any Person which would, in
accordance with GAAP, be classified as current liabilities of a Person
conducting a business the same as or similar to that of such Person, including
without limitation, all rental and other payments under leases and fixed
payments of, and sinking fund payments with respect to, Indebtedness required
to be made within one (1) year from the date of determination.
DANVILLE FACILITY: That certain proposed forty-eight (48) unit
personal care home to be constructed in Danville, Pennsylvania.
DANVILLE TRANSACTION: That certain proposed transaction by and between
an Affiliate of Meditrust and an Affiliate of the Guarantor relating to the
Danville Facility.
DANVILLE TRANSACTION DOCUMENTS: the documents that will evidence,
secure and otherwise be given in connection with the Danville transaction.
DATE OF TAKING: The date the Condemnor has the right to possession of
the property being condemned.
DECLARATION: As defined in Article 23.
DEED: As defined in Section 18.4.
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DEPARTMENT OF PUBLIC WELFARE: Commonwealth of Pennsylvania, Department
of Public Welfare.
DEPOSIT PLEDGE AGREEMENT: The pledge and security agreement so
captioned and dated as of even date herewith between Lessee and Lessor.
DEVELOPER: BCC Development and Management Co., a Delaware corporation,
and its successors and assigns.
DEVELOPER GUARANTY: That certain Guaranty of even date executed by the
Developer in favor of Lessor, relating to the Lease Obligations.
DEVELOPER PERMITS ASSIGNMENT: That certain Collateral Assignment of
Permits, Licenses and Contracts of even date granted by the Developer to
Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in Section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity
Agreement of even date herewith by and among Lessee, the Guarantor, the
Developer and Lessor.
ENVIRONMENTAL LAWS: As defined in the Environmental Indemnity
Agreement.
ERISA: The Employment Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: As defined in Article 16.
EXPIRATION DATE: As defined in Section 1.2.
EXTENSION TERM ADJUSTMENT DATES: During any Extended Terms, the tenth
(10th), and fifteenth (15th) and twentieth (20th) anniversaries of the
Conversion Date.
EXTENDED TERMS: As defined in Section 1.3.
FACILITY: The fully licensed personal care home consisting of ___ units
with ____ beds to be known as __________________________ to be constructed on
the Land (together with related parking and other amenities).
FAILURE TO PERFORM: As defined Article 16.
FAIR MARKET ADDED VALUE: The Fair Market Value of the Leased Property
(including all Capital Additions) minus the Fair Market Value of the Leased
Property determined as if no Capital Additions paid for by Lessee had been
constructed.
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FAIR MARKET VALUE OF THE CAPITAL ADDITION: The amount by which the
Fair Market Value of the Leased Property upon the completion of a particular
Capital Addition exceeds the Fair Market Value of the Leased Property just
prior to the construction of the particular Capital Addition.
FAIR MARKET VALUE OF THE LEASED PROPERTY: The fair market value of the
Leased Property, including all Capital Additions, and including the Land and
all other portions of the Leased Property, and (A) assuming the same is
unencumbered by this Lease, (B) determined in accordance with the appraisal
procedures set forth in Section 18.2 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 Lien to which the Leased Property is
subject and which Lien Lessee or Lessor is otherwise required to remove at or
prior to closing of the transaction. However, the positive or negative effect
on the value of the Leased Property attributable to the interest rate,
amortization schedule, maturity date, prepayment provisions and other terms and
conditions of any Lien on the Leased Property which is not so required or
agreed to be removed shall be taken into account in determining the Fair Market
Value of the Leased Property. The Fair Market Value shall be determined as the
overall value based on due consideration of the "income" approach, the
"comparable sales" approach, and the "replacement cost" approach.
FAIR MARKET VALUE OF THE MATERIAL STRUCTURAL WORK: The amount by which
the Fair Market Value of the Leased Property upon the completion of any
particular Material Structural Work exceeds the Fair Market Value of the Leased
Property just prior to the construction of the applicable Material Structural
Work.
FEE MORTGAGE: As defined in Section 20.3.
FEE MORTGAGEE: As defined in Section 20.3.
FINANCING PARTY: Any Person who is or may be participating with Lessor
in any way in connection with the financing of any Capital Addition.
FINANCING STATEMENTS: Uniform Commercial Code financing statements
evidencing the security interests granted to Lessor in connection with the
Lease Documents.
FISCAL QUARTER: Each of the three (3) month periods commencing on July
1st, October 1st, January 1st and April 1st.
FISCAL YEAR: The twelve (12) month period from July 1st to June 30th.
FIXTURES: As defined in Article 1.
GAAP: Generally accepted accounting principles, consistently applied
throughout the relevant period.
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GENERAL INTANGIBLES: As defined in the UCC.
GOVERNMENTAL AUTHORITIES: Collectively, all agencies, authorities,
bodies, boards, commissions, courts, instrumentalities, legislatures, and
offices of any nature whatsoever of any government, quasi-government unit or
political subdivision, whether with a federal, state, county, district,
municipal, city or otherwise and whether now or hereinafter in existence.
GUARANTOR: Balanced Care Corporation, a Delaware corporation, and its
successors and assigns.
GUARANTIES: Collectively, the Balanced Care Guaranty and the Developer
Guaranty.
HAZARDOUS SUBSTANCES: As defined in the Environmental Indemnity
Agreement.
IMPOSITIONS: Collectively, all taxes (including, without limitation,
all capital stock and franchise taxes of Lessor, all ad valorem, property,
sales, use, single business, gross receipts, transaction privilege, rent or
similar taxes), assessments (including, without limitation, 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), ground
rents, water and sewer rents, water charges or other rents and charges,
excises, tax levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), transfer taxes and recordation
taxes imposed as a result of the conveyance of the Land to Lessor (and/or any
conveyance of the Leased Property to Lessee pursuant to the terms of this
Lease), this Lease or any extensions hereof, 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 either or both of the
Leased Property and 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 and thereafter until the Leased Property is
surrendered to Lessor as required by the terms of this Lease, 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 Leased Property 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 leasing or use of the Leased
Property. Notwithstanding the foregoing, 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 or
any other Person, except Lessee or its successors, (2) any net revenue tax of
Lessor or any other Person, except Lessee and its successors, (3) any tax
imposed with respect to the sale, exchange or other disposition by Lessor 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; provided, however, the provisos set forth in clauses
(1) and (2) of this sentence shall not be applicable to the extent that any
tax, assessment, tax levy or charge which Lessee is obligated to pay pursuant
to the first sentence of this definition and which is
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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) or (2) is
levied, assessed or imposed expressly in lieu thereof. In computing the amount
of any franchise tax or capital stock tax which may be or become an Imposition,
the amount payable by Lessee shall be equitably apportioned based upon all
properties owned by Lessor that are located within the particular jurisdiction
subject to any such tax.
INDEBTEDNESS: The total of all obligations of a Person, whether
current or long-term, which in accordance with GAAP would be included as
liabilities upon such Person's balance sheet at the date as of which
Indebtedness is to be determined, and shall also include (I) all capital lease
obligations and (II) all guarantees, endorsements (other than for collection of
instruments in the ordinary course of business), or other arrangements whereby
responsibility is assumed for the obligations of others, whether by agreement
to purchase or otherwise acquire the obligations of others, including any
agreement contingent or otherwise to furnish funds through the purchase of
goods, supplies or services for the purpose of payment of the obligations of
others.
INDEMNIFIED PARTIES: As defined in Section 12.2.
INDEX: The rate of interest of actively traded marketable United
States Treasury Securities bearing a fixed rate of interest adjusted for a
constant maturity of ten (10) years as calculated by the Federal Reserve Board.
INITIAL TERM: As defined in Section 1.2.
INSTRUMENTS: As defined in the UCC.
INSURANCE REQUIREMENTS: All terms of any insurance policy required by
this Lease, all requirements of the issuer of any such policy with respect to
the Leased Property and the activities conducted thereon and the requirements
of any insurance board, association or organization or underwriters'
regulations pertaining to the Leased Property.
JCAHO: The Joint Commission on Accreditation of Healthcare
Organizations.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this Lease.
LEASE DEFAULT: The occurrence of any default or breach of condition
continuing beyond any applicable notice and/or grace periods under this Lease
and/or any of the other Lease Documents.
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LEASE DOCUMENTS: Collectively, this Lease, the Guaranties, the
Security Agreement, the Deposit Pledge Agreement, the Pledge Agreement, the
Leasehold Improvement Agreement, the Agreement Regarding Related Lease
Transactions, the Permits Assignments, the Financing Statements, the Affiliated
Party Subordination Agreement, the Environmental Indemnity Agreement, the
Warrant, the Construction Assignment, the Architect's Assignment, the
Assignment Agreement and any and all other instruments, documents, certificates
or agreements now or hereafter (I) executed or furnished by any member of the
Leasing Group in connection with the transactions evidenced by this Lease
and/or any of the foregoing documents and/or (II) evidencing or securing any of
Lessee's obligations relating to the Leased Property, including, without
limitation, Lessee's obligations hereunder and/or under the Leasehold
Improvement Agreement.
LEASEHOLD IMPROVEMENT AGREEMENT: That certain Leasehold Improvement
Agreement of even date herewith by and between Lessor and Lessee.
LEASE OBLIGATIONS: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings (other than Lessor's
obligations) under this Lease and the other Lease Documents.
LEASE YEAR: Each twelve-month period during the Term commencing on the
Conversion Date and any anniversary of the Conversion Date.
LEASED IMPROVEMENTS: As defined in Article 1.
LEASED PROPERTY: As defined in Article 1.
LEASING GROUP: Collectively, Lessee, the Guarantor, the Developer, any
Sublessee and any Manager.
LEGAL REQUIREMENTS: Collectively, all statutes, ordinances, by-laws,
codes, rules, regulations, restrictions, orders, judgments, decrees and
injunctions (including, without limitation, all applicable building, health
code, zoning, subdivision, and other land use and personal care licensing
statutes, ordinances, by-laws, codes, rules and regulations), whether now or
hereafter enacted, promulgated or issued by any Governmental Authority,
Accreditation Body or Third Party Payor affecting Lessor, any member of the
Leasing Group or the Leased Property or the ownership, construction,
development, maintenance, management, repair, use, occupancy, possession or
operation thereof or the operation of any programs or services in connection
with the Leased Property, including, without limitation, any of the foregoing
which may (I) require repairs, modifications or alterations in or to the Leased
Property, (II) in any way affect (adversely or otherwise) the use and enjoyment
of the Leased Property or (III) require the assessment, monitoring, clean-up,
containment, removal, remediation or other treatment of any Hazardous
Substances on, under or from the Leased Property. Without limiting the
foregoing, the term Legal Requirements includes all Environmental Laws and
shall also include all Permits and Contracts issued or entered into
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by any Governmental Authority, any Accreditation Body and/or any Third Party
Payor and all Permitted Encumbrances.
LESSEE: As defined in the preamble of this Lease and its successors
and assigns.
LESSEE PERMITS ASSIGNMENT: That certain Collateral Assignment of
Permits, Licenses and Contracts of even date granted by Lessee to Lessor.
LESSEE'S ELECTION NOTICE: As defined in Section 14.3.
LESSEE'S PURCHASE OPTION NOTICE: As defined in Section 18.4.
LESSOR: As defined in the preamble of this Lease and its successors
and assigns.
LIEN: With respect to any real or personal property, any mortgage,
easement, restriction, lien, pledge, collateral assignment, hypothecation,
charge, security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether or not choate, vested or perfected.
LIMITED PARTIES: As defined in Section 11.5; provided, however, in no
event shall the term Limited Parties include any Person in its capacity as a
shareholder of a public entity, unless such shareholder is a member of the
Leasing Group or an Affiliate of any member of the Leasing Group.
MANAGED CARE PLANS: All health maintenance organizations, preferred
provider organizations, individual practice associations, competitive medical
plans, and similar arrangements.
MANAGEMENT AGREEMENT: Any agreement, whether written or oral, between
Lessee or any Sublessee and any other Person pursuant to which Lessee or such
Sublessee provides any payment, fee or other consideration to any other Person
to operate or manage the Facility.
MANAGER: Any Person who has entered into a Management Agreement with
Lessee or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (I) structural alteration, (II)
structural repair or (III) structural renovation to the Leased Property that
would require (A) the design and/or involvement of a structural engineer and/or
architect and/or (B) the issuance of a Permit.
MAXIMUM RENT ADJUSTMENT. As defined in Section 3.1.
MEDICAID: The medical assistance program established by Title XIX of
the Social Security Act (42 USC ss.ss.1396 et seq.) and any statute succeeding
thereto.
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MEDICARE: The health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 USC ss.ss.1395 et
seq.) and any statute succeeding thereto.
MEDITRUST: As defined in Article 23.
MEDITRUST ENTITIES: Collectively, Meditrust, Lessor and any other
Affiliate of Lessor which may now or hereafter be a party to any Related Party
Agreement.
MEDITRUST INVESTMENT: The sum of (I) the Original Meditrust Investment
plus (II) the aggregate amount advanced under the Leasehold Improvement
Agreement plus (III) the aggregate amount of all Subsequent Investments.
MONTHLY DEPOSIT DATE: As defined in Section 4.6.
NET INCOME (OR NET LOSS): The net income (or net loss, expressed as a
negative number) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with GAAP.
OBLIGATIONS: Collectively, the Lease Obligations and the Related Party
Obligations.
OFFICER'S CERTIFICATE: A certificate of Lessee signed on behalf of
Lessee by the Chairman of the Board of Directors, the President, any Vice
President or the Treasurer of Lessee, 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.
OPTION PURCHASE AGREEMENT: That certain Real Estate Purchase Option
Agreement, dated as of June 26, 1996 between the Seller and the Guarantor, as
affected by the Assignment Agreement.
OPTION PURCHASE DOCUMENTS: Collectively, the Option Purchase Agreement
and all other documents and instruments now or hereafter executed and/or
delivered in connection therewith or pursuant thereto.
ORIGINAL MEDITRUST INVESTMENT: ______________________________ DOLLARS
___________________.
OVERDUE RATE: On any date, a rate of interest per annum equal to the
greater of: (I) a variable rate of interest per annum equal to one hundred
twenty percent (120%) of the Prime Rate, or (II) eighteen percent (18%) per
annum; provided, however, in no event shall the Overdue Rate be greater than
the maximum rate then permitted under applicable law to be charged by Lessor.
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PBGC: Pension Benefit Guaranty Corporation.
PERMITS: Collectively, all permits, licenses, approvals,
qualifications, rights, variances, permissive uses, accreditations,
certificates, certifications, consents, agreements, contracts, contract rights,
franchises, interim licenses, permits and other authorizations of every nature
whatsoever required by, or issued under, applicable Legal Requirements
benefiting, relating or affecting the Leased Property or the construction,
development, maintenance, management, use or operation thereof, or the
operation of any programs or services in conjunction with the Leased Property
and all renewals, replacements and substitutions therefor, now or hereafter
required or issued by any Governmental Authority, Accreditation Body or Third
Party Payor to any member of the Leasing Group, or maintained or used by any
member of the Leasing Group, or entered into by any member of the Leasing Group
with any third Person.
PERMITS ASSIGNMENTS: Collectively, the Lessee Permits Assignment and
the Developer Permits Assignment.
PERMITTED ENCUMBRANCES: As defined in Section 10.1.
PERMITTED PRIOR SECURITY INTERESTS: As defined in Section 6.1.
PERSON: Any individual, corporation, general partnership, limited
partnership, joint venture, stock company or association, company, bank, trust,
trust company, land trust, business trust, unincorporated organization,
unincorporated association, Governmental Authority or other entity of any kind
or nature.
PLANS AND SPECIFICATIONS: As defined in Section 13.1.
PLEDGE AGREEMENT: The Pledge Agreement of even date by and between the
Guarantor, Lessee and Lessor.
POST-CONVERSION BASE RENT: As defined in Section 3.1.
PRE-CONVERSION BASE RENT: As defined in Section 3.1.
PRE-CONVERSION RENT ADJUSTMENT RATE: Two Hundred (200) basis points
over the Prime Rate.
PRIMARY INTENDED USE: The use of the Facility as a personal care home
consisting of _____________ licensed units with _______________ beds or such
additional number of units and/or beds as may hereafter be permitted under this
Lease, and such ancillary uses as are permitted by law and may be necessary in
connection therewith or incidental thereto.
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PRIME RATE: The variable rate of interest per annum from time to time
announced by the Reference Bank as its prime rate of interest and in the event
that the Reference Bank no longer announces a prime rate of interest, then the
Prime Rate shall be deemed to be the variable rate of interest per annum which
is the prime rate of interest or base rate of interest from time to time
announced by any other major bank or other financial institution reasonably
selected by Lessor.
PRINCIPAL PLACE OF BUSINESS: As defined in Section 10.1.
PROCEEDS: As defined in the UCC.
PROJECT: As defined under the Leasehold Improvement Agreement.
PROJECT FUNDS: As defined under the Leasehold Improvement Agreement.
PROJECT PLANS: As defined under the Leasehold Improvement Agreement.
PROVIDER AGREEMENTS: All participation, provider and reimbursement
agreements or arrangements now or hereafter in effect for the benefit of Lessee
or any Sublessee in connection with the operation of the Facility relating to
any right of payment or other claim arising out of or in connection with
Lessee's or such Sublessee's participation in any Third Party Payor Program.
PURCHASE OPTION: As defined in Section 18.4.
PURCHASE OPTION DATE: As defined in Section 18.4.
PURCHASE PRICE: As defined in Section 18.4.
PURCHASER: As defined in Section 11.5.
RECEIVABLES: Collectively, all (I) Instruments, Documents, Accounts,
Proceeds, General Intangibles and Chattel Paper and (II) rights to payment for
goods sold or leased or services rendered by Lessee or any other party, whether
now in existence or arising from time to time hereafter and whether or not yet
earned by performance, including, without limitation, obligations evidenced by
an account, note, contract, security agreement, chattel paper, or other
evidence of indebtedness.
REFERENCE BANK: Fleet Bank of Connecticut, N.A.
RELATED LEASES: As defined under the Agreement Regarding Related Lease
Transactions.
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RELATED PARTIES: Collectively, each Person that may now or hereafter
be a party to any Related Party Agreement other than the Meditrust Entities.
RELATED PARTY AGREEMENT: Any agreement, document or instrument now or
hereafter evidencing or securing any Related Party Obligation.
RELATED PARTY DEFAULT: The occurrence of a default or breach of
condition continuing beyond the expiration of any applicable notice and grace
periods, if any, under the terms of any Related Party Agreement.
RELATED PARTY OBLIGATIONS: Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and undertakings due to, or made for the
benefit of, Lessor or any of the other Meditrust Entities by Lessee or any
other member of the Leasing Group or any of their respective Affiliates;
whether such indebtedness, covenants, liabilities, obligations, agreements
and/or undertakings are direct or indirect, absolute or contingent, liquidated
or unliquidated, due or to become due, joint, several or joint and several,
primary or secondary, now existing or hereafter arising, including, without
limitation, the obligations under the Related Leases and those obligations set
forth on EXHIBIT K but specifically excluding all of the indebtedness,
covenants, liabilities, agreements and obligations of the Guarantor and any of
its Affiliates to Meditrust and any of its Affiliates under the Danville
Transaction Documents, provided that nothing set forth herein shall obligate
any party to enter into any of the Danville Transaction Documents.
RENT: Collectively, the Base Rent, the Additional Charges and all
other sums payable under this Lease and the other Lease Documents.
RENT ADJUSTMENT DATE: The Conversion Date and each Extension Term
Adjustment Date during the Term of the Lease, including, without limitation,
any Extended Terms.
RENT ADJUSTMENT RATE: Three hundred seventy-five (375) basis points
over the Index.
RENT COVERAGE RATIO: The ratio of (I) Cash Flow for each applicable
period to (II) the total of all Base Rent payable during the initial Lease Year
or accrued for such period.
RENT INSURANCE PROCEEDS: As defined in Section 13.8.
RENT SHORTFALL: As defined in Section 3.1.
RENT SURPLUS: As defined in Section 3.1.
RESIDENCE AGREEMENTS: All contracts, agreements and consents executed
by or on behalf of any resident or other Person seeking services at the
Facility, including, without limitation, assignments of benefits and
guarantees.
RETAINAGE: As defined in Section 13.1.
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SECURITY AGREEMENT: The Security Agreement as of even date herewith
between Lessee and Lessor.
SELLER: ____________________
STATE: The state or commonwealth in which the Leased Property is
located.
STATED AMOUNT: As defined in the Deposit Pledge Agreement.
SUBLEASE: Collectively, all subleases, licenses, use agreements,
concession agreements, tenancy at will agreements, room rentals, rentals of
other facilities of the Leased Property and all other occupancy agreements of
every kind and nature, whether oral or in writing, now in existence or
subsequently entered into by Lessee, encumbering or affecting the Leased
Property.
SUBLESSEE: Any sublessee, licensee, concessionaire, tenant or other
occupant under any of the Subleases, but specifically excluding any resident of
the Facility under any of the Residence Agreements.
SUBSEQUENT INVESTMENTS: The aggregate amount of all sums expended and
liabilities incurred by Lessor in connection with Capital Additions.
SUBSIDIARY OR SUBSIDIARIES: With respect to any Person, any
corporation or other entity of which such Person, directly, or indirectly,
through another entity or otherwise, owns, or has the right to control or
direct the voting of, fifty percent (50%) or more of the outstanding capital
stock or other ownership interest having general voting power (under ordinary
circumstances).
TAKING: A taking or voluntary conveyance during the Term 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.
TANGIBLE NET WORTH: An amount determined in accordance with GAAP equal
to the total assets of any Person, excluding the total intangible assets of
such Person, minus the total liabilities of such Person. Total intangible
assets shall be deemed to include, but shall not be limited to, the excess of
cost over book value of acquired businesses accounted for by the purchase
method, formulae, trademarks, trade names, patents, patent rights and deferred
expenses (including, but not limited to, unamortized debt discount and expense,
organizational expense and experimental and development expenses).
TANGIBLE PERSONAL PROPERTY: All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers or trade fixtures, goods,
inventory, supplies, and
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other personal property owned or leased (pursuant to equipment leases) by
Lessee and used in connection with the operation of the Leased Property.
TERM: Collectively, the Initial Term and each Extended Term which has
become effective pursuant to Section 1.3, as the context may require, unless
earlier terminated pursuant to the provisions hereof.
THIRD PARTY PAYOR PROGRAMS: Collectively, all third party payor
programs in which Lessee or any Sublessee presently or in the future may
participate, including without limitation, Medicare, Medicaid, Champus, Blue
Cross and/or Blue Shield, Managed Care Plans, other private insurance plans and
employee assistance programs.
THIRD PARTY PAYORS: Collectively, Medicare, Medicaid, Blue Cross
and/or Blue Shield, private insurers and any other Person which presently or in
the future maintains Third Party Payor Programs.
TIME OF CLOSING: As defined in Section 18.4.
UCC: The Uniform Commercial Code as in effect from time to time in
the Commonwealth of Massachusetts.
UNAVOIDABLE DELAYS: Delays due to strikes, lockouts, inability to
procure materials, 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.
UNITED STATES TREASURY SECURITIES: The uninsured treasury securities
issued by the United States Federal Reserve Bank.
UNSUITABLE FOR ITS PRIMARY INTENDED USE: As used anywhere in this
Lease, the term "Unsuitable For Its Primary Intended Use" shall mean that, by
reason of Casualty, or a partial or temporary Taking by Condemnation, in the
good faith judgment of Lessor, the Facility cannot be operated on a
commercially practicable basis for the Primary Intended Use, taking into
account, among other relevant factors, the number of usable units affected by
such Casualty or partial or temporary Taking.
UPGRADE RENOVATIONS: Collectively, repairs and refurbishing made to
the Leased Property, other than normal janitorial, cleaning and maintenance
activities.
WARRANT: Warrant of even date issued by the Guarantor to Lessor to
purchase ______________ shares of capital stock of the Guarantor.
WORK: As defined in Section 13.1.
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WORK CERTIFICATES: As defined in Section 13.1.
2.2 RULES OF CONSTRUCTION. The following rules of construction shall
apply to the Lease and each of the other Lease Documents: (A) references to
"herein", "hereof" and "hereunder" shall be deemed to refer to this Lease or
the other applicable Lease Document, and shall not be limited to the particular
text or section or subsection in which such words appear; (B) the use of any
gender shall include all genders and the singular number shall include the
plural and vice versa as the context may require; (C) references to Lessor's
attorneys shall be deemed to include, without limitation, special counsel and
local counsel for Lessor; (D) reference to attorneys' fees and expenses shall
be deemed to include all costs for administrative, paralegal and other support
staff; (E) references to Leased Property shall be deemed to include references
to all of the Leased Property and references to any portion thereof; (F)
references to the Lease Obligations shall be deemed to include references to
all of the Lease Obligations and references to any portion thereof; (G)
references to the Obligations shall be deemed to include references to all of
the Obligations and references to any portion thereof; (H) the term
"including", when following any general statement, will not be construed to
limit such statement to the specific items or matters as provided immediately
following the term "including" (whether or not non-limiting language such as
"without limitation" or "but not limited to" or words of similar import are
also used), but rather will be deemed to refer to all of the items or matters
that could reasonably fall within the broadest scope of the general statement;
(I) any requirement that financial statements be Consolidated in form shall
apply only to such financial statements as relate to a period during any
portion of which the relevant Person has one or more Subsidiaries; (J) all
accounting terms not specifically defined in the Lease Documents shall be
construed in accordance with GAAP; and (K) all exhibits annexed to any of the
Lease Documents as referenced therein shall be deemed incorporated in such
Lease Document by such annexation and/or reference.
ARTICLE 3
RENT
3.1 BASE RENT FOR LAND, LEASED IMPROVEMENTS, RELATED RIGHTS AND
FIXTURES. Lessee will pay to Lessor, 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 as Lessor from time to time may designate in writing, rent for the
Leased Property, as follows.
(A) PRE-CONVERSION BASE RENT: From and after the Commencement
Date and until the Conversion Date, Lessee shall pay, commencing on
September 1, 1996, and on the first day of each calendar month
thereafter, as well as on the Conversion Date, a base rent (the
"Pre-Conversion Base Rent") in arrears that is equal to the product of
(I) the Meditrust Investment from time to time outstanding multiplied
by (II) the Pre-Conversion Rent Adjustment Rate in effect from time to
time, calculated on a daily basis.
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(B) POST-CONVERSION BASE RENT: From and after the Conversion
Date, Lessee shall pay a base rent (the "Post-Conversion Base Rent")
per annum that is equal to the product of (I) the Meditrust Investment
multiplied by (II) the Rent Adjustment Rate in effect on the
Conversion Date, payable in advance in equal, consecutive monthly
installments due on the first day of each calendar month; provided,
however, that on each Rent Adjustment Date, the Base Rent shall be
adjusted to equal the greater of (A) the then current Post-Conversion
Base Rent (before any adjustment for such year pursuant to Section
3.1(c)) or (B) an amount equal to the Meditrust Investment multiplied
by the Rent Adjustment Rate then in effect on such subsequent Rent
Adjustment Date and further, provided, however, that on the Conversion
Date, Lessee shall pay to Lessor the proportionate share of the
Post-Conversion Base Rent due for the period from (and including) the
Conversion Date through the end of the calendar month during which the
Conversion Date occurred.
(C) ANNUAL POST-CONVERSION BASE RENT ADJUSTMENTS: Commencing
on the first anniversary of the Conversion Date and on each
anniversary of the Conversion Date thereafter during the Term (each
such date shall be referred to herein as an "Additional Base Rent
Adjustment Date"), the Post-Conversion Base Rent shall be increased so
as to equal the lesser of (I) the Maximum Rent Adjustment, or (II) an
amount determined by multiplying the Post-Conversation Base Rent then
in effect (as adjusted pursuant to this paragraph and Section 3.1(b))
times a fraction, the numerator of which shall be the Consumer Price
Index on the applicable Additional Base Rent Adjustment Date and the
denominator of which shall be the Consumer Price Index on the
preceding Additional Base Rent Adjustment Date (or on the Conversation
Date in the case of the First Additional Base Rent Adjustment Date).
If, for any Lease Year, the Post-Conversion Base Rent is
adjusted in accordance with clause (ii) above, then the difference
between the Post-Conversion Base Rent for such Lease Year, and the
Post-Conversion Base Rent for such Lease Year if adjusted in
accordance with clause (i) above shall be referred to herein as the
"Rent Shortfall." If, for any Lease Year, the Post-Conversion Base
Rent is adjusted in accordance with clause (i), then the difference
between the Post-Conversion Base Rent for such Lease Year and the
Post-Conversion Base Rent for such Lease Year if adjusted in
accordance with clause (ii), shall be referred to herein in as the
"Rent Surplus".
In the event there is a Rent Shortfall for any Lease Year,
the Lessee shall also pay to the Lessor, as part of the
Post-Conversion Base Rent due hereunder, an amount equal to such Rent
Shortfall, plus any Rent Shortfall in any previous Lease Years, up to
an amount equal to the aggregate Rent Surplus, if any, for the then
current Lease Year, less any prior payments on account of a Rent
Shortfall.
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As used herein, the Maximum Rent Adjustment shall be the
Post-Conversion Base Rent in any applicable year, which would result
solely by multiplying, in each year, on the Additional Base Rent
Adjustment Date, the prior year's Post-Conversion Base Rent (as
adjusted pursuant to this paragraph and Section 3.1(b)) by 1.02%.
Until the Consumer Price Index is established, Lessee shall
pay the Post-Conversion Base Rent calculated in accordance with clause
(i) above, and once the Consumer Price Index for the Additional Base
Rent Adjustment Date of such Lease Year is published, the new
Post-Conversion Base Rent (as adjusted) shall be effective
retroactively as of the Additional Rent Base Adjustment Date with the
remaining payments to be adjusted ratably.
(D) Except as otherwise expressly provided in Section 3.1(a)
and (b) above, the Base Rent (as it may be adjusted) shall be paid
monthly in advance in equal, consecutive monthly installments on the
first day of each calendar month.
3.2 [INTENTIONALLY DELETED].
3.3 [INTENTIONALLY DELETED].
3.4 ADDITIONAL CHARGES. Subject to the rights to contest as set forth
in Article 15, in addition to the Base Rent, (A) Lessee will also pay and
discharge as and when due and payable all Impositions, all amounts, liabilities
and obligations under the Appurtenant Agreements due from or payable by the
owner of the Leased Property, all amounts, liabilities and obligations under
the Permitted Encumbrances due from or payable by the owner of the Leased
Property and all other amounts, liabilities and obligations which Lessee
assumes or agrees to pay under this Lease, 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 Base Rent. To the extent that Lessee pays any
Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee
shall be relieved of its obligation to pay such Additional Charges to any other
Person to which such Additional Charges would otherwise be due.
3.5 [INTENTIONALLY DELETED].
3.6 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
Base Rent, and the payments of Additional Charges throughout the Term.
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3.7 NO LESSEE TERMINATION OR OFFSET.
3.7.1 NO TERMINATION. Except as may be otherwise specifically
and expressly provided in this Lease, Lessee, to the extent not
prohibited by applicable law, 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 Casualty or any Taking of the Leased Property, (B)
the lawful or unlawful prohibition of, or restriction upon, Lessee's
use of the Leased Property or the interference with such use by any
Person (other than Lessor, except to the extent permitted hereunder)
or by reason of eviction by paramount title; (C) any claim that Lessee
has or might have against Lessor, (D) any default or breach of any
warranty by Lessor or any of the other Meditrust Entities under this
Lease, any other Lease Document or any Related Party Agreement, (E)
any bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting
Lessor or any assignee or transferee of Lessor or (F) any other cause
whether similar or dissimilar to any of the foregoing, other than a
discharge of Lessee from any of the Lease Obligations as a matter of
law. Notwithstanding the foregoing, any amounts collected by Lessor
under any title insurance policies insuring Lessor's interest in the
Leased Property (less any costs and expenses incurred by Lessor in
collecting the same) shall be credited against the Lease Obligations.
3.7.2 WAIVER. Lessee to the fullest extent not prohibited by
applicable law, hereby specifically waives all rights, arising from
any occurrence whatsoever, which may now or hereafter be conferred
upon it by law to (A) modify, surrender or terminate this Lease or
quit or surrender the Leased Property or (B) entitle Lessee to any
abatement, reduction, suspension or deferment of the Rent or other
sums payable by Lessee hereunder, except as otherwise specifically and
expressly provided in this Lease.
3.7.3 INDEPENDENT COVENANTS. 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 (except in those instances where the obligation to pay
expressly survives the termination of this Lease) by termination of
this Lease other than by reason of an Event of Default.
3.8 ABATEMENT OF RENT LIMITED. There shall be no abatement of Rent on
account of any Casualty, Taking or other event, except that in the event of a
partial Taking or a temporary Taking as described in Section 14.3, the Base
Rent shall be abated as follows: (A) in the case of such a partial Taking, the
Meditrust Investment shall be reduced for the
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purposes of calculating Base Rent pursuant to Section 3.1 by subtracting
therefrom, as applicable, the net amount of the Award received by Lessor, and
(B) in the case of such a temporary Taking, by reducing the Base Rent for the
period of such a temporary Taking, by the net amount of the Award received by
Lessor.
For the purposes of this Section 3.8, the "net amount of the Award
received by Lessor" shall mean the Award paid to Lessor on account of such
Taking, minus all costs and expenses incurred by Lessor in connection
therewith, and minus any amounts paid to or for the account of Lessee to
reimburse for the costs and expenses of reconstructing the Facility following
such Taking in order to create a viable and functional Facility under all of
the circumstances.
ARTICLE 4
IMPOSITIONS; TAXES; UTILITIES;
INSURANCE PAYMENTS
4.1 PAYMENT OF IMPOSITIONS.
4.1.1 LESSEE TO PAY. Subject to the provisions of Article 15,
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 authority where feasible, and Lessee
will promptly furnish Lessor copies of official receipts or other
satisfactory proof evidencing payment not later than the last day on
which the same may be paid without penalty or interest. Subject to the
provisions of Article 15 and Section 4.1.2, Lessee's obligation to pay
such Impositions shall be deemed absolutely fixed upon the date such
Impositions become a lien upon the Leased Property or any part
thereof.
4.1.2 INSTALLMENT ELECTIONS. If any such 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 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 (subject to Lessee's right to contest pursuant to the
provisions of Section 4.1.5 below) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be
added thereto.
4.1.3 RETURNS AND REPORTS. 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, and 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
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Governmental Authorities. 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
that any Governmental Authority classifies any property covered by
this Lease as personal property, Lessee shall file all personal
property tax returns in such jurisdictions where it may legally so
file. Lessor, to the extent it possesses the same, and Lessee, to the
extent it possesses the same, will provide the other party, upon
request, with cost and depreciation records necessary for filing
returns for any portion of Leased Property so classified as personal
property. Where Lessor is legally required to file personal property
tax returns, if Lessee notifies Lessor of the obligation to do so in
each year at least thirty (30) days prior to the date any protest must
be filed, Lessee will be provided with copies of assessment notices so
as to enable Lessee to file a protest.
4.1.4 REFUNDS. If no Lease Default shall have occurred and be
continuing, 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 a Lease Default shall have occurred and be continuing, at Lessor's
option, such funds shall be paid over to Lessor and/or retained by
Lessor and applied toward the Obligations in accordance with the Lease
Documents and/or the Related Party Agreements.
4.1.5 PROTEST. Upon giving notice to Lessor, at Lessee's
option and sole cost and expense, and subject to compliance with the
provisions of Article 15, Lessee may contest, protest, appeal, or
institute such other proceedings as Lessee may deem appropriate to
effect a reduction of any Imposition and Lessor, at Lessee's cost and
expense as aforesaid, shall fully cooperate in a reasonable manner
with Lessee in connection with such protest, appeal or other action.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt notice to Lessee
of all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, but Lessor's failure to give any such notice shall in no way
diminish Lessee's obligations hereunder to pay such Impositions.
4.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed in respect of the
period during which the expiration or earlier termination of the Term occurs
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Impositions are imposed before or after such expiration or termination, and
Lessee's obligation to pay its prorated share thereof shall survive such
expiration or termination.
4.4 UTILITY CHARGES. Lessee will pay or cause to be paid all charges
for electricity, power, gas, oil, water, telephone and other utilities used in
the Leased Property during the Term and thereafter until Lessee surrenders the
Leased Property in the manner required by this Lease.
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4.5 INSURANCE PREMIUMS. Lessee will pay or cause to be paid all
premiums for the insurance coverage required to be maintained pursuant to
Article 12 during the Term, and thereafter until Lessee yields up the Leased
Property in the manner required by this Lease. All such premiums shall be paid
annually in advance and Lessee shall furnish Lessor with evidence satisfactory
to Lessor that all such premiums have been so paid prior to the commencement of
the Term and thereafter at least thirty (30) days prior to the due date of each
premium which thereafter becomes due. Notwithstanding the foregoing, Lessee may
pay such insurance premiums to the insurer in monthly installments so long as
the applicable insurer is contractually obligated to give Lessor not less than
a sixty (60) days notice of non-payment and so long as no Lease Default has
occurred and is continuing. In the event of the failure of Lessee either to
comply with the insurance requirements in Article 12, or to pay the premiums
for such insurance, or to deliver such policies or certificates thereof to
Lessor at the times required hereunder, Lessor shall be entitled, but shall
have no obligation, to effect such insurance and pay the premiums therefor,
which premiums shall be a demand obligation of Lessee to Lessor.
4.6 DEPOSITS.
4.6.1 LESSOR'S OPTION. Upon a Lease Default, or an event
which, with the giving of notice or passage of time, and/or both,
would constitute a Lease Default, at the option of Lessor, which may
be exercised at any time thereafter, Lessee shall, upon written
request of Lessor, on the first day of the calendar month immediately
following such request, and on the first day of each calendar month
thereafter during the Term (each of which dates is referred to as a
"Monthly Deposit Date"), pay to and deposit with Lessor a sum equal to
one-twelfth (1/12th) of the Impositions to be levied, charged, filed,
assessed or imposed upon or against the Leased Property within one (1)
year after said Monthly Deposit Date and a sum equal to one-twelfth
(1/12th) of the premiums for the insurance policies required pursuant
to Article 12 which are payable within one (1) year after said Monthly
Deposit Date. If the amount of the Impositions to be levied, charged,
assessed or imposed or insurance premiums to be paid within the
ensuing one (1) year period shall not be fixed upon any Monthly
Deposit Date, such amount for the purpose of computing the deposit to
be made by Lessee hereunder shall be estimated by Lessor with an
appropriate adjustment to be promptly made between Lessor and Lessee
as soon as such amount becomes determinable. In addition, Lessor may,
at its option, from time to time require that any particular deposit
be greater than one-twelfth (1/12th) of the estimated amount payable
within one (1) year after said Monthly Deposit Date, if such
additional deposit is required in order to provide to Lessor a
sufficient fund from which to make payment of all Impositions on or
before the next due date of any installment thereof, or to make
payment of any required insurance premiums not later than the due date
thereof.
4.6.2 USE OF DEPOSITS. The sums deposited by Lessee under
this Section 4.6 shall be held by Lessor and shall be applied in
payment of the Impositions or
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insurance premiums, as the case may be, when due. Any such deposits
may be commingled with other assets of Lessor, and shall be deposited
by Lessor at such bank as Lessor may, from time to time select. Lessor
may, at its election from time to time exercised, invest all or part
of such deposits in one or more of the investment vehicles described
on EXHIBIT A to the Deposit Pledge Agreement. Lessor shall not be
liable to Lessee or any other Person (A) based on Lessor's (or such
bank's) choice of investment vehicles, (B) for any consequent loss of
principal or interest or (C) for any unavailability of funds based on
such choice of investment. Furthermore, Lessor shall bear no
responsibility for the financial condition of, nor any act or omission
by, Lessor's depository bank. The income from such investment or
interest on such deposit shall be paid to Lessee on a semi-annual
basis as long as no Lease Default has occurred and is then continuing,
and as long as no fact or circumstance exists which, with the giving
of notice and/or the passage of time, would constitute a Lease
Default. Lessee shall give not less than ten (10) days prior written
notice to Lessor in each instance when an Imposition or insurance
premium is due, specifying the Imposition or premium to be paid and
the amount thereof, the place of payment, and the last day on which
the same may be paid in order to comply with the requirements of this
Lease. If Lessor, in violation of its obligations under this Lease,
does not pay any Imposition or insurance premium when due, for which a
sufficient deposit exists, Lessee shall not be in default hereunder by
virtue of the failure of Lessor to pay such Imposition or such
insurance premium and Lessor shall pay any interest or fine assessed
by virtue of Lessor's failure to pay such Imposition or insurance
premium.
4.6.3 DEFICITS. If for any reason any deposit held by Lessor
under this Section 4.6 shall not be sufficient to pay an Imposition or
insurance premium within the time specified therefor in this Lease,
then, within ten (10) days after demand by Lessor, Lessee shall
deposit an additional amount with Lessor, increasing the deposit held
by Lessor so that Lessor holds sufficient funds to pay such Imposition
or premium in full (or in installments as otherwise provided for
herein), together with any penalty or interest due thereon. Lessor may
change its estimate of any Imposition or insurance premium for any
period on the basis of a change in an assessment or tax rate or on the
basis of a prior miscalculation or for any other good faith reason; in
which event, within ten (10) days after demand by Lessor, Lessee shall
deposit with Lessor the amount in excess of the sums previously
deposited with Lessor for the applicable period which would
theretofore have been payable under the revised estimate.
4.6.4 OTHER PROPERTIES. If any Imposition shall be levied,
charged, filed, assessed, or imposed upon or against the Leased
Property, and if such Imposition shall also be a levy, charge,
assessment, or imposition upon or for any other real or personal
property that does not constitute a part of the Leased Property, then
the computation of the amounts to be deposited under this Section 4.6
shall be based upon
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the entire amount of such Imposition and Lessee shall not have the
right to apportion any deposit with respect to such Imposition.
4.6.5 TRANSFERS. In connection with any assignment of
Lessor's interest under this Lease, the original Lessor named herein
and each successor in interest shall have the right to transfer all
amounts deposited pursuant to the provisions of this Section 4.6 and
still in its possession to such assignee (as the subsequent holder of
Lessor's interest in this Lease) and upon such transfer and delivery
of notice thereof to Lessee, the original Lessor named herein or the
applicable successor in interest transferring the deposits shall
thereupon be completely released from all liability with respect to
such deposits so transferred and Lessee shall look solely to said
assignee, as the subsequent holder of Lessor's interest under this
Lease, in reference thereto.
4.6.6 SECURITY. All amounts deposited with Lessor pursuant to
the provisions of this Section 4.6 shall be held by Lessor as
additional security for the payment and performance of the Obligations
and, upon the occurrence of any Lease Default, Lessor may, in its sole
and absolute discretion, apply said amounts towards payment or
performance of such Obligations.
4.6.7 RETURN. Upon the expiration or earlier termination of
this Lease, provided, that, all of the Lease Obligations have been
fully paid and performed, any sums then held by Lessor under this
Section 4.6 shall be refunded to Lessee; unless a Related Party
Default has occurred, in which event such sums may be applied towards
the Obligations in accordance with the Related Party Agreements.
4.6.8 RECEIPTS. Lessee shall deliver to Lessor copies of all
notices, demands, claims, bills and receipts in relation to the
Impositions and insurance premiums immediately upon receipt thereof by
Lessee.
ARTICLE 5
OWNERSHIP OF LEASED PROPERTY AND PERSONAL PROPERTY;
INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY;
5.1 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.
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5.2 PERSONAL PROPERTY; REMOVAL AND REPLACEMENT OF PERSONAL PROPERTY.
5.2.1 LESSEE TO EQUIP FACILITY. Lessee, at its sole cost and
expense, shall install, affix or assemble or place on the Leased
Property, sufficient items of Tangible Personal Property to enable the
Leased Property to be operated from and after the Conversion Date in
accordance with the requirements of this Lease for the Primary
Intended Use, and such Tangible Personal Property and replacements
thereof, shall be at all times the property of Lessee.
5.2.2 SUFFICIENT PERSONAL PROPERTY. Lessee shall maintain,
during the entire Term, the Tangible Personal Property in good order
and repair and shall provide at its expense all necessary replacements
thereof, as may be necessary in order to operate the Leased Property,
from and after the Conversion Date, 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 addition, Lessee shall, from and after the Conversion
Date, (A) furnish all necessary replacements of obsolete items of the
Tangible Personal Property during the Term, unless Lessee provides
Lessor with an explanation (reasonably acceptable to Lessor) as to why
such Tangible Personal Property is no longer required in connection
with the operation of the Leased Property and (B) at least once a
year, and more frequently if requested by Lessor, deliver to Lessor, a
detailed inventory of all such Tangible Personal Property.
5.2.3 REMOVAL AND REPLACEMENT; LESSOR'S OPTION TO PURCHASE.
Lessee shall not remove from the Leased Property any one or more items
of Tangible Personal Property (whether now owned or hereafter
acquired), the fair market value of which exceeds THIRTY-FIVE THOUSAND
DOLLARS ($35,000), individually or ONE HUNDRED FIFTY THOUSAND DOLLARS
($150,000.00) collectively, except if such Tangible Personal Property
is simultaneously suitably replaced or Lessee provides Lessor with an
explanation (reasonably satisfactory to Lessor) as to why such
Tangible Personal Property is no longer required in connection with
the operation of the Leased Property. At its sole cost and expense,
Lessee shall restore the Leased Property to the condition required by
Article 8, including repair of all damage to the Leased Property
caused by the removal of the Tangible Personal Property, whether
effected by Lessee or Lessor. Upon the expiration or earlier
termination of this Lease, Lessor shall have the option, which may be
exercised prior to or within sixty (60) days following such expiration
or termination, of (A) acquiring the Tangible Personal Property
(pursuant to a bill of sale and assignments of any equipment leases,
all in such forms as are reasonably satisfactory to Lessor) upon
payment of its book value (Lessee's cost, minus depreciation), but not
in excess of its fair market value or (B) requiring Lessee to remove
the Tangible Personal Property. If Lessor exercises its option to
purchase the Tangible Personal Property, the price to be paid by
Lessor shall be (I) reduced by the amount of all payments due on any
equipment leases or any other Permitted Prior Security Interests
assumed by Lessor
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and (II) applied to the Lease Obligations before any payment to
Lessee. If Lessor requires the removal of the Tangible Personal
Property, then all of the Tangible Personal Property that is not
removed by Lessee within ten (10) days following such request shall be
considered abandoned by Lessee and may be appropriated, sold,
destroyed or otherwise disposed of by Lessor without first giving
notice thereof to Lessee, without any payment to Lessee and without
any obligation to account therefor.
ARTICLE 6
SECURITY FOR LEASE OBLIGATIONS
6.1 SECURITY FOR LESSEE'S OBLIGATIONS; PERMITTED PRIOR SECURITY
INTERESTS.
6.1.1 SECURITY. In order to secure the payment and
performance of all of the Obligations, Lessee agrees to provide or
cause there to be provided, among other things, the following
security:
(A) a first lien and exclusive security interest in
the Tangible Personal Property, Receivables and certain other
Collateral as more particularly provided for in the Security
Agreement;
(B) the Cash Collateral;
(C) a first lien and exclusive pledge of all of the
capital stock of Lessee all as more particularly set forth in
the Pledge Agreement. If any Person other than the Lessee
shall ever operate the Facility, a pledge of all capital
stock of, or partnership or other ownership interests, in
such Person shall also be provided pursuant to a pledge and
security agreement substantially similar to the Pledge
Agreement; and
(D) a first lien and exclusive pledge and assignment
of, and security interest in, all Permits and Contracts, as
more particularly provided for in the Permits Assignments.
Notwithstanding the foregoing, Lessor shall subordinate its security
interest in Receivables to a prior security interest to secure a
working capital line as provided in Section 6.1.2.
6.1.2 PURCHASE-MONEY SECURITY INTERESTS, RECEIVABLES AND
EQUIPMENT LEASES. Notwithstanding any other provision hereof regarding
the creation of Liens, but subject to Section 11.3.4, Lessee may (A)
grant priority purchase money security interests in items of Tangible
Personal Property, (B) lease Tangible Personal Property from equipment
lessors and (C) grant a prior security interest in Receivables to an
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institutional lender which is providing a working capital line of
credit for the exclusive use of the Facility, as long as in each
instance: (I) the secured party or equipment lessor enters into an
intercreditor agreement with, and satisfactory to, Lessor, pursuant to
which, without limiting the foregoing, (X) Lessor shall be afforded
the option of curing defaults and the option of succeeding to the
rights of Lessee and (Y) Lessor's security interest in Tangible
Personal Property and/or Receivables as applicable, shall be
subordinated to the security interest granted to such secured party,
(II) all of the terms, conditions and provisions of the financing,
security interest or lease are reasonably acceptable to Lessor, (III)
Lessee provides a true and complete copy, as executed, of each such
purchase money security agreement, financing document and equipment
lease and all amendments thereto and (IV) no such security interest,
financing agreement or lease is cross-defaulted or cross-
collateralized with any other obligation. Notwithstanding the
foregoing, Lessee may lease, or grant purchase money security
interests in, new items of Tangible Personal Property having an
aggregate cost during the Term in an amount not to exceed TWO HUNDRED
THOUSAND DOLLARS ($200,000) without complying with the foregoing
requirements, provided that Lessee shall provide Lessor with a true
and complete copy, as executed, of each purchase money security
agreement, related financing document and equipment lease, and all
amendments thereto. Security interests granted by Lessee in full
compliance with the provisions of this Section 6.1.2 are referred to
as "Permitted Prior Security Interests".
6.2 GUARANTIES. All of the Lease Obligations shall be unconditionally
and irrevocably guaranteed by the Guarantor and the Developer pursuant to the
Guaranties.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY;
MANAGEMENT AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges that Lessee
has caused the Leased Property to be sold to Lessor and has concurrently
entered into this Lease. Lessee acknowledges receipt and delivery of possession
of the Leased Property and that Lessee has examined and otherwise has 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 purposes hereunder. 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. LESSOR MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED
PROPERTY, EITHER AS TO ITS FITNESS FOR ANY PARTICULAR PURPOSE OR USE, ITS
DESIGN OR CONDITION OR OTHERWISE, OR AS TO DEFECTS IN THE QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT; IT BEING AGREED THAT ALL
RISKS
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RELATING TO THE DESIGN, CONDITION AND/OR USE OF THE LEASED PROPERTY ARE TO BE
BORNE BY LESSEE. LESSEE HEREBY ASSUMES ALL RISK OF THE PHYSICAL CONDITION OF
THE LEASED PROPERTY, THE SUITABILITY OF THE LEASED PROPERTY FOR LESSEE'S
PURPOSES, AND THE COMPLIANCE OR NON-COMPLIANCE OF THE LEASED PROPERTY WITH ALL
APPLICABLE REQUIREMENTS OF LAW, INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL LAWS
AND ZONING OR LAND USE LAWS.
Upon the request of Lessor, accompanied by an explanation reasonably
establishing a justification for such request, at any time and from time to
time during the Term, Lessee shall engage one (1) or more independent
professional consultants, engineers and inspectors, qualified to do business in
the State and acceptable to Lessor to perform any environmental and/or
structural investigations and/or other inspections of the Leased Property and
the Facility as Lessor may reasonably request in order to detect (A) any
structural deficiencies in the Leased Improvements or the utilities servicing
the Leased Property or (B) the presence of any condition that (I) may be
harmful or present a health hazard to the residents and other occupants of the
Leased Property or (II) constitutes a breach or violation of any of the Lease
Documents. In the event that Lessor reasonably determines that the results of
such testing or inspections are unsatisfactory, within thirty (30) days of
notice from Lessor, Lessee shall commence such appropriate remedial actions as
may be reasonably requested by Lessor to correct such unsatisfactory conditions
and, thereafter, shall diligently and continuously prosecute such remedial
actions to completion within the time limits prescribed in this Lease or the
other Lease Documents.
7.2 USE OF THE LEASED PROPERTY; COMPLIANCE; MANAGEMENT.
7.2.1 OBLIGATION TO OPERATE. From and after the Conversion
Date, Lessee shall continuously operate the Leased Property in
accordance with the Primary Intended Use and maintain its
qualifications for licensure and accreditation as required by all
applicable Legal Requirements and Insurance Requirements.
7.2.2 PERMITTED USES. From and after the Conversion Date,
Lessee shall use the Leased Property, or permit the Leased Property to
be used, only for the Primary Intended Use and, prior to the
Conversion Date, the Leased Property may only be used for the
completion of the construction of the Project in accordance with the
terms of the Leasehold Improvement Agreement. Lessee shall not use the
Leased Property or permit the Leased Property to be used for any other
use without the prior written consent of Lessor, which consent may be
withheld in Lessor's sole and absolute discretion.
7.2.3 COMPLIANCE WITH INSURANCE REQUIREMENTS. No use shall be
made or permitted to be made of the Leased Property and no acts shall
be done which will cause the cancellation of any insurance policy
covering the Leased Property, nor shall Lessee, any Manager or any
other Person sell or otherwise provide to any residents,
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other occupants or invitees therein, or permit to be kept, used or
sold in or about the Leased Property, any article which may be
prohibited by any Legal Requirement or by any of the Insurance
Requirements. Furthermore, Lessee shall, at its sole cost and
expense, take whatever other actions that may be necessary to comply
with and to insure that the Leased Property complies with all
Insurance Requirements.
7.2.4 NO WASTE. Lessee shall not commit or suffer to be
committed any waste on, in or under the Leased Property, nor shall
Lessee cause or permit any nuisance thereon.
7.2.5 NO IMPAIRMENT. Lessee shall neither suffer nor permit
the Leased Property to be used in such a manner as (A) might
reasonably tend to impair Lessor's title thereto or (B) may reasonably
make possible a claim or claims of adverse usage or adverse possession
by the public or of implied dedication of the Leased Property.
7.2.6 NO LIENS. Except as permitted pursuant to Section
6.1.2, Lessee shall not permit or suffer any Lien to exist on the
Tangible Personal Property and shall in no event cause, permit or
suffer any Lien to exist with respect to the Leased Property other
than as set forth in Section 11.5.2.
7.3 COMPLIANCE WITH LEGAL REQUIREMENTS. Lessee covenants and agrees
that the Leased Property shall not be used for any unlawful purpose and that
Lessee, at its sole cost and expense, will promptly (A) comply with, and shall
cause every other member of the Leasing Group to comply with, all Legal
Requirements relating to 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 Property or interfere with the
use and enjoyment of the Leased Property and (B) procure, maintain and comply
with (in all material respects), and shall cause every other member of the
Leasing Group to procure, maintain and comply with (in all material respects),
all Contracts and Permits necessary in order to operate the Leased Property for
the Primary Intended Use, and for compliance with all of the terms and
conditions of this Lease. Unless a Lease Default has occurred or any event has
occurred which, with the passage of time and/or the giving of notice would
constitute a Lease Default, Lessee may, upon prior written notice to Lessor,
contest any Legal Requirement to the extent permitted by, and in accordance
with, Article 15.
7.4 MANAGEMENT AGREEMENTS. From and after the Commencement Date,
Lessee shall not enter into any Management Agreement without the prior written
approval of Lessor, in each instance, which approval shall not be unreasonably
withheld. Lessee shall not, without the prior written approval of Lessor, in
each instance, which approval shall not be unreasonably withheld, agree to or
allow: (A) any change in the Manager or change in the ownership or control of
the Manager, (B) any change in the Management Agreement, (C) the termination of
any Management Agreement (other than in connection with the exercise by lessee
of any of its remedies under the Management Agreement as a result of any
default by the Manager thereunder), (D) any assignment by the Manager of its
interest under the
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Management Agreement or (E) any material amendment of the Management Agreement.
In addition, Lessee shall, at its sole cost and expense, promptly and fully
perform or cause to be performed every covenant, condition, promise and
obligation of the licensed operator of the Leased Property under any Management
Agreement.
Each Management Agreement shall provide that Lessor shall be provided
notice of any defaults thereunder and, at Lessor's option, an opportunity to
cure such default. Lessee shall furnish to Lessor, within three (3) days after
receipt thereof, or after the mailing or service thereof by Lessee, as the case
may be, a copy of each notice of default which Lessee shall give to, or receive
from any Person, based upon the occurrence, or alleged occurrence, of any
default in the performance of any covenant, condition, promise or obligation
under any Management Agreement.
Whenever and as often as Lessee shall fail to perform, promptly and
fully, at its sole cost and expense, any covenant, condition, promise or
obligation on the part of the licensed operator of the Leased Property under
and pursuant to any Management Agreement, Lessor, or a lawfully appointed
receiver of the Leased Property, may, at their respective options (and without
any obligation to do so), after five (5) days' prior notice to Lessee (except
in the case of an emergency) enter upon the Leased Property and perform, or
cause to be performed, such work, labor, services, acts or things, and take
such other steps and do such other acts as they may deem advisable, to cure
such defaulted covenant, condition, promise or obligation, and any amount so
paid or advanced by Lessor or such receiver and all costs and expenses
reasonably incurred in connection therewith (including, without limitation,
attorneys' fees and expenses and court costs), shall be a demand obligation of
Lessee to Lessor or such receiver, and, Lessor shall have the same rights and
remedies for failure to pay such costs on demand as for Lessee's failure to pay
any other sums due hereunder.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 MAINTENANCE AND REPAIR.
8.1.1 LESSEE'S RESPONSIBILITY. Lessee, at its sole cost and
expense, shall keep the Leased Property and all private roadways,
sidewalks and curbs appurtenant thereto 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 or such private roadways,
sidewalks and curbs or any other cause whatsoever) and, subject to
Articles 9, 13 and 14, Lessee shall promptly, with the exercise of all
reasonable efforts, undertake and diligently complete all necessary
and appropriate repairs, replacements, renovations, restorations,
alterations and modifications thereof of every kind and nature,
whether interior or exterior, structural or non-structural, ordinary
or extraordinary, foreseen
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or unforeseen or arising by reason of a condition (concealed or
otherwise) existing prior to the commencement of, or during, the Term
and thereafter until Lessee surrenders the Leased Property in the
manner required by this Lease. In addition, Lessee, at its sole cost
and expense, shall make all repairs, modifications, replacements,
renovations and alterations of the Leased Property (and such private
roadways, sidewalks and curbs) that are necessary to comply with all
applicable Legal Requirements and Insurance Requirements so that, from
and after the Conversion Date, the Leased Property can be legally
operated for the Primary Intended Use. All repairs, replacements,
renovations, alterations, and modifications required by the terms of
this Section 8.1 shall be (A) performed in a good and workmanlike
manner in compliance with all Legal Requirements, Insurance
Requirements and the requirements of Article 9 hereof, using new
materials well suited for their intended purpose and (B) consistent
with the operation of the Leased Property in a first class manner.
Lessee will not take or omit to take any action the taking or omission
of which might materially impair the value or the usefulness of the
Leased Property for the Primary Intended Use. To the extent that any
of the repairs, replacements, renovations, alterations or
modifications required by the terms of this Section 8.1 constitute
Material Structural Work, Lessee shall obtain Lessor's prior written
approval (which approval shall not be unreasonably withheld) of the
specific repairs, replacements, renovations, alterations and
modifications to be performed by or on behalf of Lessee in connection
with such Material Structural Work. Notwithstanding the foregoing, in
the event of a bona fide emergency during which Lessee is unable to
contact the appropriate representatives of Lessor, Lessee may commence
such Material Structural Work as may be necessary in order to address
such emergency without Lessor's prior approval, provided, however,
that Lessee shall immediately thereafter advise Lessor of such
emergency and the nature and scope of the Material Structural Work
commenced and shall obtain Lessor's approval of the remaining Material
Structural Work to be completed.
8.1.2 NO LESSOR OBLIGATION. Lessor shall not, under any
circumstances, be required to build or rebuild any improvements on the
Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto), or to make any repairs, replacements,
renovations, alterations, restorations, modifications, or renewals of
any nature or description to the Leased Property (or any private
roadways, sidewalks or curbs appurtenant thereto), whether ordinary or
extraordinary, structural or non-structural, foreseen or unforeseen,
or to make any expenditure whatsoever with respect thereto in
connection with this Lease, or to maintain the Leased Property (or any
private roadways, sidewalks or curbs appurtenant thereto) in any way.
8.1.3 LESSEE MAY NOT OBLIGATE LESSOR. Nothing contained
herein nor any action or inaction by Lessor shall be construed as (A)
constituting the consent or request of Lessor, express or implied, to
any contractor, subcontractor, laborer, materialman or vendor to or
for the performance of any labor or services for any construction,
alteration, addition, repair or demolition of or to the Leased
Property or
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(B) 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 for the payment thereof or to make
any agreement that may create, or in any way be the basis for, any
right, title or interest in, or Lien or claim against, the estate of
Lessor in the Leased Property. Without limiting the generality of the
foregoing, the right title and interest of Lessor in and to the Leased
Property shall not be subject to liens or encumbrances for the
performance of any labor or services or the furnishing of any
materials or other property furnished to the Leased Property at or by
the request of Lessee or any other Person other than Lessor. Lessee
shall notify any contractor, subcontractor, laborer, materialman or
vendor providing any labor, services or materials to the Leased
Property of this provision.
8.2 ENCROACHMENTS; TITLE RESTRICTIONS. If any of the Leased
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 lawful restrictive covenant or other Lien now or
hereafter affecting the Leased Property, or shall impair the rights of others
under any easement, right-of-way or other Lien to which the Leased Property is
now or hereafter subject, then promptly upon the request of Lessor, Lessee
shall, at its sole cost and expense, subject to Lessee's right to contest the
existence of any encroachment, violation or impairment as set forth in Article
15, (A) obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation or
impairment or (B) make such alterations to the Leased Improvements, 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. Notwithstanding the foregoing, Lessee shall, in any event, take
all such actions as may be reasonably necessary in order to be able to continue
the operation of the Leased Improvements for the Primary Intended Use
substantially in the manner and to the extent that the Leased Improvements were
operated prior to the assertion of such encroachment, violation or impairment
as contemplated by this Lease, the Leasehold Improvement Agreement and the
other Lease Documents and nothing contained herein shall limit Lessee's
obligations to operate the Leased Property, from and after the Conversion Date,
in accordance with its Primary Intended Use. Any such alteration made pursuant
to the terms of this Section 8.2 shall be completed in conformity with the
applicable requirements of Section 8.1 and Article 9. 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.
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ARTICLE 9
MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS
9.1 LESSOR'S APPROVAL. Without the prior written consent of Lessor,
which consent may be withheld by Lessor, in its sole and absolute discretion,
Lessee shall make no Capital Addition or Material Structural Work to the Leased
Property (including, without limitation, any change in the size or unit
capacity of the Facility), except as may be otherwise expressly required
pursuant to Article 8.
9.2 GENERAL PROVISIONS AS TO CAPITAL ADDITIONS AND CERTAIN MATERIAL
STRUCTURAL WORK. As to any Capital Addition or Material Structural Work (other
than such Material Structural Work that is required to be performed pursuant to
the terms of Section 8.1) for which Lessor has granted its prior written
approval, the following terms and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 NO LIENS. Lessee shall not be permitted to create any
Lien on the Leased Property in connection with any Capital Addition or
Material Structural Work.
9.2.2 LESSEE'S PROPOSAL REGARDING CAPITAL ADDITIONS AND
MATERIAL STRUCTURAL WORK. If Lessee desires to undertake any Capital
Addition or Material Structural Work, Lessee shall submit to Lessor in
writing a proposal setting forth in reasonable detail any proposed
Capital Addition or Material Structural Work and shall provide to
Lessor copies of, or information regarding, the applicable plans and
specifications, Permits, Contracts and any other materials concerning
the proposed Capital Addition or Material Structural Work, as the case
may be, as Lessor may reasonably request. Without limiting the
generality of the foregoing, each such proposal pertaining to any
Capital Addition shall indicate the approximate projected cost of
constructing such Capital Addition, the use or uses to which it will
be put and a good faith estimate of the change, if any, in the gross
revenues that Lessee anticipates will result from the construction of
such Capital Addition.
9.2.3 LESSOR'S OPTIONS REGARDING CAPITAL ADDITIONS AND
MATERIAL STRUCTURAL WORK. Lessor shall have the options of: (A)
denying permission for the construction of the applicable Capital
Addition or Material Structural Work, (B) offering to finance the
construction of the Capital Addition or Material Structural Work
pursuant to Section 9.3, (C) allowing Lessee to pay for or separately
finance the construction of the Capital Addition or Material
Structural Work, subject to compliance with the terms and conditions
of Section 9.2.1, Section 9.4, Section 13.1, all Legal Requirements
and all other requirements of this Lease and to such other terms and
conditions as Lessor may in its discretion impose or (D) any
combination of the foregoing. Unless Lessor notifies Lessee in writing
of a contrary election within
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forty-five (45) days of Lessee's request, Lessor shall be deemed to
have denied the request for the Capital Addition or Material
Structural Work.
9.2.4 LESSOR MAY ELECT TO FINANCE CAPITAL ADDITIONS OR
MATERIAL STRUCTURAL WORK. If Lessor elects to offer financing for the
proposed Capital Addition or Material Structural Work, the provisions
of Section 9.3 shall apply.
9.3 CAPITAL ADDITIONS AND MATERIAL STRUCTURAL WORK FINANCED BY LESSOR.
9.3.1 LESSEE'S FINANCING REQUEST. Lessee may request that
Lessor provide or arrange financing for a Capital Addition or Material
Structural Work by providing to Lessor such information about the
Capital Addition or Material Structural Work as Lessor may reasonably
request, including, without limitation, all information referred to in
Section 9.2 above. Lessee understands, however, that Lessor shall be
under no obligation to agree to such request. Nevertheless, Lessor
shall use reasonable efforts to notify Lessee, within forty-five (45)
days of receipt of such information, as to whether Lessor will finance
the proposed Capital Addition or Material Structural Work and, if so,
the terms and conditions upon which it would do so, including the
terms of any amendment to this Lease (including, without limitation,
an increase in Base Rent based on Lessor's then existing terms and
prevailing conditions to compensate Lessor for the additional funds
advanced by it). Lessee may withdraw its request by notice to Lessor
at any time before such time as Lessee accepts Lessor's terms and
conditions. All advances of funds for any such financing shall be made
in accordance with Lessor's then standard construction loan
requirements and procedures, which may include, without limitation,
the requirements and procedures applicable to Work under Section 13.1.
9.3.2 LESSOR'S GENERAL REQUIREMENTS. If Lessor agrees to
finance the proposed Capital Addition or Material Structural Work and
Lessee accepts Lessor's proposal therefor, in addition to all other
items which Lessor or any applicable Financing Party may reasonably
require, Lessee shall provide to Lessor the following:
(A) prior to any advance of funds, (I) any
information, opinions, certificates, Permits or documents
reasonably requested by Lessor or any applicable Financing
Party which are necessary to confirm that Lessee will be able
to use the Capital Addition upon the completion thereof or
the applicable portion of the Facility upon the completion of
the Material Structural Work in accordance with the Primary
Intended Use and (II) evidence satisfactory to Lessor and any
applicable Financing Party that all Permits required for the
construction and use of the Capital Addition or the
applicable portion of the Facility have been obtained, are in
full force and effect and are not subject to appeal, except
only for those Permits which cannot in the normal course be
obtained prior to commencement or completion of the
construction; provided, that Lessor and any applicable
Financing Party are furnished with reasonable
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evidence that the same will be available in the normal course
of business without unusual condition;
(B) prior to any advance of funds, an Officer's
Certificate and, if requested, a certificate from Lessee's
architect, setting forth in reasonable detail the projected
(or actual, if available) Capital Addition Cost or the cost
of the Material Structural Work;
(C) bills of sale, instruments of transfer and other
documents required by Lessor so as to vest title to the
Capital Addition or the applicable Material Structural Work
in Lessor free and clear of all Liens, and amendments to this
Lease and any recorded notice or memorandum thereof, duly
executed and acknowledged, in form and substance reasonably
satisfactory to Lessor, providing for any changes required by
Lessor including, without limitation, changes in the Base
Rent and the legal description of the Land;
(D) upon payment therefor, a deed conveying to
Lessor title to any land acquired for the purpose of
constructing the Capital Addition or the applicable Material
Structural Work ("Additional Land") free and clear of any
Liens except those approved by Lessor;
(E) upon completion of the Capital Addition or the
Material Structural Work, a final as-built survey thereof
reasonably satisfactory to Lessor, if required by Lessor;
(F) during and following the advance of funds and
the completion of the Capital Addition or the Material
Structural Work, endorsements to any outstanding policy of
title insurance covering the Leased Property satisfactory in
form and substance to Lessor and any Financing Party (I)
updating the same without any additional exception except as
may be reasonably permitted by Lessor, (II) if applicable,
including the Additional Land in the premises covered by such
title insurance policy and (III) increasing the coverage
thereof by an amount equal to any amount paid by Lessor for
the Additional Land plus the Fair Market Value of the Capital
Addition or the Fair Market Value of the Material Structural
Work (except to the extent covered by the owner's policy of
title insurance referred to in subparagraph (g) below);
(G) simultaneous with the initial advance of funds,
if appropriate, (I) an owner's policy of title insurance
insuring fee simple title to any Additional Land conveyed to
Lessor pursuant to subparagraph (d) free and clear of all
Liens except those approved by Lessor and (II) a lender's
policy of title insurance reasonably satisfactory in form and
substance to any applicable Financing Party;
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(H) following the completion of the Capital Addition
or the Material Structural Work, if reasonably deemed
necessary by Lessor, an appraisal of the Leased Property by
an M.A.I. appraiser acceptable to Lessor, which states that
the Fair Market Value of the Leased Property upon completion
of the Capital Addition or the Material Structural Work
exceeds the Fair Market Value of the Leased Property prior to
the commencement of the construction of such Capital Addition
or Material Structural Work by an amount not less than one
hundred five percent (105%) of the Capital Addition Cost or
the cost of the Material Structural Work; and
(I) during or following the advancement of funds,
prints of architectural and engineering drawings relating to
the Capital Addition or the Material Structural Work and such
other materials, including, without limitation, endorsements
to the title insurance policies (insuring Lessor and any
applicable Financing Party with respect to the Leased
Property) contemplated by subsection (f) above, opinions of
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 documents and instruments as may be reasonably
required by Lessor and any applicable Financing Party.
9.3.3 PAYMENT OF COSTS. By virtue of making a request to
finance a Capital Addition or any Material Structural Work, whether or
not such financing is actually consummated, Lessee shall be deemed to
have agreed to pay, upon demand, all costs and expenses reasonably
incurred by Lessor and any Person participating with Lessor in any way
in the financing of the Capital Addition or Material Structural Work,
including, but not limited to (A) fees and expenses of their
respective attorneys, (B) all photocopying expenses, if any, (C) the
amount of any filing, registration and recording taxes and fees, (D)
documentary stamp taxes and intangible taxes and (E) title insurance
charges and appraisal fees.
9.4 GENERAL LIMITATIONS. Without in any way limiting Lessor's options
with respect to proposed Capital Additions or Material Structural Work: (A) no
Capital Addition or Material Structural Work shall be completed that could,
upon completion, significantly alter the character or purpose or detract from
the value or operating efficiency of the Leased Property, or significantly
impair the revenue-producing capability of the Leased Property, or adversely
affect the ability of Lessee to comply with the terms of this Lease, (B) no
Capital Addition or Material Structural Work shall be completed 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, without limitation, tie-ins of buildings
or other structures or utilities, unless Lessee shall have obtained the prior
written approval of Lessor, which approval may be withheld in Lessor's sole and
absolute discretion and (C) all proposed Capital Additions and Material
Structural Work shall be architecturally integrated and consistent with the
Leased Property.
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9.5 NON-CAPITAL ADDITIONS. Lessee shall have the obligation and right
to make repairs, replacements and alterations which are not Capital Additions
as required by the other Sections of this Lease, but in so doing, Lessee shall
always comply with and satisfy the conditions of Section 9.4, mutatis,
mutandis. Lessee shall have the right, from time to time, to make additions,
modifications or improvements to the Leased Property which do not constitute
Capital Additions or Material Structural Work as it may deem to be desirable or
necessary for its uses and purposes, subject to the same limits and conditions
imposed under Section 9.4. The cost of any such repair, replacement,
alteration, addition, modification or improvement shall be paid by Lessee and
the results thereof shall be included under the terms of this Lease and become
a part of the Leased Property, without payment therefor by Lessor at any time.
Notwithstanding the foregoing, all such additions, modifications and
improvements which affect the structure of any of the Leased Improvements, or
which involve the expenditure of more than TWENTY-FIVE THOUSAND DOLLARS
($25,000.00), shall be undertaken only upon compliance with the provisions of
Section 13.1, all Legal Requirements and all other applicable requirements of
this Lease; provided, however, that in the event of a bona fide emergency
during which Lessee is unable to contact the appropriate representatives of
Lessor, Lessee may commence such additions, modifications and improvements as
may be necessary in order to address such emergency without Lessor's prior
approval, as long as Lessee immediately thereafter advises Lessor of such
emergency and the nature and scope of the additions, modifications and
improvements performed and obtains Lessor's approval of the remaining work to
be completed.
ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 REPRESENTATIONS AND WARRANTIES. Lessee hereby represents and
warrants to, and covenants and agrees with, Lessor that:
10.1.1 EXISTENCE; POWER; QUALIFICATION.
Lessee is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Lessee has
all requisite corporate power to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted
and is duly qualified to transact business and is in good standing in
each jurisdiction where such qualification is necessary or desirable
in order to carry out its business as presently conducted and as
proposed to be conducted. As of the date of this Agreement, Lessee
does not have any Subsidiaries and Lessee is not a member of any
partnership or joint venture. Attached hereto as EXHIBIT C is a true
and correct list of all of the shareholders of Lessee and their
respective ownership interests in Lessee.
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10.1.2 VALID AND BINDING. Lessee is duly authorized to make
and enter into all of the Lease Documents to which Lessee is a party
and to carry out the transactions contemplated therein. All of the
Lease Documents to which Lessee is a party have been duly executed and
delivered by Lessee, and each is a legal, valid and binding obligation
of Lessee, enforceable in accordance with its terms.
10.1.3 SINGLE PURPOSE. Lessee is, and during the entire time
that this Lease remains in force and effect shall be, engaged in no
business, trade or activity other than the construction of the Project
in accordance with the terms of the Leasehold Improvement Agreement
and, from and after the Conversion Date, operation of the Leased
Property for the Primary Intended Use. The fiscal year of Lessee and
the Guarantor is the Fiscal Year.
10.1.4 NO VIOLATION. The execution, delivery and performance
of the Lease Documents and the consummation of the transactions
thereby contemplated shall not result in any breach of, or constitute
a default under, or result in the acceleration of, or constitute an
event which, with the giving of notice or the passage of time, or
both, could result in default or acceleration of any obligation of any
member of the Leasing Group under any of the Permits or Contracts or
any other contract, mortgage, lien, lease, agreement, instrument,
franchise, arbitration award, judgment, decree, bank loan or credit
agreement, trust indenture or other instrument to which any member of
the Leasing Group is a party or by which any member of the Leasing
Group or the Leased Property may be bound or affected and do not
violate or contravene any Legal Requirement.
10.1.5 CONSENTS AND APPROVALS. Except as already obtained or
filed, as the case may be, no consent or approval or other
authorization of, or exemption by, or declaration or filing with, any
Person and no waiver of any right by any Person is required to
authorize or permit, or is otherwise required as a condition of the
execution and delivery of any of the Lease Documents, the Construction
Contract or the Architect's Agreement by any member of the Leasing
Group and the performance of such member's obligations thereunder or
as a condition to the validity (assuming the due authorization,
execution and delivery by Lessor of the Lease Documents to which it is
a party) and the first priority of any Liens granted under the Lease
Documents, except the filing of the Financing Statements.
10.1.6 NO LIENS OR INSOLVENCY PROCEEDINGS. Each member of the
Leasing Group is financially solvent and there are no actions, suits,
investigations or proceedings including, without limitation,
outstanding federal or state tax liens, garnishments or insolvency or
bankruptcy proceedings, pending or, to the best of Lessee's knowledge
and belief, threatened:
(A) against or affecting any member of the Leasing
Group, which if adversely resolved to such member of the
Leasing Group, would materially
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adversely affect the ability of any of the foregoing to
perform their respective obligations under the Lease
Documents;
(B) against or affecting the Leased Property or the
ownership, construction, development, maintenance,
management, repair, use, occupancy, possession or operation
thereof; or
(C) which may involve or affect the validity,
priority or enforceability of any of the Lease Documents, at
law or in equity, or before or by any arbitrator or
Governmental Authority.
10.1.7 NO BURDENSOME AGREEMENTS. Neither Lessee, the
Developer nor the Guarantor is a party to any agreement the terms of
which now have, or, as far as can be reasonably foreseen, may have, a
material adverse affect on its respective financial condition or
business or on the operation of the Leased Property.
10.1.8 COMMERCIAL ACTS. Lessee's performance of and
compliance with the obligations and conditions set forth herein and in
the other Lease Documents will constitute commercial acts done and
performed for commercial purposes.
10.1.9 ADEQUATE CAPITAL, NOT INSOLVENT. After giving effect
to the consummation of the transactions contemplated by the Lease
Documents, each member of the Leasing Group:
(A) will be able to pay its debts as they become
due;
(B) will have sufficient funds and capital to carry
on its business as now conducted or as contemplated to be
conducted (in accordance with the terms of the Lease
Documents);
(C) will own property having a value both at fair
valuation and at present fair saleable value greater than the
amount required to pay its debts as they become due; and
(D) will not be rendered insolvent as determined by
applicable law.
10.1.10 NOT DELINQUENT. No member of the Leasing Group is
delinquent or claimed to be delinquent under any obligation for the
payment of borrowed money.
10.1.11 NO AFFILIATE DEBT. Lessee has not created, incurred,
guaranteed, endorsed, assumed or suffered to exist any liability
(whether direct or contingent) for borrowed money from the Guarantor
(or any of its Affiliates) or any Affiliate of Lessee that is not
fully subordinated to the Lease Obligations pursuant to the Affiliated
Party Subordination Agreement.
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10.1.12 TAXES CURRENT. Each member of the Leasing Group has
filed all federal, state and local tax returns which are required to
be filed as to which extensions are not currently in effect and have
paid all taxes, assessments, impositions, fees and other governmental
charges (including interest and penalties) which have become due
pursuant to such returns or pursuant to any assessment or notice of
tax claim or deficiency received by each such member of the Leasing
Group. No tax liability has been asserted by the Internal Revenue
Service against any member of the Leasing Group or any other federal,
state or local taxing authority for taxes, assessments, impositions,
fees or other governmental charges (including interest or penalties
thereon) in excess of those already paid.
10.1.13 FINANCIALS COMPLETE AND ACCURATE. The financial
statements of each member of the Leasing Group given to Lessor in
connection with the execution and delivery of the Lease Documents were
true, complete and accurate, in all material respects, and fairly
presented the financial condition of each such member of the Leasing
Group as of the date thereof and for the periods covered thereby,
having been prepared in accordance with GAAP and such financial
statements disclosed all liabilities, including, without limitation,
contingent liabilities, of each such member of the Leasing Group.
There has been no material adverse change since such date with respect
to the Tangible Net Worth of any member of the Leasing Group or with
respect to any other matters contained in such financial statements,
nor have any additional material liabilities, including, without
limitation, contingent liabilities, of any member of the Leasing Group
arisen or been incurred or asserted since such date. The projections
heretofore delivered to Lessor continue to be reasonable (with respect
to the material assumptions upon which such projections are based) and
Lessee reasonably anticipates the results projected therein will be
achieved, there having been (A) no material adverse change in the
business, assets or condition, financial or otherwise of any member of
the Leasing Group or the Leased Property and (B) no material depletion
of the cash or decrease in working capital of any member of the
Leasing Group.
10.1.14 PENDING ACTIONS, NOTICES AND REPORTS.
(A) There is no action or investigation pending or, to the
best knowledge and belief of Lessee, threatened, anticipated or
contemplated (nor, to the knowledge of Lessee, is there any reasonable
basis therefor) against or affecting the Leased Property or any member
of the Leasing Group (or any Affiliate thereof) before any
Governmental Authority, Accreditation Body or Third Party Payor which
could prevent or hinder the consummation of the transactions
contemplated hereby or call into question the validity of any of the
Lease Documents or any action taken or to be taken in connection with
the transactions contemplated thereunder or which in any single case
or in the aggregate might result in any material adverse change in the
business, prospects, condition, affairs or operations of any member of
the Leasing Group or the Leased Property (including, without
limitation, any action to revoke,
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withdraw or suspend any Permit necessary or desirable for the
operation of the Leased Property in accordance with its Primary
Intended Use and any action to transfer or relocate any such Permit to
a location other than the Leased Property) or any material impairment
of the right or ability of any member of the Leasing Group to carry on
its operations as presently conducted or proposed to be conducted or
which may materially adversely impact reimbursement to any member of
the Leasing Group for services rendered to beneficiaries of Third
Party Payor Programs.
(B) Neither the Facility nor any member of the Leasing Group
has received any notice of any claim, requirement or demand of any
Governmental Authority, Accreditation Body, Third Party Payor or any
insurance body having or claiming any licensing, certifying,
supervising, evaluating or accrediting authority over the Leased
Property to rework or redesign the Leased Property, its professional
staff or its professional services, procedures or practices in any
material respect or to provide additional furniture, fixtures,
equipment or inventory or to otherwise take action so as to make the
Leased Property conform to or comply with any Legal Requirement;
(C) [Intentionally deleted]; and
(D) Lessee has delivered or caused to be delivered to Lessor
true and correct copies of all licenses, inspection surveys and
accreditation reviews relating to the Leased Property, issued by any
Governmental Authority or Accreditation Body during the most recent
licensing period, together with all plans of correction relating
thereto.
10.1.15 COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS.
(A) Lessee and the Leased Property and the ownership,
construction, development, maintenance, management, repair, use,
occupancy, possession and operation thereof comply with all applicable
Legal Requirements and there is no claim of any violation thereof
known to Lessee. Without limiting the foregoing, Lessee has obtained
all Permits that are necessary or desirable to operate the Leased
Property in accordance with its Primary Intended Use and all such
Permits are in full force and effect.
(B) Except as previously delivered to Lessor pursuant to
Section 10.1.14(d) hereof, there are no outstanding notices of
deficiencies, notices of proposed action or orders of any kind
relating to the Leased Property issued by any Governmental Authority,
Accreditation Body or Third Party Payor requiring conformity to any of
the Legal Requirements.
(C) Lessee knows of no impediments to the Facility becoming
licensed on or before the Conversion Date as a personal care home by
the Department of Public Welfare.
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10.1.16 NO ACTION BY GOVERNMENTAL AUTHORITY. There is no
action pending or, to the best knowledge and belief of Lessee,
recommended, by any Governmental Authority or Accreditation Body to
revoke, repeal, cancel, modify, withdraw or suspend any Permit or
Contract or to take any other action of any other type which could
have a material adverse effect on the Leased Property.
10.1.17 PROPERTY MATTERS.
(A) The Leased Property is free and clear of agreements,
covenants and Liens, except those agreements, covenants and Liens to
which this Lease is expressly subject, whether presently existing, as
are listed on EXHIBIT B or were listed on the UCC lien search results
delivered to Lessor at or prior to the execution and delivery of this
Lease (and were not required to be terminated as a condition of the
execution and delivery of this Lease), or which may hereafter be
created in accordance with the terms hereof (collectively referred to
herein as the "Permitted Encumbrances"); and Lessee shall warrant and
defend Lessor's title to the Leased Property against any and all
claims and demands of every kind and nature whatsoever;
(B) There is no Condemnation or similar proceeding pending
with respect to or affecting the Leased Property, and Lessee is not
aware, to the best of Lessee's knowledge and belief, that any such
proceeding is contemplated;
(C) To the actual knowledge of Lessee, no part of the
Collateral or the Leased Property has been damaged by any fire or
other casualty;
(D) None of the Permitted Encumbrances has or is likely to
have a material adverse impact upon, nor interfere with or impede, in
any material respect, the operation of the Leased Property in
accordance with the Primary Intended Use;
(E) Upon the completion of construction of the Project, all
buildings, facilities and other improvements necessary, both legally
and practically, for the proper and efficient operation of the
Facility are located upon the Leased Property and all real property
and personal property currently utilized by Lessee is included within
the definition of the Leased Property or the Collateral;
(F) The Leased Property abuts on and has direct vehicular
access to a public road or access to a public road via permanent,
irrevocable, appurtenant easements;
(G) The Leased Property constitutes a separate parcel for
real estate tax purposes and no portion of any real property that does
not constitute a portion of the Leased Property is part of the same
tax parcel as any part of the Leased Property;
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(H) Prior to the completion of construction of the Project,
all utilities necessary for the use and operation of the Facility will
be available to the lot lines of the Leased Property:
(I) in sufficient supply and capacity;
(II) through validly created and existing easements of
record appurtenant to or encumbering the Leased Property
(which easements shall not impede or restrict the
construction of the Project or the operation of the
Facility); and
(III) without need for any Permits and/or Contracts to
be issued by or entered into with any Governmental Authority,
except as already obtained or executed, as the case may be,
or as otherwise shown to the satisfaction of Lessor to be
readily obtainable; and
10.1.18 THIRD PARTY PAYOR AGREEMENTS.
(A) [Intentionally Deleted].
(B) Attached hereto as EXHIBIT D is a list of national
accounts and local discount agreements, which constitute all of the
agreements between Lessee or the Facility, on the one hand, and Third
Party Payors on the other hand, pursuant to which Lessee or the
Facility agrees to provide services based on a discount factor from
the rates regularly charged for services rendered by Lessee or the
Facility.
(C) No member of the Leasing Group, nor the Facility has any
rate appeal currently pending before any Governmental Authority or any
administrator of any Third Party Payor Program or any other referral
source other than such appeals which, if determined adversely to any
member of the Leasing Group or the Facility would not have a
materially adverse effect, either singly or in the aggregate, on the
financial condition of any member of the Leasing Group or the
Facility.
10.1.19 RATE LIMITATIONS. Except as disclosed on EXHIBIT F,
the State currently imposes no restrictions or limitations on rates
which may be charged to private pay residents receiving services at
the Facility.
10.1.20 FREE CARE. Except as disclosed on EXHIBIT G, there
are no Contracts, Permits or Legal Requirements which require that,
upon completion of construction of the Project, a percentage of beds
or slots in any program at the Facility be reserved for Medicaid or
Medicare eligible patients or that the Facility provide a certain
amount of welfare, free or charity care or discounted or government
assisted resident care.
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10.1.21 NO PROPOSED CHANGES. Lessee has no actual knowledge
of any Legal Requirements which have been enacted, promulgated or
issued within the eighteen (18) months preceding the date of this
Lease or any proposed Legal Requirements currently pending in the
State which may materially adversely affect rates at the Facility (or
any program operated in conjunction with the Facility) or may result
in the likelihood of increased competition at the Facility or the
imposition of Medicaid, Medicare, charity, free care, welfare or other
discounted or government assisted residents at the Facility or require
that Lessee or the Facility obtain a certificate of need, Section 1122
approval or the equivalent, which Lessee or the Facility does not
currently possess.
10.1.22 ERISA. No employee pension benefit plan maintained by
any member of the Leasing Group has any accumulated funding deficiency
within the meaning of the ERISA, nor does any member of the Leasing
Group have any material liability to the PBGC established under ERISA
(or any successor thereto) in connection with any employee pension
benefit plan (or other class of benefit which the PBGC has elected to
insure), and there have been no "reportable events" (not waived) or
"prohibited transactions" with respect to any such plan, as those
terms are defined in Section 4043 of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as now or hereafter amended,
respectively.
10.1.23 NO BROKER. No member of the Leasing Group nor any of
their respective Affiliates has dealt with any broker or agent in
connection with the transactions contemplated by the Lease Documents.
10.1.24 NO IMPROPER PAYMENTS. No member of the Leasing Group
nor any of their respective Affiliates has:
(A) made any contributions, payments or gifts of its
funds or property to or for the private use of any government
official, employee, agent or other Person where either the
payment or the purpose of such contribution, payment or gifts
is illegal under the laws of the United States, any state
thereof or any other jurisdiction (foreign or domestic);
(B) established or maintained any unrecorded fund or
asset for any purpose or has made any false or artificial
entries on any of its books or records for any reason;
(C) made any payments to any Person with the
intention or understanding that any part of such payment was
to be used for any other purpose other than that described in
the documents supporting the payment; or
(D) made any contribution, or has reimbursed any
political gift or contribution made by any other Person, to
candidates for public office, whether
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federal, state or local, where such contribution would be in
violation of applicable law.
10.1.25 NOTHING OMITTED. Neither this Lease, nor any of the
other Lease Documents, nor any certificate, agreement, statement or
other document, including, without limitation, any financial
statements concerning the financial condition of any member of the
Leasing Group, furnished to or to be furnished to Lessor or its
attorneys in connection with the transactions contemplated by the
Lease Documents, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary
in order to prevent all statements contained herein and therein from
being misleading. There is no fact within the special knowledge of
Lessee which has not been disclosed herein or in writing to Lessor
that materially adversely affects, or in the future, insofar as Lessee
can reasonably foresee, may materially adversely affect the business,
properties, assets or condition, financial or otherwise, of any member
of the Leasing Group or the Leased Property.
10.1.26 NO MARGIN SECURITY. Lessee is not engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds
of the Meditrust Investment will be used to purchase or carry any
margin security or to extend credit to others for the purpose of
purchasing or carrying any margin security or in any other manner
which would involve a violation of any of the regulations of the Board
of Governors of the Federal Reserve System. Lessee is not an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
10.1.27 NO DEFAULT. No event or state of facts which
constitutes, or which, with notice or lapse of time, or both, could
constitute, a Lease Default has occurred and is continuing.
10.1.28 PRINCIPAL PLACE OF BUSINESS. The principal place of
business and chief executive office of Lessee is located at 5021
Louise Drive, Suite 200, Mechanicsburg, Pennsylvania 17055 (the
"Principal Place of Business").
10.1.29 LABOR MATTERS. There are no proceedings now pending,
nor, to the best of Lessee's knowledge, threatened with respect to the
operation of the Facility before the National Labor Relations Board,
State Commission on Human Rights and Opportunities, State Department
of Labor, U.S. Department of Labor or any other Governmental Authority
having jurisdiction of employee rights with respect to hiring, tenure
and conditions of employment, and no member of the Leasing Group has
experienced any material controversy with any Facility administrator
or other employee of similar stature or with any labor organization.
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10.1.30 INTELLECTUAL PROPERTY. Lessee is duly licensed or
authorized to use all (if any) copyrights, rights of reproduction,
trademarks, trade-names, trademark applications, service marks, patent
applications, patents and patent license rights, (all whether
registered or unregistered, U.S. or foreign), inventions, franchises,
discoveries, ideas, research, engineering, methods, practices,
processes, systems, formulae, designs, drawings, products, projects,
improvements, developments, know-how and trade secrets which are used
in or necessary for the operation of the Facility in accordance with
its Primary Intended Use, without conflict with or infringement of
any, and subject to no restriction, lien, encumbrance, right, title or
interest in others.
10.1.31 MANAGEMENT AGREEMENTS. There is no Management
Agreement in force and effect as of the date hereof.
10.1.32 OPTION PURCHASE DOCUMENTS. True and correct copies of
the Option Purchase Agreement and the other Option Purchase Documents
have been delivered to Lessor and the transactions contemplated by the
Option Purchase Documents have closed in accordance with the terms
thereof and in compliance with all applicable Legal Requirements.
10.2 CONTINUING EFFECT OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Lease and the other Lease
Documents shall constitute continuing representations and warranties which
shall remain true, correct and complete throughout the Term. Notwithstanding
the provisions of the foregoing sentence but without derogation from any other
terms and provisions of this Lease, including, without limitation, those terms
and provisions containing covenants to be performed or conditions to be
satisfied on the part of Lessee, the representations and warranties contained
in Sections 10.1.6, 10.1.7, 10.1.10, 10.1.14, 10.1.15, 10.1.17(b), 10.1.17(c),
10.1.18(b), 10.1.18(c), 10.1.19, 10.1.20, 10.1.21, 10.1.22, 10.1.28, 10.1.29,
in the second sentence of Section 10.1.12, and in the second and third
sentences of Section 10.1.13 shall not constitute continuing representations
and warranties throughout the Term.
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
11.1 STATUS CERTIFICATES. At any time, and from time to time, upon
request from Lessor, Lessee shall furnish to Lessor, within ten (10) Business
Days' after receipt of such request, 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 Officer's Certificate furnished
pursuant to this Section shall be addressed to any prospective purchaser or
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mortgagee of the Leased Property as Lessor may request and may be relied upon
by Lessor and any such prospective purchaser or mortgagee of the Leased
Property.
11.2 FINANCIAL STATEMENTS; REPORTS; NOTICE AND INFORMATION.
11.2.1 OBLIGATION TO FURNISH. Lessee will furnish and shall
cause to be furnished to Lessor the following statements, information
and other materials:
(A) ANNUAL STATEMENTS. Within one hundred (100) days
after the end of each of their respective fiscal years, (I) a
copy of the Consolidated Financials for each of (X) the
Guarantor (including Lessee and the Developer) and (Y) any
Sublessee for the preceding fiscal year, certified and
audited by, and with the unqualified opinion of, independent
certified public accountants acceptable to Lessor and
certified as true and correct by Lessee, the Guarantor, the
Developer or the applicable Sublessee, as the case may be
(and, without limiting anything else contained herein, the
Consolidated Financials for Lessee and for each Sublessee
shall include a detailed balance sheet for Leased Property as
of the last day of such fiscal year and a statement of
earnings from the Leased Property for such fiscal year
showing, among other things, all rents and other income
therefrom and all expenses paid or incurred in connection
with the operation of the Leased Property); (II) separate
statements, certified as true and correct by Lessee, the
Guarantor, the Developer and each Sublessee, stating whether,
to the best of the signer's knowledge and belief after making
due inquiry, Lessee, the Guarantor, the Developer or such
Sublessee, as the case may be, is in default in the
performance or observance of any of the terms of this Lease
or any of the other Lease Documents and, if so, specifying
all such defaults, the nature thereof and the steps being
taken to immediately remedy the same; (III) a copy of all
letters from the independent certified accountants engaged to
perform the annual audits referred to above, directed to the
management of Lessee, the Guarantor, the Developer or the
applicable Sublessee, as the case may be, regarding the
existence of any reportable conditions or material
weaknesses, (IV) a statement certified as true and correct by
Lessee setting forth all Subleases (excluding Residence
Agreements) as of the last day of such fiscal year, the
respective areas demised thereunder, the names of the
Sublessees thereunder, the respective expiration dates of
such Subleases, the respective rentals provided for therein,
and such other information pertaining to the Subleases as may
be reasonably requested by Lessor and (V) evidence
satisfactory to Lessor that Lessee has fulfilled its
obligation to make the Annual Facility Upgrade Expenditure in
accordance with the provisions of Section 11.4.11.
(B) MONTHLY STATEMENTS OF LESSEE. Within thirty (30)
days after the end of each calendar month during the pendency
of this Lease, from and after the Conversion Date, an
unaudited, detailed month and year to date
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income and expense statement for the Leased Property which
shall include a comparison to corresponding budget figures,
occupancy statistics (including the actual number of
residents, the number of units available) and resident mix
breakdowns (for each resident day during such month
classifying residents by the type of care required and source
of payment).
(C) QUARTERLY STATEMENTS. (I) Within thirty (30)
days after the end of each of their respective fiscal
quarters, unaudited Consolidated Financials for each of (I)
Lessee and (II) each Sublessee certified as true and correct
by Lessee or the applicable Sublessee, as the case may be and
(II) within thirty (30) days after the end of each Fiscal
Quarter, an express written calculation showing the
compliance or non-compliance, as the case may be, with the
specific financial covenants set forth in Section 11.3 for
the applicable period, including, with respect to the
calculation of Lessee's Rent Coverage Ratio, a schedule
substantially in the form attached hereto as EXHIBIT I.
(D) QUARTERLY STATEMENTS OF THE GUARANTOR. Within
fifty (50) days after the end of each Fiscal Quarter,
unaudited Consolidated Financials for the Guarantor certified
as true and correct by the Guarantor.
(E) PERMITS AND CONTRACTS. Promptly after the
issuance or the execution thereof, as the case may be, true
and complete copies of (I) all Permits which constitute
operating licenses for the Facility issued by any
Governmental Authority having jurisdiction over personal care
matters and (II) Contracts (involving payments in the
aggregate in excess of $100,000 per annum), including,
without limitation, all Provider Agreements.
(F) CONTRACT NOTICES. Promptly after the receipt
thereof, true and complete copies of any notices, consents,
terminations or statements of any kind or nature relating to
any of the Contracts (involving payments in the aggregate in
excess of $100,000 per annum) other than those issued in the
ordinary course of business.
(G) PERMIT OR CONTRACT DEFAULTS. Promptly after the
receipt thereof, true and complete copies of all surveys,
follow-up surveys, licensing surveys, complaint surveys,
examinations, compliance certificates, inspection reports,
statements (other than those statements that are issued in
the ordinary course of business), terminations and notices of
any kind (other than those notices that are furnished in the
ordinary course of business) issued or provided to Lessee or
any Sublessee by any Governmental Authority, Accreditation
Body or any Third Party Payor, including, without limitation,
any notices pertaining to any delinquency in, or proposed
revision of, Lessee's or any Sublessee's obligations under
the terms and conditions of any Permits or Contracts now or
hereafter issued by or entered into with any Governmental
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Authority, Accreditation Body or Third Party Payor and the
response(s) thereto made by or on behalf of Lessee or any
Sublessee.
(H) OFFICIAL REPORTS. Upon completion or filing
thereof, complete copies of all applications (other than
those that are furnished in the ordinary course of business),
notices (other than those that are furnished in the ordinary
course of business), statements, annual reports, cost reports
and other reports or filings of any kind (other than those
that are furnished in the ordinary course of business)
provided by Lessee or any Sublessee to any Governmental
Authority, Accreditation Body or any Third Party Payor with
respect to the Leased Property.
(I) OTHER INFORMATION. With reasonable promptness,
such other information as Lessor may from time to time
reasonably request respecting (I) the financial condition and
affairs of each member of the Leasing Group and the Leased
Property and (II) the licensing and operation of the Leased
Property; including, without limitation, audited financial
statements, certificates and consents from accountants and
all other financial and licensing/operational information as
may be required or requested by any Governmental Authority.
(J) DEFAULT CONDITIONS. As soon as possible, and in
any event within five (5) days after the occurrence of any
Lease Default, or any event or circumstance which, with the
giving of notice or the passage of time, or both, could
constitute a Lease Default, a written statement of Lessee
setting forth the details of such Lease Default, event or
circumstance and the action which Lessee proposes to take
with respect thereto.
(K) OFFICIAL ACTIONS. Promptly after the
commencement thereof, notice of all actions, suits and
proceedings before any Governmental Authority or
Accreditation Body which could have a material adverse effect
on (I) any member of the Leasing Group to perform any of its
obligations under any of the Lease Documents or (II) the
Leased Property.
(L) AUDIT REPORTS. Promptly after receipt, a copy of
all audits or reports submitted to any member of the Leasing
Group by any independent public accountant in connection with
any annual, special or interim audits of the books of any
such member of the Leasing Group and, if requested by Lessor,
any letter of comments directed by such accountant to the
management of any such member of the Leasing Group.
(M) ADVERSE DEVELOPMENTS. Within five (5) days after
Lessee acquires knowledge thereof, written notice of:
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(I) the potential termination of any Permit
or Provider Agreement necessary for the
construction of the Project and/or
operation of the Leased Property;
(II) any loss, damage or destruction to or
of the Leased Property in excess of
TWENTY-FIVE THOUSAND DOLLARS ($25,000)
(regardless of whether the same is
covered by insurance);
(III) any material controversy involving
Lessee or any Sublessee and (X)
Facility administrator or Facility
employee of similar stature or (Y) any
labor organization;
(IV) any controversy that calls into
question the eligibility of Lessee or
the Facility for the participation in
any Medicaid, Medicare or other Third
Party Payor Program;
(V) any refusal of reimbursement by any
Third Party Payor which, singularly or
together with all other such refusals
by any Third Party Payors, could have a
material adverse effect on the
financial condition of Lessee or any
Sublessee; and
(VI) any fact within the special knowledge
of any member of the Leasing Group, or
any other development in the business
or affairs of any member of the Leasing
Group, which may be materially adverse
to the business, properties, assets or
condition, financial or otherwise, of
any member of the Leasing Group or the
Leased Property.
(N) LINE OF CREDIT DEFAULT. Within ten (10) days
after becoming aware of a claim by any Person that Lessee is
in default of any agreement in connection with the borrowing
of money which is not prohibited hereunder, notice of any
such claim or default.
(O) RESPONSES TO INSPECTION REPORTS. Within thirty
(30) days after receipt of an inspection report relating to
the Leased Property from Lessor, a written response
describing in detail prepared plans to address concerns
raised by the inspection report.
(P) PUBLIC INFORMATION. Upon the completion or
filing, mailing or other delivery thereof, complete copies of
all financial statements, reports, notices and proxy
statements, if any, sent by any member of the Leasing Group
(which is a publicly held corporation) to its shareholders
and of all
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reports, if any, filed by any member of the Leasing Group
(which is a publicly held corporation) with any securities
exchange or with the Securities Exchange Commission.
(Q) ANNUAL BUDGETS. At least thirty (30) days prior
to the end of each Fiscal Year, Lessee, any Sublessee and/or
any Manager shall submit to Lessor a preliminary annual
financial budget for the Facility for the next Fiscal Year, a
preliminary capital expenditures budget for the Facility for
the next Fiscal Year and a report detailing the capital
expenditures made in the then current Fiscal Year and on or
before the end of the first month of each Fiscal Year,
Lessee, any Sublessee and/or any Manager shall submit to
Lessor revised finalized versions of such budgets and report.
11.2.2 RESPONSIBLE OFFICER. Any certificate, instrument,
notice, or other document to be provided to Lessor hereunder by any
member of the Leasing Group shall be signed by an executive officer of
such member (in the event that any of the foregoing is not an
individual), having a position of Vice President or higher and with
respect to financial matters, any such certificate, instrument, notice
or other document shall be signed by the chief financial officer of
such member.
11.2.3 NO MATERIAL OMISSION. No certificate, instrument,
notice or other document, including without limitation, any financial
statements furnished or to be furnished to Lessor pursuant to the
terms hereof or of any of the other Lease Documents shall contain any
untrue statement of a material fact or shall omit to state any
material fact necessary in order to prevent all statements contained
therein from being misleading.
11.2.4 CONFIDENTIALITY. Lessor shall afford any information
received pursuant to the provisions of the Lease Documents the same
degree of confidentiality that Lessor affords similar information
proprietary to Lessor; provided, however, that Lessor does not in any
way warrant or represent that such information received from any
member of the Leasing Group shall remain confidential (and shall not
be liable in any way for any subsequent disclosure of such information
by any Person that Lessor has provided such information in accordance
with the terms hereof) and provided, further, that Lessor shall have
the unconditional right to (A) disclose any such information as Lessor
deems necessary or appropriate in connection with any sale, transfer,
conveyance, participation or assignment of the Leased Property or any
of the Lease Documents or any interest therein and (B) use such
information in any litigation or arbitration proceeding between Lessor
and any member of the Leasing Group. Without limiting the foregoing,
Lessor may also utilize any information furnished to it hereunder as
and to the extent (I) counsel to Lessor determines that such
utilization is necessary pursuant to 15 U.S.C. 77a-77aa or 15 U.S.C.
78a-78jj and the rules and regulations promulgated thereunder, (II)
Lessor is required or requested by any Governmental Authority to
disclose any such information and/or (III) Lessor is
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requested to disclose any such information by any of the Meditrust
Entities' lenders or potential lenders. Lessor shall not be liable in
any way for any subsequent disclosure of such information by any
Person to whom Lessor provided such information in accordance with the
terms hereof. Nevertheless, in connection with any such disclosure,
Lessor shall inform all recipients of any such information of the
confidential nature thereof. Lessor additionally shall observe any
prohibitions or limitations on the disclosure of any such information
under applicable confidentiality law or regulations, to the extent
that the same are applicable to such information, including, without
limitation, any duly enacted "Patients' Bill of Rights" or similar
legislation, including such limitations as may be necessary to
preserve the confidentiality of the facility-patient relationship and
the physician-patient privilege.
11.3 FINANCIAL COVENANTS. Lessee covenants and agrees that, throughout
the Term and as long as Lessee is in possession of the Leased Property:
11.3.1 RENT COVERAGE RATIO OF LESSEE. Commencing with the
first full Fiscal Quarter after the first day of the third Lease Year,
and for each Fiscal Quarter thereafter through the end of the Term,
Lessee shall maintain a Rent Coverage Ratio equal to or greater than
1.2 to 1.
11.3.2 CURRENT RATIO - GUARANTOR. The Guarantor shall
maintain, at all times, a ratio of Consolidated Current Assets to
Consolidated Current Liabilities equal to or greater than 1 to 1.
11.3.3 TANGIBLE NET WORTH - GUARANTOR. The Guarantor shall
maintain a Tangible Net Worth equal to or greater than (A) FIVE
HUNDRED THOUSAND DOLLARS ($500,000) from the date hereof through June
30, 1997, (B) SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000) from
July 1, 1997 through June 30, 1998 and (C) ONE MILLION DOLLARS
($1,000,000) from July 1, 1998 through the end of the Term.
11.3.4 NO INDEBTEDNESS. Lessee shall not create, incur,
assume or suffer to exist any liability for borrowed money except (I)
Indebtedness to Lessor under the Lease Documents and, (II) Impositions
allowed pursuant to the provisions of the Lease, (III) unsecured
normal trade debt incurred upon customary terms in the ordinary course
of business, (IV) Indebtedness created in connection with any
financing of any Capital Addition, provided, that each such financing
has been approved by Lessor in accordance with the terms of Article 9
hereof, (V) Indebtedness to any Affiliate, provided, that, such
Indebtedness is fully subordinated to this Lease pursuant to the
Affiliated Party Subordination Agreement, (VI) other Indebtedness of
Lessee in the aggregate amount not to exceed TWO HUNDRED THOUSAND
DOLLARS ($200,000) incurred, for the exclusive use of the Leased
Property, on account of purchase money indebtedness or finance lease
arrangements, each of which shall not exceed the fair market value of
the assets or property acquired or leased and
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shall not extend to any assets or property other than those purchased
or leased and purchase money security interests in equipment and
equipment leases which comply with the provisions of Section 6.1.2,
and (VII) liability arising under a working capital line of credit in
an amount reasonably satisfactory to Lessor.
11.3.5 NO GUARANTIES. Lessee shall not assume, guarantee,
endorse, contingently agree to purchase or otherwise become directly
or contingently liable (including, without limitation, liable by way
of agreement, contingent or otherwise, to purchase, to provide funds
for payment, to supply funds to or otherwise to invest in any debtor
or otherwise to assure any creditor against loss) in connection with
any Indebtedness of any other Person, except by the endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
11.4 AFFIRMATIVE COVENANTS. Lessee covenants and agrees that
throughout the Term and any periods thereafter that Lessee remains in
possession of the Leased Property:
11.4.1 MAINTENANCE OF EXISTENCE. If Lessee is a corporation,
trust or partnership, during the entire time that this Lease remains
in full force and effect, Lessee shall keep in effect its existence
and rights as a corporation, trust or partnership under the laws of
the state of its incorporation or formation and its right to own
property and transact business in the State.
11.4.2 MATERIALS. Except as provided in Section 6.1.2, Lessee
shall not suffer the use in connection with any renovations or other
construction relating to the Leased Property of any materials,
fixtures or equipment intended to become part of the Leased Property
which are purchased upon lease or conditional bill of sale or to which
Lessee does not have absolute and unencumbered title, and Lessee
covenants to cause to be paid punctually all sums becoming due for
labor, materials, fixtures or equipment used or purchased in
connection with any such renovations or construction, subject to
Lessee's right to contest to the extent provided for in Article 15.
11.4.3 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE
AGREEMENTS. Lessee and the Leased Property and all uses thereof shall
comply with (I) all Legal Requirements, (II) all Permits and
Contracts, (III) all Insurance Requirements, (IV) the Lease Documents,
(V) the Permitted Encumbrances and (VI) the Appurtenant Agreements.
Without limiting the foregoing (A) Lessee shall, on or before the
Conversion Date, obtain a license to operate the Facility as a
personal care home and shall thereafter throughout the Term maintain
such license in full force and effect and (B) prior to the issuance of
such license, Lessee shall obtain the Department of Public Welfare's
approval of all forms of Residence Agreements to be utilized by Lessee
in connection with the operation of the Facility.
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11.4.4 BOOKS AND RECORDS. Lessee shall cause to be kept and
maintained, and shall permit Lessor and its representatives to inspect
at all reasonable times, accurate books of accounts in which complete
entries will be made in accordance with GAAP reflecting all financial
transactions of Lessee (showing, without limitation, all materials
ordered and received and all disbursements, accounts payable and
accounts receivable in connection with the operation of the Leased
Property).
11.4.5 PARTICIPATION IN THIRD PARTY PAYOR PROGRAMS. From and
after the Conversion Date, Lessee and each Sublessee shall participate
in all Third Party Payor Programs (which would be participated in by a
prudent operator in the good faith exercise of commercially reasonable
business judgment), in accordance with all requirements thereof
(including, without limitation, all applicable Provider Agreements),
and shall remain eligible to participate in such Third Party Payor
Programs, all as shall be necessary for the prudent operation of the
Facility in the good faith exercise of commercially reasonable
business judgment.
11.4.6 CONDUCT OF ITS BUSINESS. Lessee will maintain, and
cause any Sublessee and any Manager to maintain, experienced and
competent professional management with respect to its business and,
from and after the Conversion Date, with respect to the Leased
Property. Lessee, any Sublessee and any Manager shall conduct, in the
ordinary course, the operation of the Facility, and Lessee and any
Sublessee shall not enter into any other business or venture during
the Term or such time as Lessee or any Sublessee is in possession of
the Leased Property.
11.4.7 ADDRESS. Lessee shall provide Lessor thirty (30) days'
prior written notice of any change of its Principal Place of Business
from its current Principal Place of Business. Lessee shall maintain
the Collateral, including without limitation, all books and records
relating to its business, solely at its Principal Place of Business
and at the Leased Property. Lessee shall not (A) remove the
Collateral, including, without limitation, any books or records
relating to Lessee's business from either the Leased Property or
Lessee's Principal Place of Business or (B) relocate its Principal
Place of Business until after receipt of a certificate from Lessor,
signed by an officer thereof, stating that Lessor has, to its
satisfaction, obtained all documentation that it deems necessary or
desirable to obtain, maintain, perfect and confirm the first priority
security interests granted in the Lease Documents.
11.4.8 SUBORDINATION OF AFFILIATE TRANSACTIONS. Without
limiting the provisions of any other Section of this Lease or the
Affiliated Party Subordination Agreement, any payments to be made by
Lessee to (A) any member of the Leasing Group (or any Affiliate of any
member of the Leasing Group) or (B) any Affiliate of Lessee, in
connection with any transaction between Lessee and such Person,
including, without limitation, the purchase, sale or exchange of any
property, the rendering of any service to or with any such Person
(including, without limitation, all allocations of any so-called
corporate or central office costs, expenses and charges of
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any kind or nature) or the making of any loan or other extension of
credit or the making of any equity investment, shall be subordinate to
the complete payment and performance of the Lease Obligations;
provided, however, that all such subordinated payments may be paid at
any time unless: (X) after giving effect to such payment, Lessee shall
be unable to comply with any of its obligations under any of the Lease
Documents or (Y) a Lease Default has occurred and is continuing and
has not been expressly waived in writing by Lessor or an event or
state of facts exists, which, with the giving of notice or the passage
of time, or both, would constitute a Lease Default.
11.4.9 INSPECTION. At reasonable times and upon reasonable
notice, Lessee shall permit Lessor and its authorized representatives
(including, without limitation, the Consultants) to inspect the Leased
Property as provided in Section 7.1 above.
11.4.10 ADDITIONAL PROPERTY. In the event that at any time
during the Term, Lessee holds the fee title to or a leasehold interest
in any real property and/or personal property which is used as an
integral part of the operation of the Leased Property (but is not
subject to this Lease), Lessee shall (I) provide Lessor with prior
notice of such acquisition and (II) shall take such actions and enter
into such agreements as Lessor shall reasonably request in order to
grant Lessor a first priority mortgage or other security interest in
such real property and personal property, subject only to the
Permitted Encumbrances and other Liens reasonably acceptable to
Lessor.
11.4.11 ANNUAL FACILITY UPGRADE EXPENDITURES. Commencing with
the third Lease Year to occur in the Term, Lessee shall make an Annual
Facility Upgrade Expenditure in the Facility in an amount no less than
TWO HUNDRED FIFTY DOLLARS ($250) multiplied by the number of units in
the Facility, such amount to be increased as of the first day of the
fourth Lease Year, and as of the first day of each subsequent Lease
Year, by an amount equal to the product of (I) TWO HUNDRED FIFTY
DOLLARS ($250) multiplied by (II) the Consumer Price Adjustment
Factor.
11.5 ADDITIONAL NEGATIVE COVENANTS. Lessee covenants and agrees that,
throughout the Term and such time as Lessee remains in possession of the Leased
Property:
11.5.1 RESTRICTIONS RELATING TO LESSEE. Except as may
otherwise be expressly provided in Section 19.4 or in any of the other
Lease Documents, Lessee shall not, without the prior written consent
of Lessor, in each instance, which consent may be withheld in the sole
and absolute discretion of Lessor:
(A) convey, assign, hypothecate, transfer, dispose
of or encumber, or permit the conveyance, assignment,
transfer, hypothecation, disposal or encumbrance of all or
any part of any legal or beneficial interest in this Lease,
its other assets or the Leased Property; provided, however,
that this restriction
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shall not apply to (I) the Permitted Encumbrances that may be
created after the date hereof pursuant to the Lease
Documents; (II) Liens created in accordance with Section
6.1.2 against Tangible Personal Property securing
Indebtedness permitted under Section 11.3.4(vi) relating to
equipment leasing or financing for the exclusive use of the
Leased Property; (III) the sale, conveyance, assignment,
hypothecation, lease or other transfer of any material asset
or assets (whether now owned or hereafter acquired), the fair
market value of which equals or is less than THIRTY-FIVE
THOUSAND DOLLARS ($35,000), individually, or ONE HUNDRED
FIFTY THOUSAND DOLLARS ($150,000) collectively; (IV) without
limitation as to amount, the disposition in the ordinary
course of business of any obsolete, worn out or defective
fixtures, furnishings or equipment used in the operation of
the Leased Property provided that the same are replaced with
fixtures, furnishings or equipment of equal or greater
utility or value or Lessee provides Lessor with an
explanation (reasonably satisfactory to Lessor) as to why
such fixtures, furnishings or equipment is no longer required
in connection with the operation of the Leased Property; (V)
without limitation as to amount, any sale of inventory by
Lessee in the ordinary course of business; and (VI) subject
to the terms of the Pledge Agreement and the Affiliated Party
Subordination Agreement, distributions to the shareholders of
Lessee;
(B) permit the use of the Facility, from and after
the Conversion Date, for any purpose other than the Primary
Intended Use; or
(C) liquidate, dissolve or merge or consolidate with
any other Person.
11.5.2 NO LIENS. Lessee will not directly or indirectly
create or allow to remain and will promptly discharge at its expense
any Lien, title retention agreement or claim upon or against the
Leased Property (including Lessee's interest therein) or Lessee's
interest in this Lease or any of the other Lease Documents, or in
respect of the Rent, excluding (A) this Lease and any permitted
Subleases, (B) the Permitted Encumbrances, (C) Liens which are
consented to in writing by Lessor, (D) Liens for those taxes of Lessor
which Lessee is not required to pay hereunder, (E) Liens of mechanics,
laborers, materialmen, suppliers or vendors for sums either not yet
due or being contested in strict compliance with the terms and
conditions of Article 15, (F) any Liens which are the responsibility
of Lessor pursuant to the provisions of Article 20, (G) Liens for
Impositions which are either not yet due and payable or which are in
the process of being contested in strict compliance with the terms and
conditions of Article 15 and (H) involuntary Liens caused by the
actions or omissions of Lessor.
11.5.3 LIMITS ON AFFILIATE TRANSACTIONS. Lessee shall not
enter into any transaction with any Affiliate, including, without
limitation, the purchase, sale or exchange of any property, the
rendering of any service to or with any Affiliate and
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the making of any loan or other extension of credit, except in the
ordinary course of, and pursuant to the reasonable requirements of,
Lessee's business and upon fair and reasonable terms no less favorable
to the Lessee than would be obtained in a comparable arms'-length
transaction with any Person that is not an Affiliate.
11.5.4 NON-COMPETITION. Lessee acknowledges that upon and
after any termination of this Lease, any competition by any member of
the Leasing Group with any subsequent owner or subsequent lessee of
the Leased Property (the "Purchaser") would cause irreparable harm to
Lessor and any such Purchaser. To induce Lessor to enter into this
Lease, Lessee agrees that, from and after the date hereof and
thereafter until the fifth (5th) anniversary of the termination
hereof, no member of the Leasing Group nor any Person holding or
controlling, directly or indirectly, any interest in any member of the
Leasing Group (collectively, the "Limited Parties") shall be involved
in any capacity in or lend any of their names to or engage in any
capacity in any personal care home and/or assisted living facility,
center, unit or program (or in any Person engaged in any such activity
or any related activity competitive therewith), whether such
competitive activity shall be as an officer, director, owner,
employee, agent, advisor, independent contractor, developer, lender,
sponsor, venture capitalist, administrator, manager, investor,
partner, joint venturer, consultant or other participant in any
capacity whatsoever with respect to a personal care home and/or
assisted living facility, center, unit or program located within a ten
(10) mile radius of the Leased Property.
Lessee hereby acknowledges and agrees that none of the time
span, scope or area covered by the foregoing restrictive covenants is
or are unreasonable and that it is the specific intent of Lessee that
each and all of the restrictive covenants set forth hereinabove shall
be valid and enforceable as specifically set forth herein. Lessee
further agrees that these restrictions are special, unique,
extraordinary and reasonably necessary for the protection of Lessor
and any Purchaser and that the violation of any such covenant by any
of the Limited Parties would cause irreparable damage to Lessor and
any Purchaser for which a legal remedy alone would not be sufficient
to fully protect such parties.
Therefore, in addition to and without limiting any other
remedies available at law or hereunder, in the event that any of the
Limited Parties breaches any of the restrictive covenants hereunder or
shall threaten breach of any of such covenants, then Lessor and any
Purchaser shall be entitled to obtain equitable remedies, including
specific performance and injunctive relief, to prevent or otherwise
restrain a breach of this Section 11.5.4 (without the necessity of
posting a bond) and to recover any and all costs and expenses
(including, without limitation, attorneys' fees and expenses and court
costs) reasonably incurred in enforcing the provisions of this Section
11.5.4. The existence of any claim or cause of action of any of the
Limited Parties or any member of the Leasing Group against Lessor or
any Purchaser, whether predicated on this Lease or otherwise, shall
not constitute a defense to the enforcement by Lessor or
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any Purchaser of the foregoing restrictive covenants and the Limited
Parties shall not defend on the basis that there is an adequate remedy
at law.
Without limiting any other provision of this Lease, the
parties hereto acknowledge that the foregoing restrictive covenants
are severable and separate. If at any time any of the foregoing
restrictive covenants shall be deemed invalid or unenforceable by a
court having jurisdiction over this Lease, by reason of being vague or
unreasonable as to duration, or geographic scope or scope of
activities restricted, or for any other reason, such covenants shall
be considered divisible as to such portion and such covenants shall be
immediately amended and reformed to include only such covenants as are
deemed reasonable and enforceable by the court having jurisdiction
over this Lease to the full duration, geographic scope and scope of
restrictive activities deemed reasonable and thus enforceable by said
court; and the parties agree that such covenants as so amended and
reformed, shall be valid and binding as through the invalid or
unenforceable portion has not been included therein.
The provisions of this Section 11.5.4 shall survive the
termination of the Lease and any satisfaction of the Lease Obligations
in connection therewith or subsequent thereto. The parties hereto
acknowledge and agree that any Purchaser may enforce the provisions of
this Section 11.5.4 as a third party beneficiary.
11.5.5 NO DEFAULT. Lessee shall not commit any default or
breach under any of the Lease Documents.
11.5.6 RESTRICTIONS RELATING TO THE GUARANTOR AND THE
DEVELOPER. Except as may otherwise be expressly provided herein or in
any of the other Lease Documents, neither the Guarantor nor the
Developer shall, without the prior written consent of Lessor, in each
instance, which consent may be withheld in the sole and absolute
discretion of Lessor, convey, assign, donate, sell, mortgage or pledge
any real or personal property or take any other action which would
have a materially adverse effect upon the Tangible Net Worth or
general financial condition of the Guarantor or the Developer, as the
case may be. Notwithstanding the foregoing, but subject to the
provisions of Section 11.3, the Guarantor may guaranty obligations of
any of its present or future Affiliates.
11.5.7 [INTENTIONALLY DELETED].
11.5.8 ERISA. Lessee shall not establish or permit any
Sublessee to establish any new pension or defined benefit plan or
modify any such existing plan for employees subject to ERISA, which
plan provides any benefits based on past service without the advance
consent of Lessor to the amount of the aggregate past service
liability thereby created.
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11.5.9 FORGIVENESS OF INDEBTEDNESS. Lessee will not waive, or
permit any sublessee or Manager which is an Affiliate to waive any
debt or claim, except in the ordinary course of its business.
11.5.10 VALUE OF ASSETS. Except as disclosed in the financial
statements provided to Lessor as of the date hereof, Lessee will not
write up (by creating an appraisal surplus or otherwise) the value of
any assets of Lessee above their cost to Lessee, less the depreciation
regularly allowable thereon.
11.5.11 CHANGES IN FISCAL YEAR AND ACCOUNTING PROCEDURES.
Lessee shall not, without the prior written consent of Lessor, in each
instance, which consent may be withheld in Lessor's reasonable
discretion (A) change its fiscal year or capital structure or (B)
change, alter, amend or in any manner modify, except in accordance
with GAAP, any of its current accounting procedures related to the
method of revenue recognition, billing procedures or determinations of
doubtful accounts or bad debt expenses nor will Lessee permit any of
its Subsidiaries to change its fiscal year or suffer or permit any
circumstance to exist in which any Subsidiary is not wholly-owned,
directly or indirectly, by Lessee.
11.5.12 OPTION PURCHASE DOCUMENTS. Lessee shall not
terminate, amend, abridge, modify or otherwise limit the Option
Purchase Agreement or any of the other Option Purchase Documents
without the prior written consent of Lessor, in each instance, which
consent may be withheld in Lessor's sole and absolute discretion.
ARTICLE 12
INSURANCE AND INDEMNITY
12.1 GENERAL INSURANCE REQUIREMENTS. During the Term of this Lease and
thereafter until Lessee surrenders the Leased Property in the manner required
by this Lease, Lessee shall at its sole cost and expense keep the Leased
Property and the Tangible Personal Property located thereon and the business
operations conducted on the Leased Property insured as set forth below.
12.1.1 TYPES AND AMOUNTS OF INSURANCE. Lessee's insurance
shall include the following:
(A) property loss and physical damage insurance on
an all-risk basis (with only such exceptions as Lessor may in
its reasonable discretion approve) covering the Leased
Property (exclusive of Land) for its full replacement cost,
which cost shall be reset once a year at Lessor's option,
with an agreed-amount endorsement and a deductible not in
excess of TEN THOUSAND DOLLARS ($10,000.00). Such insurance
shall include, without limitation, the following
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coverages: (I) increased cost of construction, (II) cost of
demolition, (III) the value of the undamaged portion of the
Facility and (IV) contingent liability from the operation of
building laws, less exclusions provided in the normal "All
Risk" insurance policy. During any period of construction,
such insurance shall be on a builder's-risk, completed value,
non-reporting form with permission to occupy;
(B) flood insurance (if the Leased Property or any
portion thereof is situated in an area which is considered a
flood risk area by the U.S. Department of Housing and Urban
Development or any other Governmental Authority that may in
the future have jurisdiction over flood risk analysis) in
limits acceptable to Lessor;
(C) boiler and machinery insurance (including
related electrical apparatus and components) under a standard
comprehensive form, providing coverage against loss or damage
caused by explosion of steam boilers, pressure vessels or
similar vessels, now or hereafter installed on the Leased
Property, in limits acceptable to Lessor;
(D) earthquake insurance (if deemed necessary by
Lessor) in limits and with deductibles acceptable to Lessor;
(E) environmental impairment liability insurance (if
available) in limits and with deductibles acceptable to
Lessor;
(F) business interruption and/or rent loss insurance
in an amount equal to the annual Base Rent due hereunder plus
the aggregate sum of the Impositions relating to the Leased
Property due and payable during one year;
(G) comprehensive general public liability insurance
including coverages commonly found in the Broad Form
Commercial Liability Endorsements with amounts not less than
FIVE MILLION DOLLARS ($5,000,000) per occurrence with respect
to bodily injury and death and THREE MILLION DOLLARS
($3,000,000) for property damage and with all limits based
solely upon occurrences at the Leased Property without any
other impairment;
(H) professional liability insurance in an amount
not less than TEN MILLION DOLLARS ($10,000,000) for each
medical incident;
(I) physical damage insurance on an all-risk basis
(with only such exceptions as Lessor in its reasonable
discretion shall approve) covering the Tangible Personal
Property for the full replacement cost thereof and with a
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deductible not in excess of one percent (1%) of the full
replacement cost thereof;
(J) Workers' Compensation and Employers' Liability
Insurance providing protection against all claims arising out
of injuries to all employees of Lessee or of any Sublessee
(employed on the Leased Property or any portion thereof) in
amounts equal for Workers' Compensation, to the statutory
benefits payable to employees in the State and for Employers'
Liability, to limits of not less than ONE HUNDRED THOUSAND
DOLLARS ($100,000) for injury by accident, ONE HUNDRED
THOUSAND DOLLARS ($100,000) per employee for disease and FIVE
HUNDRED THOUSAND DOLLARS ($500,000) disease policy limit;
(K) subsidence insurance (if deemed necessary by
Lessor) in limits acceptable to Lessor; and
(L) such other insurance as Lessor from time to time
may reasonably require and also, as may from time to time be
required by applicable Legal Requirements and/or by any Fee
Mortgagee.
12.1.2 INSURANCE COMPANY REQUIREMENTS. All such insurance
required by this Lease or the other Lease Documents shall be issued
and underwritten by insurance companies licensed to do insurance
business by, and in good standing under the laws of, the State and
which companies have and maintain a rating of A:X or better by A.M.
Best Co.
12.1.3 POLICY REQUIREMENTS. Every policy of insurance from
time to time required under this Lease or any of the other Lease
Documents (other than worker's compensation) shall name Lessor as
owner, loss payee, secured party (to the extent applicable) and
additional named insured as its interests may appear. If an insurance
policy covers properties other than the Leased Property, then Lessor
shall be so named with respect only to the Leased Property. Each such
policy, where applicable or appropriate, shall:
(A) include an agreed amount endorsement and loss
payee, additional named insured and secured party
endorsements, in forms acceptable to Lessor in its sole and
absolute discretion;
(B) include mortgagee, secured party, loss payable
and additional named insured endorsements reasonably
acceptable to each Fee Mortgagee;
(C) provide that the coverages may not be cancelled
or materially modified except upon thirty (30) days' prior
written notice to Lessor and any Fee Mortgagee;
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(D) be payable to Lessor and any Fee Mortgagee
notwithstanding any defense or claim that the insurer may
have to the payment of the same against any other Person
holding any other interest in the Leased Property;
(E) be endorsed with standard noncontributory
clauses in favor of and in form reasonably acceptable to
Lessor and any Fee Mortgagee;
(F) expressly waive any right of subrogation on the
part of the insurer against Lessor, any Fee Mortgagee or the
Leasing Group; and
(G) otherwise be in such forms as shall be
reasonably acceptable to Lessor.
12.1.4 NOTICES; CERTIFICATES AND POLICIES. Lessee shall
promptly provide to Lessor copies of any and all notices (including
notice of non-renewal but excluding invoices for premiums due but not
delinquent), claims and demands which Lessee receives from insurers of
the Leased Property. At least ten (10) days prior to the expiration of
any insurance policy required hereunder, Lessee shall deliver to
Lessor certificates and evidence of insurance relating to all renewals
and replacements thereof, together with evidence, satisfactory to
Lessor, of payment of the premiums thereon. Lessee shall deliver to
Lessor original counterparts or copies certified by the insurance
company to be true and complete copies, of all insurance policies
required hereunder not later than the earlier to occur of (A) thirty
(30) days after the effective date of each such policy and (B) ten
(10) days after receipt thereof by Lessee.
12.1.5 LESSOR'S RIGHT TO PLACE INSURANCE. If Lessee shall
fail to obtain any insurance policy required hereunder by Lessor, or
shall fail to deliver the certificate and evidence of insurance
relating to any such policy to Lessor, or if any insurance policy
required hereunder (or any part thereof) shall expire or be cancelled
or become void or voidable by reason of any breach of any condition
thereof, or if Lessor determines that such insurance coverage is
unsatisfactory by reason of the failure or impairment of the capital
of any insurance company which wrote any such policy, upon demand by
Lessor, Lessee shall promptly obtain new or additional insurance
coverage on the Leased Property, or for those risks required to be
insured by the provisions hereof, satisfactory to Lessor, and, at its
option, Lessor may obtain such insurance and pay the premium or
premiums therefor; in which event, any amount so paid or advanced by
Lessor and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses and court
costs), shall be a demand obligation of Lessee to Lessor, payable as
an Additional Charge.
12.1.6 PAYMENT OF PROCEEDS. All insurance policies required
hereunder (except for general public liability, professional liability
and workers' compensation and employers liability insurance) shall
provide that in the event of loss, injury or
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damage, subject to the rights of any Fee Mortgagee, all proceeds shall
be paid to Lessor alone (rather than jointly to Lessee and Lessor).
Lessor is hereby authorized to adjust and compromise any such loss
with the consent of Lessee or, following any Lease Default, whether or
not cured, without the consent of Lessee, and to collect and receive
such proceeds in the name of Lessor and Lessee, and Lessee appoints
Lessor (or any agent designated by Lessor) as Lessee's
attorney-in-fact with full power of substitution, to endorse Lessee's
name upon any check in payment thereof. Subject to the provisions of
Article 13, such insurance proceeds shall be applied first toward
reimbursement of all costs and expenses reasonably incurred by Lessor
in collecting said insurance proceeds, then toward payment of the
Lease Obligations or any portion thereof, then due and payable, in
such order as Lessor determines, and then in whole or in part toward
restoration, repair or reconstruction of the Leased Property for which
such insurance proceeds shall have been paid.
12.1.7 IRREVOCABLE POWER OF ATTORNEY. The power of attorney
conferred on Lessor pursuant to the provisions of this Section 12.1,
being coupled with an interest, shall be irrevocable for as long as
this Lease is in effect or any Lease Obligations are outstanding,
shall not be affected by any disability or incapacity which Lessee may
suffer and shall survive the same. Such power of attorney, is provided
solely to protect the interests of Lessor and shall not impose any
duty on Lessor to exercise any such power, and neither Lessor nor such
attorney-in-fact shall be liable for any act, omission, error in
judgment or mistake of law, except as the same may result from its
gross negligence or wilful misconduct.
12.1.8 BLANKET POLICIES. Notwithstanding anything to the
contrary contained herein, 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 and its Affiliates; provided, however, that the coverage
afforded to Lessor shall 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 Section 12.1 are otherwise satisfied.
12.1.9 NO SEPARATE INSURANCE. Lessee shall not, on Lessee's
own initiative or pursuant to the request or requirement of any other
Person, take out separate insurance concurrent in form or contributing
in the event of loss with the insurance required hereunder to be
furnished by Lessee, or increase the amounts of any then existing
insurance by securing an additional policy or additional policies,
unless (A) all parties having an insurable interest in the subject
matter of the insurance, including Lessor, are included therein as
additional insureds and (B) losses are 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
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any such separate insurance or of the increasing of any of the amounts
of the then existing insurance by securing an additional insurance
policy or policies.
12.1.10 ASSIGNMENT OF UNEARNED PREMIUMS. Lessee hereby
assigns to Lessor all rights of Lessee in and to any unearned premiums
on any insurance policy required hereunder to be furnished by Lessee
which may become payable or are refundable after the occurrence of an
Event of Default hereunder, which amounts may be utilized by Lessor
for any purposes allowed hereunder or credited against the Lease
Obligations. In the event that this Lease is terminated for any
reason (other than the purchase of the Leased Property by Lessee), the
insurance policies required to be maintained hereunder, including all
right, title and interest of Lessee thereunder, shall become the
absolute property of Lessor.
12.2 INDEMNITY.
12.2.1 INDEMNIFICATION. Except with respect to the gross
negligence or wilful misconduct of Lessor or any of the other
Indemnified Parties, as to which no indemnity is provided, Lessee
hereby agrees to defend with counsel acceptable to Lessor, indemnify
and hold harmless Lessor and each of the other Indemnified Parties
from and against all damages, losses, claims, liabilities,
obligations, penalties, causes of action, costs and expenses
(including, without limitation, attorneys' fees, court costs and other
expenses of litigation) suffered by, or claimed or asserted against,
Lessor or any of the other Indemnified Parties, directly or
indirectly, based on, arising out of or resulting from (A) the use and
occupancy of the Leased Property or any business conducted therein,
(B) any act, fault, omission to act or misconduct by (I) any member of
the Leasing Group, (II) any Affiliate of Lessee or (III) any employee,
agent, licensee, business invitee, guest, customer, contractor or
sublessee of any of the foregoing parties, relating to, directly or
indirectly, the Leased Property, (C) any accident, injury or damage
whatsoever caused to any Person, including, without limitation, any
claim of malpractice, or to the property of any Person in or about the
Leased Property or outside of the Leased Property where such accident,
injury or damage results or is claimed to have resulted from any act,
fault, omission to act or misconduct by any member of the Leasing
Group or any Affiliate of Lessee or any employee, agent, licensee,
contractor or sublessee of any of the foregoing parties, (D) any Lease
Default, (E) any claim brought or threatened against any of the
Indemnified Parties by any member of the Leasing Group or by any other
Person on account of (I) Lessor's relationship with any member of the
Leasing Group pertaining in any way to the Leased Property and/or the
transaction evidenced by the Lease Documents and/or (II) Lessor's
negotiation of, entering into and/or performing any of its obligations
and/or exercising any of its right and remedies under any of the Lease
Documents, (F) any attempt by any member of the Leasing Group or any
Affiliate of Lessee to transfer or relocate any of the Permits to any
location other than the Leased Property and/or (G) the enforcement of
this indemnity. Any amounts which become payable by Lessee under this
Section 12.2.1 shall be a demand obligation of Lessee to
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Lessor, payable as an Additional Charge. The indemnity provided for in
this Section 12.2.1 shall survive any termination of this Lease.
12.2.2 INDEMNIFIED PARTIES. As used in this Lease the term
"Indemnified Parties" shall mean the Meditrust Entities, any Fee
Mortgagee and their respective successors, assigns, employees,
servants, agents, attorneys, officers, directors, shareholders,
partners and owners.
12.2.3 LIMITATION ON LESSOR LIABILITY. Neither Lessor nor any
Affiliate of Lessor shall be liable to any member of the Leasing Group
or any Affiliate of any member of the Leasing Group, or to any other
Person whatsoever for any damage, injury, loss, compensation, or claim
(including, but not limited to, any claim for the interruption of or
loss to any business conducted on the Leased Property) based on,
arising out of or resulting from any cause whatsoever, including, but
not limited to, the following: (A) repairs to the Leased Property, (B)
interruption in use of the Leased Property; (C) any accident or damage
resulting from the use or operation of the Leased Property or any
business conducted thereon; (D) the termination of this Lease by
reason of Casualty or Condemnation, (E) any fire, theft or other
casualty or crime, (F) the actions, omissions or misconduct of any
other Person, (G) damage to any property, or (H) any damage from the
flow or leaking of water, rain or snow. All Tangible Personal Property
and the personal property of any other Person on the Leased Property
shall be at the sole risk of Lessee and Lessor shall not in any manner
be held responsible therefor. Notwithstanding the foregoing, Lessor
shall not be released from liability for any injury, loss, damage or
liability suffered directly by Lessee to the extent caused directly by
the gross negligence or willful misconduct of Lessor, its servants,
employees or agents acting within the scope of their authority on or
about the Leased Property or in regards to the Lease; provided,
however, that in no event shall Lessor, its servants, employees or
agents have any liability based on any loss with respect to or
interruption in the operation of any business at the Leased Property
or for any indirect or consequential damages.
12.2.4 RISK OF LOSS. 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 any damage or destruction thereof by
fire, the elements, casualties, thefts, riots, wars or otherwise, or
in consequence of foreclosures, levies or executions of Liens (other
than those created by Lessor in accordance with the provisions of
Article 20) is assumed by Lessee and, in the absence of the gross
negligence or willful misconduct as set forth in Section 12.2.3,
Lessor shall in no event be answerable or accountable therefor (except
for the obligation to account for insurance proceeds and Awards to the
extent provided for in Articles 13 and 14) nor shall any of the events
mentioned in this Section entitle Lessee to any abatement of Rent
(except for an abatement, if any, as specifically provided for in
Section 3.8).
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ARTICLE 13
FIRE AND CASUALTY
13.1 RESTORATION FOLLOWING FIRE OR OTHER CASUALTY.
13.1.1 FOLLOWING FIRE OR CASUALTY. In the event of any damage
or destruction to the Leased Property by reason of fire or other
hazard or casualty (a "Casualty"), Lessee shall give immediate written
notice thereof to Lessor and, subject to the terms of this Article 13,
Lessee shall proceed with reasonable diligence, in full compliance
with all applicable Legal Requirements, to perform such repairs,
replacement and reconstruction work (referred to herein as the "Work")
to restore the Leased Property to the condition it was in immediately
prior to such damage or destruction and to a condition adequate to
operate the Facility for the Primary Intended Use and in compliance
with Legal Requirements. All Work shall be performed and completed in
accordance with all Legal Requirements and the other requirements of
this Lease within one hundred and eighty (180) days following the
occurrence of the damage or destruction plus a reasonable time to
compensate for Unavoidable Delays (including for the purposes of this
Section, delays in obtaining Permits and in adjusting insurance
losses), but in no event beyond three-hundred and sixty-five (365)
days following the occurrence of the Casualty.
13.1.2 PROCEDURES. In the event that any Casualty results in
non-structural damage to the Leased Property in excess of TWENTY-FIVE
THOUSAND DOLLARS ($25,000) or in any structural damage to the Leased
Property, regardless of the extent of such structural damage, prior to
commencing the Work, Lessee shall comply with the following
requirements:
(A) Lessee shall furnish to Lessor complete plans
and specifications for the Work (collectively, the "Plans and
Specifications"), for Lessor's approval, in each instance,
which approval shall not be unreasonably withheld. The Plans
and Specifications shall bear the signed approval thereof by
an architect, licensed to do business in the State,
reasonably satisfactory to Lessor and shall be accompanied by
a written estimate from the architect, bearing the
architect's seal, of the entire cost of completing the Work,
and to the extent feasible, the Plans and Specifications
shall provide for Work of such nature, quality and extent,
that, upon the completion thereof, the Leased Property shall
be at least equal in value and general utility to its value
and general utility prior to the Casualty and shall be
adequate to operate the Leased Property for the Primary
Intended Use;
(B) Lessee shall furnish to Lessor certified or
photostatic copies of all Permits and Contracts required by
all applicable Legal Requirements in connection with the
commencement and conduct of the Work;
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(C) Lessee shall furnish to Lessor a cash deposit or
a payment and performance bond sufficient to pay for
completion of and payment for the Work in an amount not less
than the architect's estimate of the entire cost of
completing the Work, less the amount of property insurance
proceeds, if any, then held by Lessor and which Lessor shall
be required to apply toward restoration of the Leased
Property as provided in Section 13.2;
(D) Lessee shall furnish to Lessor such insurance
with respect to the Work (in addition to the insurance
required under Section 12.1 hereof) in such amounts and in
such forms as is reasonably required by Lessee; and
(E) Lessee shall not commence any of the Work until
Lessee shall have complied with the requirements set forth in
clauses (a) through (d) immediately above, as applicable,
and, thereafter, Lessee shall perform the Work diligently, in
a good and workmanlike fashion and in good faith in
accordance with (I) the Plans and Specifications referred to
in clause (a) immediately above, (II) the Permits and
Contracts referred to in clause (b) immediately above and
(III) all applicable Legal Requirements and other
requirements of this Lease; provided, however, that in the
event of a bona fide emergency during which Lessee is unable
to contact the appropriate representatives of Lessor, Lessee
may commence such Work as may be necessary in order to
address such emergency without Lessor's prior approval, as
long as Lessee immediately thereafter advises Lessor of such
emergency and the nature and scope of the Work performed and
obtains Lessor's approval of the remaining Work to be
completed.
13.1.3 DISBURSEMENT OF INSURANCE PROCEEDS. If, as provided in
Section 13.2, Lessor is required to apply any property insurance
proceeds toward repair or restoration of the Leased Property, then as
long as the Work is being diligently performed by Lessee in accordance
with the terms and conditions of this Lease, Lessor shall disburse
such insurance proceeds from time to time during the course of the
Work in accordance with and subject to satisfaction of the following
provisions and conditions. Lessor shall not be required to make
disbursements more often than at thirty (30) day intervals. Lessee
shall submit a written request for each disbursement at least ten (10)
Business Days in advance and shall comply with the following
requirements in connection with each disbursement:
(A) Prior to the commencement of any Work, Lessee
shall have received Lessor's written approval of the Plans
and Specifications (which approval shall not be unreasonably
withheld) and the Work shall be supervised by an experienced
construction manager with the consultation of an architect or
engineer qualified and licensed to do business in the State.
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(B) Each request for payment shall be accompanied by
(X) a certificate of the architect or engineer, bearing the
architect's or engineer's seal, and (Y) a certificate of the
general contractor, qualified and licensed to do business in
the State, that is performing the Work (collectively, the
"Work Certificates"), each dated not more than ten (10) days
prior to the application for withdrawal of funds, and each
stating:
(I) that all of the Work performed as of the date
of the certificates has been completed in
compliance with the approved Plans and
Specifications, applicable Contracts and all
applicable Legal Requirements;
(II) that the sum then requested to be withdrawn
has been paid by Lessee or is justly due to
contractors, subcontractors, materialmen,
engineers, architects or other Persons, whose
names and addresses shall be stated therein,
who have rendered or furnished certain
services or materials for the Work, and the
certificate shall also include a brief
description of such services and materials
and the principal subdivisions or categories
thereof and the respective amounts so paid or
due to each of said Persons in respect
thereof and stating the progress of the Work
up to the date of said certificate;
(III) that the sum then requested to be withdrawn,
plus all sums previously withdrawn, does not
exceed the cost of the Work insofar as
actually accomplished up to the date of such
certificate;
(IV) that the remainder of the funds held by
Lessor will be sufficient to pay for the full
completion of the Work in accordance with the
Plans and Specifications;
(V) that no part of the cost of the services and
materials described in the applicable Work
Certificate has been or is being made the
basis of the withdrawal of any funds in any
previous or then pending application; and
(VI) that, except for the amounts, if any,
specified in the applicable Work Certificate
to be due for services and materials, there
is no outstanding indebtedness known, after
due inquiry, which is then due and payable
for work, labor, services or materials in
connection with the Work which, if unpaid,
might become the basis of a vendor's,
mechanic's, laborer's or materialman's
statutory or other similar Lien upon the
Leased Property.
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(C) Lessee shall deliver to Lessor satisfactory
evidence that the Leased Property and all materials and all
property described in the Work Certificates are free and
clear of Liens, except (I) Liens, if any, securing
indebtedness due to Persons (whose names and addresses and
the several amounts due them shall be stated therein)
specified in an applicable Work Certificate, which Liens
shall be discharged upon disbursement of the funds then being
requested, (II) any Fee Mortgage and (III) the Permitted
Encumbrances. Lessor shall accept as satisfactory evidence of
the foregoing lien waivers in customary form from the general
contractor and all subcontractors performing the Work,
together with an endorsement of its title insurance policy
(relating to the Leased Property) in form acceptable to
Lessor, dated as of the date of the making of the then
current disbursement, confirming the foregoing.
(D) If the Work involves alteration or restoration
of the exterior of any Leased Improvement that changes the
footprint of any Leased Improvement, Lessee shall deliver to
Lessor, upon the request of Lessor, an "as-built" survey of
the Leased Property dated as of a date within ten (10) days
prior to the making of the first and final advances (or
revised to a date within ten (10) days prior to each such
advance) showing no encroachments other than such
encroachments, if any, by the Leased Improvements upon or
over the Permitted Encumbrances as are in existence as of the
date hereof.
(E) Lessee shall deliver to Lessor (I) an opinion of
counsel (satisfactory to Lessor both as to counsel and as to
the form of opinion) prior to the first advance opining that
all necessary Permits for the repair, replacement and/or
restoration of the Leased Property have been obtained and
that the Leased Property, if repaired, replaced or rebuilt in
accordance, in all material respects, with the approved Plans
and Specifications and such Permits, shall comply with all
applicable Legal Requirements and (II) an architect's
certificate (satisfactory to Lessor both as to the architect
and as to the form of the certificate) prior to the final
advance, certifying that the Leased Property was repaired,
replaced or rebuilt in accordance, in all material respects,
with the approved Plans and Specifications and complies with
all applicable Legal Requirements, including, without
limitation, all Permits referenced in the foregoing clause
(i).
(F) There shall be no Lease Default or any state of
facts or circumstance existing which, with the giving of
notice and/or the passage of time, would constitute any Lease
Default.
Lessor, at its option, may waive any of the foregoing requirements in
whole or in part in any instance. Upon compliance by Lessee with the
foregoing requirements (except for such requirements, if any, as
Lessor may have expressly elected to waive), and to
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the extent of (X) the insurance proceeds, if any, which Lessor may be
required to apply to restoration of the Leased Property pursuant to
the provisions of this Lease and (Y) all other cash deposits made by
Lessee, Lessor shall make available for payment to the Persons named
in the Work Certificate the respective amounts stated in said
certificate(s) to be due, subject to a retention of ten percent (10%)
as to all hard costs of the Work (the "Retainage"). It is understood
that the Retainage is intended to provide a contingency fund to assure
Lessor that the Work shall be fully completed in accordance with the
Plans and Specifications and the requirements of Lessor. Upon the full
and final completion of all of the Work in accordance with the
provisions hereof, the Retainage shall be made available for payment
to those Persons entitled thereto.
Upon completion of the Work, and as a condition precedent to making
any further advance, in addition to the requirements set forth above,
Lessee shall promptly deliver to Lessor:
(I) written certificates of the architect or engineer,
bearing the architect's or engineer's seal, and the
general contractor, certifying that the Work has been
fully completed in a good and workmanlike manner in
material compliance with the Plans and Specifications
and all Legal Requirements;
(II) an endorsement of its title insurance policy (relating
to the Leased Property) in form reasonably acceptable
to Lessor insuring the Leased Property against all
mechanic's and materialman's liens accompanied by the
final lien waivers from the general contractor and all
subcontractors;
(III) a certificate by Lessee in form and substance
reasonably satisfactory to Lessor, listing all costs
and expenses in connection with the completion of the
Work and the amount paid by Lessee with respect to the
Work; and
(IV) a temporary certificate of occupancy (if obtainable)
and all other applicable Permits and Contracts (that
have not previously been delivered to Lessor) issued by
or entered into with any Governmental Authority with
respect to the Leased Property and the Primary Intended
Use and by the appropriate Board of Fire Underwriters
or other similar bodies acting in and for the locality
in which the Leased Property is situated; provided,
that within thirty (30) days after completion of the
Work, Lessee shall obtain and deliver to Lessor a
permanent certificate of occupancy for the Leased
Property.
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Upon completion of the Work and delivery of the documents
required pursuant to the provisions of this Section 13.1, Lessor shall
pay the Retainage to Lessee or to those Persons entitled thereto and
if there shall be insurance proceeds or cash deposits, other than the
Retainage, held by Lessor in excess of the amounts disbursed pursuant
to the foregoing provisions, then provided that no Lease Default has
occurred and is continuing, nor any state of facts or circumstances
which, with the giving of notice and/or the passage of time would
constitute a Lease Default, Lessor shall pay over such proceeds or
cash deposits to Lessee.
No inspections or any approvals of the Work during or after
construction shall constitute a warranty or representation by Lessor,
or any of its agents or Consultants, as to the technical sufficiency,
adequacy or safety of any structure or any of its component parts,
including, without limitation, any fixtures, equipment or furnishings,
or as to the subsoil conditions or any other physical condition or
feature pertaining to the Leased Property. All acts, including any
failure to act, relating to Lessor are performed solely for the
benefit of Lessor to assure the payment and performance of the Lease
Obligations and are not for the benefit of Lessee or the benefit of
any other Person.
13.2 DISPOSITION OF INSURANCE PROCEEDS.
13.2.1 PROCEEDS TO BE RELEASED TO PAY FOR WORK. In the event
of any Casualty, except as provided for in Section 13.2.2, Lessor
shall release proceeds of property insurance held by it to pay for the
Work in accordance with the provisions and procedures set forth in
this Article 13, only if:
(A) all of the terms, conditions and provisions of
Sections 13.1 and 13.2.1 are satisfied;
(B) there does not then exist any Lease Default or
any state of facts or circumstance which, with the giving of
notice and/or the passage of time, would constitute such a
Lease Default;
(C) Lessee demonstrates to Lessor's satisfaction
that Lessee has the financial ability to satisfy the Lease
Obligations during such repair or restoration; and
(D) no Sublease (excluding Residence Agreements)
material to the operation of the Facility immediately prior
to such damage or taking shall have been cancelled or
terminated, nor contain any still exercisable right to cancel
or terminate, due to such Casualty if and to the extent that
the income from such Sublease is necessary in order to avoid
the violation of any of the financial covenants set forth in
this Lease or otherwise to avoid the creation of an Event of
Default.
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13.2.2 PROCEEDS NOT TO BE RELEASED. If, as the result of any
Casualty, the Leased Property is damaged to the extent it is rendered
Unsuitable For Its Primary Intended Use and if either: (A) Lessee,
after exercise of diligent efforts, cannot within a reasonable time
(not in excess of ninety (90) days) obtain all necessary Permits in
order to be able to perform all required Work and to again operate the
Facility for its Primary Intended Use within three hundred and
sixty-five (365) days from the occurrence of the damage or destruction
in substantially the manner as immediately prior to such damage or
destruction or (B) such Casualty occurs during the last twenty-four
(24) months of the Term and would reasonably require more than nine
(9) months to obtain all Permits and complete the Work, then Lessee
may either (I) acquire the Leased Property from Lessor for a purchase
price equal to the greater of (X) the Meditrust Investment or (Y) the
Fair Market Value of the Leased Property minus the Fair Market Added
Value, with the Fair Market Value and the Fair Market Added Value to
be determined as of the day immediately prior to such Casualty and
prior to any other Casualty which has not been fully repaired,
restored or replaced, in which event, Lessee shall be entitled upon
payment of the full purchase price to receive all property insurance
proceeds (less any costs and expenses incurred by Lessor in collecting
the same), or (II) terminate this Lease, in which event (subject to
the provisions of the last sentence of this Section 13.2.2) Lessor
shall be entitled to receive and retain the insurance proceeds;
provided, however, that Lessee shall only have such right of
termination effective upon payment to Lessor of all Rent and other
sums due under this Lease and the other Lease Documents through the
date of termination plus an amount, which when added to the sum of (1)
the Fair Market Value of the Leased Property as affected by all
unrepaired or unrestored damage due to any Casualty (and giving due
regard for delays, costs and expenses incident to completing all
repair or restoration required to fully repair or restore the same)
plus (2) the amount of insurance proceeds actually received by Lessor
(net of costs and expenses incurred by Lessor in collecting the same)
equals (3) the greater of the Meditrust Investment or the Fair Market
Value of the Leased Property minus the Fair Market Added Value, with
the Fair Market Value and the Fair Market Added Value to be determined
as of the day immediately prior to such Casualty and prior to any
other Casualty which has not been fully repaired. Any acquisition of
the Leased Property pursuant to the terms of this Section 13.2.2 shall
be consummated in accordance with the provisions of Article 18,
mutatis, mutandis. If such termination becomes effective, Lessor shall
assign to Lessee any outstanding insurance claims.
13.2.3 LESSEE RESPONSIBLE FOR SHORT-FALL. If the cost of the
Work exceeds the amount of proceeds received by Lessor from the
property insurance required under Article 12 (net of costs and
expenses incurred by Lessor in collecting the same), Lessee shall be
obligated to contribute any excess amount needed to repair or restore
the Leased Property and pay for the Work. Such amount shall be paid by
Lessee to Lessor together with any other property insurance proceeds
for application to the cost of the Work.
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13.3 TANGIBLE PERSONAL PROPERTY. All insurance proceeds payable by
reason of any loss of or damage to any of the Tangible Personal Property shall
be paid to Lessor as secured party, subject to the rights of the holders of any
Permitted Prior Security Interests, and, thereafter, provided that no Lease
Default, nor any fact or circumstance which with the giving of notice and/or
the passage of time could constitute a Lease Default, has occurred and is
continuing, Lessor shall pay such insurance proceeds to Lessee to reimburse
Lessee for the cost of repairing or replacing the damaged Tangible Personal
Property, subject to the terms and conditions set forth in the other provisions
of this Article 13, mutatis mutandis.
13.4 RESTORATION OF CERTAIN IMPROVEMENTS AND THE TANGIBLE PERSONAL
PROPERTY. If Lessee is required or elects to restore the Facility, Lessee shall
either (A) restore (I) all alterations and improvements to the Leased Property
made by Lessee and (II) the Tangible Personal Property or (B) replace such
alterations and improvements and the Tangible Personal Property with
improvements or items of the same or better quality and utility in the
operation of the Leased Property.
13.5 NO ABATEMENT OF RENT. In no event shall any Rent abate as a
result of any Casualty.
13.6 TERMINATION OF CERTAIN RIGHTS. Any termination of this Lease
pursuant to this Article 13 shall cause any right of Lessee to extend the Term
of this Lease, granted to Lessee herein and any right of Lessee to purchase the
Leased Property contained in this Lease to be terminated and to be without
further force or effect.
13.7 WAIVER. Lessee hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction to the Leased Property
due to any Casualty which Lessee is obligated to restore or may restore under
any of the provisions of this Lease.
13.8 APPLICATION OF RENT LOSS AND/OR BUSINESS INTERRUPTION INSURANCE.
All proceeds of rent loss and/or business interruption insurance (collectively,
"Rent Insurance Proceeds") shall be paid to Lessor and dealt with as follows:
(A) if the Work has been promptly and diligently commenced by
Lessee and is in the process of being completed in accordance with
this Lease and no fact or condition exists which constitutes, or which
with the giving of notice and/or the passage of time would constitute,
a Lease Default, Lessor shall each month pay to Lessee out of the Rent
Insurance Proceeds a sum equal to that amount, if any, of the Rent
Insurance Proceeds paid by the insurer which is allocable to the
rental loss and/or business interruption for the preceding month minus
an amount equal to the sum of the Rent due hereunder for such month
plus any Impositions relating to the Leased Property then due and
payable;
(B) if the Work has not been promptly and diligently
commenced by Lessee or is not in the process of being completed in
accordance with this Lease, the Rent
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Insurance Proceeds shall be applied to any Rent then due, and, to the
extent sufficient therefor, an amount equal to Base Rent, Impositions
and insurance premiums payable for the next twelve (12) months, as
reasonably projected by Lessor, shall be held by Lessor as security
for the Lease Obligations and applied to the payment of Rent as it
becomes due; and
(C) if such Rent Insurance Proceeds received by Lessor (net
of costs and expenses incurred by Lessor in collecting the same)
exceed the amounts required under clauses (a) and (b) above, the
excess shall be paid to Lessee, provided no fact or circumstance
exists which constitutes, or with notice, or passage of time, or both,
would constitute, a Lease Default.
Notwithstanding the foregoing, Lessor may at its option use or release the Rent
Insurance Proceeds to pay for the Work and, if a Lease Default exists, Lessor
may apply all such insurance proceeds towards the Lease Obligations or hold
such proceeds as security therefor.
13.9 OBLIGATION TO ACCOUNT. Upon Lessee's written request, which may
not be made not more than once in any three (3) month period, Lessor shall
provide Lessee with a written accounting of the application of all insurance
proceeds received by Lessor.
ARTICLE 14
CONDEMNATION
14.1 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,
the rights and obligations of the parties shall be determined by this Article
14.
14.2 TOTAL TAKING. If there is a permanent Taking of all or
substantially all of the Leased Property, this Lease shall terminate on the
Date of Taking.
14.3 PARTIAL OR TEMPORARY TAKING. If there is a Permanent Taking of a
portion of the Leased Property, or if there is a temporary Taking of all or a
portion of the Leased Property, this Lease shall remain in effect so long as
the Leased Property is not thereby rendered permanently Unsuitable For Its
Primary Intended Use or, from and after the Conversion Date, temporarily
Unsuitable For Its Primary Intended Use for a period not likely to, or which
does not, exceed three hundred and sixty-five (365) days. If, however, the
Leased Property is thereby so rendered permanently or temporarily Unsuitable
For Its Primary Intended Use: (A) Lessee shall have the right to restore the
Leased Property, at its own expense, (subject to the right under certain
circumstances as provided for in Section 14.5 to receive the net proceeds of an
Award for reimbursement) to the extent possible, to substantially the same
condition as existed immediately before the partial or temporary Taking or (B)
Lessee shall have the right to acquire the Leased Property from Lessor (I)
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upon payment of all Rent due through the date that the purchase price is paid,
for a purchase price equal to the greater of (X) the Meditrust Investment or
(Y) the Fair Market Value of the Leased Property minus the Fair Market Added
Value, with the Fair Market Value of the Leased Property and the Fair Market
Added Value to be determined as of the day immediately prior to such partial or
temporary Taking and (II) in accordance with the terms and conditions set forth
in Article 18; in which event, this Lease shall terminate upon payment of such
purchase price and the consummation of such acquisition. Notwithstanding the
foregoing, Lessor may overrule Lessee's election under clause (a) or (b) and
instead either (1) terminate this Lease as of the date when Lessee is required
to surrender possession of the portion of the Leased Property so taken or (2)
compel Lessee to keep the Lease in full force and effect and to restore the
Leased Property as provided in clause (a) above, but only if the Leased
Property may be operated for at least eighty percent (80%) of the licensed unit
capacity of the Facility if operated in accordance with its Primary Intended
Use. Lessee shall exercise its election under this Section 14.3 by giving
Lessor notice thereof ("Lessee's Election Notice") within sixty (60) days after
Lessee receives notice of the Taking. Lessor shall exercise its option to
overrule Lessee's election under this Section 14.3 by giving Lessee notice of
Lessor's exercise of its rights under Section 14.3 within thirty (30) days
after Lessor receives Lessee's Election Notice. If, as the result of any such
partial or temporary Taking, this Lease is not terminated as provided above,
Lessee shall be entitled to an abatement of Rent, but only to the extent, if
any, provided for in Section 3.7, effective as of the date upon which the
Leased Property is rendered Unsuitable For Its Primary Intended Use.
14.4 RESTORATION. If there is a partial or temporary Taking of the
Leased Property and this Lease remains in full force and effect pursuant to
Section 14.3, Lessee shall accomplish all necessary restoration and Lessor
shall release the net proceeds of such Award to reimburse Lessee for the actual
reasonable costs and expenses thereof, subject to all of the conditions and
provisions set forth in Article 13 as though the Taking was a Casualty and the
Award was insurance proceeds. If the cost of the restoration exceeds the amount
of the Award (net of costs and expenses incurred in obtaining the Award),
Lessee shall be obligated to contribute any excess amount needed to restore the
Facility or pay for such costs and expenses. To the extent that the cost of
restoration is less than the amount of the Award (net of cost and expenses
incurred in obtaining the Award), the remainder of the Award shall be retained
by Lessor and Rent shall be abated as set forth in Section 3.7.
14.5 AWARD DISTRIBUTION. In the event Lessee completes the purchase of
the Leased Property, as described in Section 14.3, the entire Award shall, upon
payment of the purchase price and all Rent and other sums due under this Lease
and the other Lease Documents, belong to Lessee and Lessor agrees to assign to
Lessee all of Lessor's rights thereto. In any other event, the entire Award
shall belong to and be paid to Lessor.
14.6 CONTROL OF PROCEEDINGS. Subject to the rights of any Fee
Mortgagee, unless and until Lessee completes the purchase of the Leased
Property as provided in Section 14.3, all proceedings involving any Taking and
the prosecution of claims arising out of any Taking
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against the Condemnor shall be conducted, prosecuted and settled by Lessor;
provided, however, that Lessor shall keep Lessee apprised of the progress of
all such proceedings and shall solicit Lessee's advice with respect thereto and
shall give due consideration to any such advice. In addition, Lessee shall
reimburse Lessor (as an Additional Charge) for all costs and expenses,
including reasonable attorneys' fees, appraisal fees, fees of expert witnesses
and costs of litigation or dispute resolution, in relation to any Taking,
whether or not this Lease is terminated; provided, however, if this Lease is
terminated as a result of a Taking, Lessee's obligation to so reimburse Lessor
shall be diminished by the amount of the Award, if any, received by Lessor
which is in excess of the Meditrust Investment.
ARTICLE 15
PERMITTED CONTESTS
15.1 LESSEE'S RIGHT TO CONTEST. To the extent of the express
references made to this Article 15 in other Sections of this Lease, Lessee, any
Sublessee or any Manager on their own or on Lessor's behalf (or in Lessor's
name), but at their sole cost and expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence (until the
resolution thereof), the amount, validity or application, in whole or in part,
of any Imposition, Legal Requirement, the decision of any Governmental
Authority related to the operation of the Leased Property for its Primary
Intended Use or any Lien or claim relating to the Leased Property not otherwise
permitted by this Agreement; provided, that (A) prior written notice of such
contest is given to Lessor, (B) in the case of an unpaid Imposition, Lien or
claim, the commencement and continuation of such proceedings shall suspend the
collection thereof from Lessor and/or compliance by any applicable member of
the Leasing Group with the contested Legal Requirement or other matter may be
legally delayed pending the prosecution of any such proceeding without the
occurrence or creation of any Lien, charge or liability of any kind against the
Leased Property, (C) neither the Leased Property nor any rent therefrom would
be in any immediate danger of being sold, forfeited, attached or lost as a
result of such proceeding, (D) in the case of a Legal Requirement, neither
Lessor nor any member of the Leasing Group would be in any immediate danger of
civil or criminal liability for failure to comply therewith pending the outcome
of such proceedings, (E) in the event that any such contest shall involve a sum
of money or potential loss in excess of TEN THOUSAND DOLLARS ($10,000), Lessee
shall deliver to Lessor an Officer's Certificate and opinion of counsel, if
Lessor deems the delivery of an opinion to be appropriate, certifying or
opining, as the case may be, as to the validity of the statements set forth to
the effect set forth in clauses (b), (c) and (d), to the extent applicable, (F)
Lessee shall give such cash security as may be demanded in good faith by Lessor
to insure ultimate payment of any fine, penalty, interest or cost and to
prevent any sale or forfeiture of the affected portion of the Leased Property
by reason of such non-payment or non-compliance, (G) if such contest is finally
resolved against Lessor or any member of the Leasing Group, Lessee shall
promptly pay, as Additional Charges due hereunder, the amount required to be
paid, together with all interest and penalties accrued thereon and/or comply
(and cause any Sublessee and any
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Manager to comply) with the applicable Legal Requirement, and (H) no state of
facts or circumstance exists which constitutes, or with the passage of time
and/or the giving of notice, could constitute a Lease Default; provided,
however, the provisions of this Article 15 shall not be construed to permit
Lessee to contest the payment of Rent or any other sums payable by Lessee to
Lessor under any of the Lease Documents.
15.2 LESSOR'S COOPERATION. Lessor, at Lessee's sole cost and expense,
shall execute and deliver to Lessee such authorizations and other documents as
may reasonably be required in any such contest, so long as the same does not
expose Lessor to any civil or criminal liability, and, if reasonably requested
by Lessee or if Lessor so desires, Lessor shall join as a party therein.
15.3 LESSEE'S INDEMNITY. Lessee, as more particularly provided for in
Section 12.2, shall indemnify, defend (with counsel acceptable to Lessor) and
save Lessor harmless against any liability, cost or expense of any kind,
including, without limitation, attorneys' fees and expenses that may be imposed
upon Lessor in connection with any such contest and any loss resulting
therefrom and in the enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" hereunder and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease Documents:
(A) any failure of Lessee to pay any amount due hereunder or
under any of the other Lease Documents within ten (10) days following
the date when such payment was due;
(B) any failure in the observance or performance of any other
covenant, term, condition or warranty provided in this Lease or any of
the other Lease Documents, other than the payment of any monetary
obligation and other than as specified in subsections (c) through (x)
below (a "Failure to Perform"), continuing for thirty (30) days after
the giving of notice by Lessor to Lessee specifying the nature of the
Failure to Perform; except as to matters not susceptible to cure
within thirty (30) days, provided that with respect to such matters,
(I) Lessee commences the cure thereof within thirty (30) days after
the giving of such notice by Lessor to Lessee, (II) Lessee
continuously prosecutes such cure to completion, (III) such cure is
completed within ninety (90) days after the giving of such notice by
Lessor to Lessee and (IV) such Failure to Perform does not impair the
value of, or Lessor's rights with respect to, the Leased Property or
otherwise impair the Collateral or Lessor's security interest therein;
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(C) the occurrence of any default or breach of condition
continuing beyond the expiration of the applicable notice and grace
periods, if any, under any of the other Lease Documents;
(D) if any representation, warranty or statement contained
herein or in any of the other Lease Documents proves to be untrue in
any material respect as of the date when made or at any time during
the Term if such representation or warranty, other than the
representations and warranties contained in Section 10.16, is a
continuing representation or warranty pursuant to Section 10.2;
(E) if any representation or warranty contained in Section
10.1.16 proves to be untrue in any material respect at any time during
the Term and remains untrue for thirty (30) days after the date such
representation or warranty proved to be untrue; except as to matters
not susceptible to cure within such thirty (30) day period, provided
that with respect to such matters, (I) Lessee commences the cure
thereof within such thirty (30) day period, (II) Lessee continuously
prosecutes such cure to completion, (III) such cure is completed
within ninety (90) days after the date such representation or warranty
proved to be untrue and (IV) the failure of such representation or
warranty to remain true does not impair the value of, or Lessor's
rights with respect to, the Leased Property or otherwise impair the
Collateral or Lessor's security interest therein;
(F) if any member of the Leasing Group shall (I) voluntarily
be adjudicated a bankrupt or insolvent, (II) seek or consent to the
appointment of a receiver or trustee for itself or for the Leased
Property, (III) file a petition seeking relief under the bankruptcy or
other similar laws of the United States, any state or any
jurisdiction, (IV) make a general assignment for the benefit of
creditors, (V) make or offer a composition of its debts with its
creditors or (VI) be unable to pay its debts as such debts mature;
(G) if any court shall enter an order, judgment or decree
appointing, without the consent of any member of the Leasing Group, a
receiver or trustee for such member or for any of its property and
such order, judgment or decree shall remain in force, undischarged or
unstayed, sixty (60) days after it is entered;
(H) if a petition is filed against any member of the Leasing
Group which seeks relief under the bankruptcy or other similar laws of
the United States, any state or any other jurisdiction, and such
petition is not dismissed within sixty (60) days after it is filed;
(I) in the event that, without the prior written consent of
Lessor, in each instance, which consent may be withheld by Lessor in
its sole and absolute discretion:
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I. there shall be a change in the Person or Persons
presently in control of any member of the Leasing Group
(whether by operation of law or otherwise);
II. all or any portion of the interest of any partner or
member of any member of the Leasing Group shall be, on
any one or more occasions, directly or indirectly,
sold, assigned, hypothecated or otherwise transferred
(whether by operation of law or otherwise), if such
member of the Leasing Group shall be a partnership,
joint venture, syndicate or other group;
III. except in connection with the exercise by Lessor under
the Warrant of its right to become a shareholder of the
Guarantor, the shares of the issued and outstanding
capital stock of any member of the Leasing Group shall
be, on any one or more occasions, directly or
indirectly, sold, assigned, hypothecated or otherwise
transferred (whether by operation of law or otherwise),
if such member of the Leasing Group shall be a
corporation; or
IV. all or any portion of the beneficial interest in any
member of the Leasing Group shall be, directly or
indirectly, sold or otherwise transferred (whether by
operation of law or otherwise), if such member of the
Leasing Group shall be a trust;
(J) the death, incapacity, liquidation, dissolution or
termination of existence of the any member of the Leasing Group or the
merger or consolidation of any member of the Leasing Group with any
other Person;
(K) except as otherwise permitted pursuant to Section 19.2
hereof, if, without the prior written consent of Lessor, in each
instance, which consent may be withheld by Lessor in its sole and
absolute discretion, Lessee's or any Sublessee's interest in the
Leased Property shall be, directly or indirectly, mortgaged,
encumbered (by any voluntary or involuntary Lien other than the
Permitted Encumbrances), subleased, sold, assigned, hypothecated or
otherwise transferred (whether by operation of law or otherwise);
(L) the occurrence of a default or breach of condition
continuing beyond the expiration of the applicable notice and grace
periods, if any, in connection with the payment or performance of any
other material obligation of Lessee or any Sublessee, whether or not
the applicable creditor or obligee elects to declare the obligations
of Lessee or the applicable Sublessee under the applicable agreement
due and payable or to exercise any other right or remedy available to
such creditor or obligee, if such creditor's or obligee's rights and
remedies may involve or result in (I) the taking of possession of the
Leased Property or (II) the assertion of any other right
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or remedy that, in Lessor's reasonable opinion, may impair Lessee's
ability punctually to perform all of its obligations under this Lease
and the other Lease Documents, may impair such Sublessee's ability
punctually to perform all of its obligations under its Sublease or may
materially impair Lessor's security for the Lease Obligations;
provided, however, that in any event, the election by the applicable
creditor or obligee to declare the obligations of Lessee under the
applicable agreement due and payable or to exercise any other right or
remedy available to such creditor or obligee shall be an Event of
Default hereunder only if such obligations, individually or in the
aggregate, are in excess of FIVE HUNDRED THOUSAND DOLLARS ($500,000);
(M) the occurrence of a Related Party Default;
(N) the occurrence of any default or breach of condition
continuing beyond the expiration of the applicable notice and grace
periods, if any, under any credit agreement, loan agreement or other
agreement establishing a major line of credit (or any documents
executed in connection with such lines of credit) on behalf of any
member of the Leasing Group whether or not the applicable creditor has
elected to declare the indebtedness due and payable under such line of
credit or to exercise any other right or remedy available to it. For
the purposes of this provision, a major line of credit shall mean and
include any line of credit established in an amount equal to or
greater than ONE MILLION DOLLARS ($1,000,000);
(O) except as a result of Casualty or a partial or complete
Condemnation, if Lessee or any Sublessee ceases operation of the
Facility, from and after the Conversion Date, for a period in excess
of thirty (30) days;
(P) if one or more judgments against Lessee or any Sublessee
or attachments against Lessee's interest or any Sublessee's interest
in the Leased Property, which in the aggregate exceed ONE HUNDRED
THOUSAND DOLLARS ($100,000) or which may materially and adversely
interfere with the operation of the Facility, remain unpaid, unstayed
on appeal, undischarged, unbonded or undismissed for a period of
thirty (30) days;
(Q) if, from and after the Conversion Date, any malpractice
award or judgment exceeding any applicable professional liability
insurance coverage by more than FIVE HUNDRED THOUSAND DOLLARS
($500,000) shall be rendered against any member of the Leasing Group
and either (I) enforcement proceedings shall have been commenced by
any creditor upon such award or judgment or (II) such award or
judgment shall continue unsatisfied and in effect for a period of ten
(10) consecutive days without an insurance company satisfactory to
Lessor (in its sole and absolute discretion) having agreed to fund
such award or judgment in a manner satisfactory to Lessor (in its sole
and absolute discretion) and in either case such award or judgment
shall, in the reasonable opinion of Lessor, have a material adverse
affect on the ability of any member of the Leasing Group to operate
the Facility;
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(R) if, from and after the Conversion Date, any Provider
Agreement material to the operation or financial condition of any
member of the Leasing Group shall be terminated prior to the
expiration of the term thereof or, without the prior written consent
of Lessor, in each instance, which consent may be withheld in Lessor's
reasonable discretion, shall not be renewed or extended upon the
expiration of the stated term thereof;
(S) if, after Lessee or any Sublessee has obtained approval
for participation in the Medicare and/or Medicaid programs with regard
to the operation of the Facility, a final unappealable determination
is made by the applicable Governmental Authority that Lessee or any
Sublessee shall have failed to comply with applicable Medicare and/or
Medicaid regulations in the operation of the Facility, as a result of
which failure Lessee or such Sublessee is declared ineligible to
continue its participation in the Medicare and/or Medicaid programs;
(T) if any member of the Leasing Group receives notice of a
final unappealable determination by applicable Governmental
Authorities of the revocation of any Permit required for the lawful
construction or operation of the Facility in accordance with the
Primary Intended Use or the loss of any Permit under any other
circumstances under which any member of the Leasing Group is required
to cease (I) the construction of the Project in excess of ten (10)
days or (II) after the Conversion Date, the operation of the Facility
in accordance with the Primary Intended Use; and
(U) any failure to maintain the insurance required pursuant
to Section 12 of this Lease in force and effect at all times until the
Lease Obligations are fully paid and performed;
(V) the appointment of a temporary manager (or operator) for
the Leased Property by any Governmental Authority;
(W) the entry of an order by a court with jurisdiction over
the Leased Property to close the Facility, to transfer one or more
residents from the Facility as a result of a finding or determination
of abuse or neglect or to take any action to eliminate an emergency
situation then existing at the Facility; or
(X) any failure to deliver the Cash Collateral to Lessor when
required under Section 1 of the Deposit Pledge Agreement or to
replenish the Cash Collateral, if required, under Section 7 of the
Agreement Regarding Related Lease Transactions.
16.2 REMEDIES.
(A) If any Lease Default shall have occurred, Lessor may at its option
terminate this Lease by giving Lessee not less than ten (10) days' notice of
such termination, or exercise any one or more of its rights and remedies under
this Lease or any of the other
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Lease Documents, or as available at law or in equity and upon the expiration of
the time fixed in such notice, the Term shall terminate (but only if Lessor
shall have specifically elected by a written notice to so terminate the Lease)
and all rights of Lessee under this Lease shall cease. Notwithstanding the
foregoing, in the event of Lessee's failure to pay Rent, if such Rent remains
unpaid beyond ten (10) days from the due date thereof, Lessor shall not be
obligated to give ten (10) days notice of such termination or exercise of any
of its other rights and remedies under this Lease, or the other Lease
Documents, or otherwise available at law or in equity, and Lessor shall be at
liberty to pursue any one or more of such rights or remedies without further
notice. No taking of possession of the Leased Property by or on behalf of
Lessor, and no other act done by or on behalf of Lessor, shall constitute an
acceptance of surrender of the Leased Property by Lessee or reduce Lessee's
obligations under this Lease or the other Lease Documents, unless otherwise
expressly agreed to in a written document signed by an authorized officer or
agent of Lessor.
(B) To the extent permitted under applicable law, Lessee shall pay as
Additional Charges all costs and expenses (including, without limitation,
attorneys' fee and expenses) reasonably incurred by or on behalf of Lessor as a
result of any Lease Default.
(C) If any Lease Default shall have occurred, whether or not this
Lease has been terminated pursuant to Paragraph (a) of this Section, Lessee
shall, to the extent permitted under applicable law, if required by Lessor so
to do, upon not less than ten (10) days' prior notice from Lessor, immediately
surrender to Lessor the Leased Property pursuant to the provisions of Paragraph
(a) of this Section and quit the same, and Lessor may enter upon and repossess
the Leased Property by reasonable force, summary proceedings, ejectment or
otherwise, and may remove Lessee and all other Persons and any and all of the
Tangible Personal Property from the Leased Property, subject to the rights of
any residents or patients of the Facility and any Sublessees who are not
Affiliates of any member of the Leasing Group and to any requirements of
applicable law, or Lessor may claim ownership of the Tangible Personal Property
as set forth in Section 5.2.3 hereof or Lessor may exercise its rights as
secured party under the Security Agreement. Lessor shall use reasonable, good
faith efforts to relet the Leased Property or otherwise mitigate damages
suffered by Lessor as a result of Lessee's breach of this Lease.
(D) In addition to all of the rights and remedies of Lessor set forth
in this Lease and the other Lease Documents, if Lessee shall fail to pay any
rental or other charge due hereunder (whether denominated as Base Rent,
Additional Charges or otherwise) within ten (10) days after same shall have
become due and payable, then and in such event Lessee shall also pay to Lessor
(I) a late payment service charge (in order to partially defray Lessor's
administrative and other overhead expenses) equal to two hundred-fifty ($250)
dollars and (II) to the extent permitted by applicable law, interest on such
unpaid sum at the Overdue Rate; it being understood, however, that nothing
herein shall be deemed to extend the due date for payment of any sums required
to be paid by Lessee hereunder or to relieve Lessee of its obligation to pay
such sums at the time or times required by this Lease.
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(E) LESSOR SHALL HAVE THE FOLLOWING RIGHTS TO CONFESS JUDGMENT AGAINST
LESSEE AND ALL PERSONS CLAIMING THROUGH LESSEE, FOR POSSESSION OF THE LEASED
PROPERTY AND/OR FOR MONIES OWED TO LESSOR:
(I) IF ANY LEASE DEFAULT SHALL HAVE OCCURRED, LESSEE HEREBY
EMPOWERS ANY PROTHONOTARY, CLERK OF COURT OR ATTORNEY OF ANY
COURT OF RECORD TO APPEAR FOR LESSEE IN ANY AND ALL SUITS,
ACTIONS OR ACTIONS IN ASSUMPSIT WHICH MAY BE BROUGHT FOR RENT
OR ANY CHARGES HEREBY RESERVED AS RENT, OR DAMAGES BY REASON
THEREOF, OR ANY ADDITIONAL CHARGES, INCLUDING, WITHOUT
LIMITATION, ANY LATE FEES OR INTEREST ACCRUED OR ACCRUING
THEREON (COLLECTIVELY, THE "AMOUNTS DUE"), OR ANY PORTION
THEREOF. IN SUCH SUITS OR ACTIONS, LESSEE EMPOWERS SUCH
PROTHONOTARY, CLERK OF COURT OR ATTORNEY TO CONFESS JUDGMENT
AGAINST LESSEE FOR ALL OR ANY PART OF THE RENT SPECIFIED IN
THIS LEASE AND THEN UNPAID AND ALL OTHER AMOUNTS DUE UNDER
THIS LEASE. SUCH AUTHORITY SHALL NOT BE EXHAUSTED BY ONE
EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS AFORESAID
FROM TIME TO TIME AS OFTEN AS ANY RENT OR ANY OTHER AMOUNT
DUE SHALL FALL DUE OR BE IN ARREARS, INCLUDING WITHOUT
LIMITATION, FOR THE SAME AMOUNTS DUE AS PREVIOUSLY CONFESSED
IF AND TO THE EXTENT THAT A PREVIOUS CONFESSION OF JUDGMENT
SHALL BE STRICKEN OR OTHERWISE INVALIDATED WITHOUT A FINAL
DECISION ON THE MERITS OF THE CLAIM. SUCH POWERS MAY BE
EXERCISED AS WELL AFTER THE EXPIRATION OF THE INITIAL TERM,
DURING ANY EXTENSION TERM, AND/OR AFTER THE TERMINATION OF
THIS LEASE.
(II) WHEN THIS LEASE SHALL BE TERMINATED BY REASON OF A LEASE
DEFAULT OR ANY OTHER REASON WHATSOEVER, EITHER DURING THE
INITIAL TERM OR ANY EXTENSION TERM, AND ALSO WHEN THE TERM
HEREBY CREATED OR ANY EXTENSION THEREOF SHALL HAVE EXPIRED,
IT SHALL BE LAWFUL FOR ANY ATTORNEY TO APPEAR FOR LESSEE IN
ANY AND ALL SUITS OR ACTIONS WHICH MAY BE BROUGHT FOR
POSSESSION AND/OR EJECTMENT; AND AS ATTORNEY FOR LESSEE TO
CONFESS JUDGMENT IN EJECTMENT AGAINST LESSEE AND ALL PERSONS
CLAIMING UNDER LESSEE FOR THE RECOVERY BY LESSOR OF
POSSESSION OF THE LEASED PROPERTY, FOR WHICH THIS LEASE SHALL
BE LESSOR'S
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SUFFICIENT WARRANT. UPON SUCH CONFESSION OF JUDGMENT FOR
POSSESSION, IF LESSOR SO DESIRES, A WRIT OF EXECUTION OR OF
POSSESSION MAY ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR
PROCEEDINGS WHATSOEVER. IF FOR ANY REASON AFTER SUCH ACTION
SHALL HAVE BEEN COMMENCED, THE SAME SHALL BE DETERMINED AND
THE POSSESSION OF THE LEASED PROPERTY SHALL REMAIN IN OR BE
RESTORED TO LESSEE, THEN LESSOR SHALL HAVE THE RIGHT UPON ANY
SUBSEQUENT OR CONTINUING LEASE DEFAULT, OR AFTER EXPIRATION
OF THIS LEASE, OR UPON THE TERMINATION OF THIS LEASE AS
HEREINBEFORE SET FORTH, TO BRING ONE OR MORE FURTHER ACTIONS
AS HEREINBEFORE SET FORTH TO RECOVER POSSESSION OF THE LEASED
PROPERTY.
(III) In any action of ejectment and/or for Rent in arrears or
other Amount Due, Lessor shall cause to be filed in such
action an affidavit made by Lessor or someone acting for
Lessor setting forth the facts necessary to authorize the
entry of judgment, of which facts such affidavit shall be
conclusive evidence. If a true copy of this Lease shall be
filed in such action (and the truth of the copy as asserted
in the affidavit of Lessor shall be sufficient evidence of
same), it shall not be necessary to file the original Lease
as a warrant of attorney, any rule of court, custom or
practice to the contrary notwithstanding.
(IV) Lessee expressly agrees, to the extent not prohibited by law,
that any judgment, order or decree entered against it by or
in any court or magistrate by virtue of the powers of
attorney contained in this Lease shall be final, and that
Lessee will not take an appeal, certiorari, writ of error,
exception or objection to the same, or file a motion or rule
to strike off or open or to stay execution of the same, and
releases to Lessor and to any and all attorneys who may
appear for Lessee all errors in such proceedings and all
liability therefor.
(V) The right to enter judgment against Lessee and to enforce all
of the other provisions of this Lease herein provided for, at
the option of any assignee of this Lease, may be exercised by
any assignee of Lessor's right, title and interest in this
Lease in Lessee's own name, notwithstanding the fact that any
or all assignments of such right, title and interest may not
be executed and/or witnessed in accordance with the Act of
Assembly of May 28,1715,1 Sm. L. 94, and all supplements and
amendments thereto that have been or may hereafter be passed.
Lessee hereby expressly waives the requirements of such Act
of Assembly and any and all laws regulating the manner and/or
form in which such assignments shall be executed and
witnessed.
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(VI) LESSEE ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY COUNSEL
IN CONNECTION WITH THE NEGOTIATION OF THIS LEASE, THAT IT HAS
READ AND DISCUSSED WITH SUCH COUNSEL THE PROVISIONS HEREIN
RELATING TO CONFESSION OF JUDGMENT, AND THAT IT UNDERSTANDS
THE NATURE AND CONSEQUENCES OF SUCH PROVISIONS.
16.3 DAMAGES. None of (A) the termination of this Lease pursuant to
Section 16.2, (B) the eviction of Lessee or the repossession of the Leased
Property, (C) the failure or inability of Lessor, notwithstanding reasonable
good faith efforts, to relet the Leased Property, (D) the reletting of the
Leased Property or (E) the failure of Lessor to collect or receive any rentals
due upon any such reletting, shall relieve Lessee of its liability and
obligations hereunder, all of which shall survive any such termination,
repossession or reletting. In any such event, 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, repossession or eviction. Thereafter,
Lessee shall forthwith pay to Lessor, at Lessor's option, either:
(I) the sum of: (X) all Rent that is due and unpaid at the later
to occur of termination, repossession or eviction, together
with interest thereon at the Overdue Rate to the date of
payment, plus (Y) the worth (calculated in the manner stated
below) of the amount by which the unpaid Rent for the balance
of the Term after the later to occur of the termination,
repossession or eviction exceeds the fair market rental value
of the Leased Property for the balance of the Term, plus (Z)
any other amount necessary to compensate Lessor for all
damage proximately caused by Lessee's failure to perform the
Lease Obligations or which in the ordinary course would be
likely to result therefrom; or
(II) each payment of Rent as the same would have become due and
payable if Lessee's right of possession or other rights under
this Lease had not been terminated, or if Lessee had not been
evicted, or if the Leased Property had not been repossessed;
which Rent, to the extent permitted by law, shall bear
interest at the Overdue Rate from the date when due until the
date paid, and Lessor may enforce, by action or otherwise,
any other term or covenant of this Lease. There shall be
credited against Lessee's obligation under this Clause (ii)
amounts actually collected by Lessor from another tenant to
whom the Leased Property may have actually been leased or, if
Lessor is operating the Leased Property for its own account,
the actual Cash Flow of the Leased Property.
In making the determinations described in subparagraph (i) above, the
"worth" of unpaid Rent shall be determined by a court having jurisdiction
thereof using the lowest rate
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of capitalization (highest present worth) reasonably applicable at the time of
such deter mination and allowed by applicable law.
16.4 LESSEE WAIVERS. If this Lease is terminated pursuant to Section
16.2, Lessee waives, to the extent not prohibited by applicable law, (A) any
right of redemption, re-entry or repossession, (B) any right to a trial by jury
in the event of summary proceedings to enforce the remedies set forth in this
Article 16, and (C) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.
16.5 APPLICATION OF FUNDS. Any 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 Lease Default shall be applied to the Lease
Obligations in the order which Lessor may reasonably determine or as may be
required by the laws of the State.
16.6 [INTENTIONALLY DELETED].
16.7 LESSOR'S RIGHT TO CURE. If Lessee 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 16.1,
Lessor, after five (5) Business Days' prior notice to Lessee (except in an
emergency when such shorter notice shall be given as is reasonable under the
circumstances), and without waiving or releasing any obligation or Event of
Default, may (but shall be under no obligation to) at any time thereafter 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 and all costs and expenses (including,
without limitation, 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 as an Additional Charge. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier termination
of this Lease.
16.8 NO WAIVER BY LESSOR. Lessor shall not by any act, delay, omission
or otherwise (including, without limitation, the exercise of any right or
remedy hereunder) be deemed to have waived any of its right or remedies
hereunder or under any of the other Lease Documents unless such waiver is in
writing and signed by Lessor, and then, only to the extent specifically set
forth therein. No waiver at any time of any of the terms, conditions,
covenants, representations or warranties set forth in any of the Lease
Documents (including, without limitation, any of the time periods set forth
therein for the performance of the Lease Obligations) shall be construed as a
waiver of any other term, condition, covenant, representation or warranty of
any of the Lease Documents, nor shall such a waiver in any one instance or
circumstances be construed as a waiver of the same term, condition, covenant,
representation or warranty in any subsequent instance or circumstance. No such
failure, delay or waiver shall be construed as creating a requirement that
Lessor must thereafter, as a result of such failure, delay or waiver, give
notice to Lessee or the
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Guarantor, the Developer or any other Person that Lessor does not intend to, or
may not, give a further waiver or to refrain from insisting upon the strict
performance of the terms, conditions, covenants, representations and warranties
set forth in the Lease Documents before Lessor can exercise any of its rights
or remedies under any of the Lease Documents or before any Lease Default can
occur, or as establishing a course of dealing for interpreting the conduct of
and agreements between Lessor and Lessee, the Guarantor, the Developer or any
other Person.
The acceptance by Lessor of any payment that is less than payment in
full of all amounts then due under any of the Lease Documents at the time of
the making of such payment shall not: (A) constitute a waiver of the right to
exercise any of Lessor's remedies at that time or at any subsequent time, (B)
constitute an accord and satisfaction or (C) nullify any prior exercise of any
remedy, without the express written consent of Lessor. Any failure by Lessor to
take any action under this Lease or any of the other Lease Documents by reason
of a default hereunder or thereunder, any acceptance of a past due installment,
or any indulgence granted from time to time shall not be construed (I) as a
novation of this Lease or any of the other Lease Documents, (II) as a waiver of
any right of Lessor thereafter to insist upon strict compliance with the terms
of this Lease or any of the other Lease Documents or (III) to prevent the
exercise of any right of acceleration or any other right granted hereunder or
under applicable law; and to the maximum extent not prohibited by applicable
law, Lessor hereby expressly waives the benefit of any statute or rule of law
or equity now provided, or which may hereafter be provided, which would produce
a result contrary to or in conflict with the foregoing.
16.9 RIGHT OF FORBEARANCE. Whether or not for consideration paid or
payable to Lessor and, except as may be otherwise specifically agreed to by
Lessor in writing, no forbearance on the part of Lessor, no extension of the
time for the payment of the whole or any part of the Obligations, and no other
indulgence given by Lessor to Lessee or any other Person, shall operate to
release or in any manner affect the original liability of Lessee or such other
Persons, or to limit, prejudice or impair any right of Lessor, including,
without limitation, the right to realize upon any collateral, or any part
thereof, for any of the Obligations evidenced or secured by the Lease
Documents; notice of any such extension, forbearance or indulgence being hereby
waived by Lessee and all those claiming by, through or under Lessee.
16.10 CUMULATIVE REMEDIES. The rights and remedies set forth under
this Lease are in addition to all other rights and remedies afforded to Lessor
under any of the other Lease Documents or at law or in equity, all of which are
hereby reserved by Lessor, and this Lease is made and accepted without
prejudice to any such rights and remedies. All of the rights and remedies of
Lessor under each of the Lease Documents shall be separate and cumulative and
may be exercised concurrently or successively in Lessor's sole and absolute
discretion.
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ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE; HOLDING OVER
17.1 SURRENDER. Lessee shall, upon the expiration or prior termination
of the Term (unless Lessee has concurrently purchased the Leased Property in
accordance with the terms hereof), vacate and surrender the Leased Property to
Lessor in good repair and condition, in compliance with all Legal Requirements,
all Insurance Requirements, and in compliance with the provisions of Article 8,
except for: (A) ordinary wear and tear (subject to the obligation of Lessee to
maintain the Leased Property in good order and repair during the entire Term of
the Lease), (B) damage caused by the gross negligence or willful acts of
Lessor, and (C) any damage or destruction resulting from a Casualty or Taking
that Lessee is not required by the terms of this Lease to repair or restore.
17.2 TRANSFER OF PERMITS AND CONTRACTS. In connection with the
expiration or any earlier termination of this Lease (unless Lessee has
concurrently purchased the Leased Property in accordance with the terms
hereof), upon any request made from time to time by Lessor, Lessee shall (A)
promptly and diligently use its best efforts to (I) transfer and assign all
Permits and Contracts necessary or desirable for the operation of the Leased
Property in accordance with its Primary Intended Lease to Lessor or its
designee and/or (II) arrange for the transfer or assignment of such Permits and
Contracts to Lessor or its designee, all to the extent the same may be
transferred or assigned under applicable law and (B) cooperate in every respect
(and to the fullest extent possible) and assist Lessor or its designee in
obtaining such Permits and Contracts (whether by transfer, assignment or
otherwise). Such efforts and cooperation on the part of Lessee shall include,
without limitation, the execution, delivery and filing with appropriate
Governmental Authorities and Third Party Payors of any applications, petitions,
statements, notices, requests, assignments and other documents or instruments
requested by Lessor. Furthermore, Lessee shall not take any action or refrain
from taking any action which would defer, delay or jeopardize the process of
Lessor or its designee obtaining said Permits and Contracts (whether by
transfer, assignment or otherwise). Without limiting the foregoing, Lessee
shall not seek to transfer or relocate any of said Permits or Contracts to any
location other than the Leased Property. The provisions of this Section 17.2
shall survive the expiration or earlier termination of this Lease.
Lessee hereby appoints Lessor as its attorney-in-fact, with full power
of substitution to take such actions, in the event that Lessee fails to comply
with any request made by Lessor hereunder, as Lessor (in its sole absolute
discretion) may deem necessary or desirable to effectuate the intent of this
Section 17.2. The power of attorney conferred on Lessor by the provisions of
this Section 17.2, being coupled with an interest, shall be irrevocable until
the Obligations are fully paid and performed and shall not be affected by any
disability or incapacity which Lessee may suffer and shall survive the same.
Such power of attorney is provided solely to protect the interests of Lessor
and shall not impose any duty on Lessor to exercise any such power and neither
Lessor nor such attorney-in-fact shall be liable for any
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act, omission, error in judgment or mistake of law, except as the same may
result from its gross negligence or willful misconduct.
17.3 NO ACCEPTANCE OF SURRENDER. Except at the expiration of the Term
in the ordinary course, no surrender to Lessor of this Lease or of the Leased
Property or 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.
17.4 HOLDING OVER. If, for any reason, Lessee shall remain in
possession of the Leased Property after the expiration or any earlier
termination of the Term, such possession shall be as a tenant at sufferance
during which time Lessee shall pay as rental each month, one and one-half times
the aggregate of (I) one-twelfth of the aggregate Base Rent payable at the time
of such expiration or earlier termination of the Term; (II) all Additional
Charges accruing during the month and (III) all other sums, if any, payable by
Lessee pursuant to the provisions of this Lease with respect to the Leased
Property. During such period of 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
tenants at sufferance, 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 18
PURCHASE OF THE LEASED PROPERTY
18.1 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,
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 a
deed with covenants only against acts of Lessor conveying the entire interest
of Lessor in and to the Leased Property to Lessee subject to all Legal
Requirements, all of the matters described in clauses (a), (b), (e) and (g) of
Section 11.5.2, Impositions, any Liens created by Lessee, any Liens created in
accordance with the terms of this Lease or consented to by Lessee, the claims
of all Persons claiming by through or under Lessee, any other matters assented
to by Lessee and all matters for which Lessee has responsibility under any of
the Lease Documents, but otherwise not subject to any other Lien created by
Lessor from and after the Commencement Date (other than an Encumbrance
permitted under Article 20 which Lessee elects to assume). The applicable
purchase price 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. All expenses of such conveyance, including,
without limitation, title examination costs, standard (and extended) coverage
title insurance premiums, attorneys' fees incurred by Lessor in connection with
such conveyance,
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recording and transfer taxes and recording fees and other similar charges shall
be paid by Lessee.
18.2 APPRAISAL.
18.2.1 DESIGNATION OF APPRAISERS. In the event that it
becomes necessary to determine the Fair Market Value of the Leased
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 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.
18.2.2 APPRAISAL PROCESS. 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 appraise the Leased Property 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
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 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 per cent (10%)
of the lesser of such amounts, then the Fair Market Value of the
Leased Property 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 of the Leased Property, 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 of
the Leased Property 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
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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 of the Leased Property.
18.2.3 SPECIFIC ENFORCEMENT AND COSTS. 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.
18.3 [INTENTIONALLY DELETED].
18.4 LESSEE'S OPTION TO PURCHASE.
18.4.1 CONDITIONS TO OPTION. On the conditions (which
conditions Lessor may waive, at its sole option, by notice to Lessee
at any time) that (A) at the time of exercise of the Purchase Option
and on the applicable Purchase Option Date, there then exists no Lease
Default, nor any state of facts or circumstance which constitutes, or
with the passage of time and/or the giving of notice, would constitute
a Lease Default and (B) Lessee strictly complies with the provisions
of this Section 18.4, then Lessee shall have the option to purchase
the Leased Property, at the price and upon the terms hereinafter set
forth (the "Purchase Option").
18.4.2 EXERCISE OF OPTION. The Purchase Option shall permit
Lessee to purchase the Leased Property (A) on the last day of the
Initial Term or (B) on the last day of any Extended Term effectively
exercised by Lessee (each of such dates are referred to herein as a
"Purchase Option Date") and shall be exercised by notice given by
Lessee to Lessor (the "Lessee's Purchase Option Notice") at least one
hundred eighty (180) days (but not more than two hundred seventy (270)
days) prior to the relevant Purchase Option Date. Notwithstanding
anything to the contrary set forth in this Lease, Lessee's right to
purchase the Leased Property is subject to the further conditions that
(I) concurrently with the exercise of the option set forth under this
Section 18.4, the Lessee shall have exercised its right to purchase
the premises demised under each of the Related Leases in accordance
with the provisions of Section 18.4 of each of the Related Leases and
(II) the conveyance of the Leased Property pursuant to the provisions
of this Section 18.4 shall occur simultaneously with the conveyance of
the premises demised under each of the Related Leases pursuant to
Section 18.4 of each of the Related Leases and (III) all of the
conditions in the Agreement Regarding Related Lease Transactions
pertaining to the Purchase Option are satisfied. Once given, Lessee
shall have no right to rescind Lessee's Purchase Option Notice.
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18.4.3 CONVEYANCE. If the Purchase Option is exercised by
Lessee in accordance with the terms hereof, the Leased Property shall
be conveyed by a good and sufficient deed with covenants only against
acts of Lessor (the "Deed") running to Lessee or to such grantee as
Lessee may designate by notice to Lessor at least seven (7) days
before the Time of Closing.
18.4.4 CALCULATION OF PURCHASE PRICE. Subject to the terms of
the Agreement Regarding Related Lease Transactions, the price to be
paid by Lessee for the acquisition of the Leased Property pursuant to
this Purchase Option (the "Purchase Price") shall be equal to the
greater of (A) the Meditrust Investment or (B) an amount equal to the
then Fair Market Value of the Leased Property minus the Fair Market
Added Value.
18.4.5 PAYMENT OF PURCHASE PRICE. Subject to the terms of the
Agreement Regarding Related Lease Transactions, the Purchase Price
shall be paid by Lessee at the Time of Closing by certified,
cashier's, treasurer's or bank check(s) or wire transfer pursuant to
instructions received from Lessor.
18.4.6 PLACE AND TIME OF CLOSING. Subject to the terms of the
Agreement Regarding Related Lease Transactions, if the Purchase Option
is exercised, the closing shall occur and the Deed shall be delivered
(the "Closing") at the office of Lessor at 12:00 o'clock noon (local
time in Boston, Massachusetts) on the applicable Purchase Option Date
(such time, as the same may be extended by mutual written agreement of
Lessor and Lessee, being hereinafter referred to as the "Time of
Closing"). It is agreed that time is of the essence of the Purchase
Option.
18.4.7 CONDITION OF LEASED PROPERTY. The Leased Property is
to be purchased "AS IS" and "WHERE IS" as of the Time of Closing.
18.4.8 QUALITY OF TITLE. If Lessor shall be unable to give
title or to make conveyance, as stipulated in this Section 18.4, then,
at Lessor's option, Lessor shall use reasonable efforts to remove all
defects in title and the applicable Purchase Option Date and Time of
Closing shall be extended for period of thirty (30) days. Lessor shall
not be required to expend more than FIFTY THOUSAND DOLLARS ($50,000)
(inclusive of attorney's fees) in order to have used "reasonable
efforts."
18.4.9 LESSOR'S INABILITY TO PERFORM. If at the expiration of
the extended time Lessor shall have failed so to remove any such
defects in title, then all other obligations of all parties hereto
under Section 18.4 shall cease and Section 18.4 shall be void and
without recourse to the parties hereto. Notwithstanding the foregoing,
Lessee shall have the election, at either the original or extended
Purchase Option Date and Time of Closing, to accept such title as
Lessor can deliver to the Leased Property in its then condition and to
pay therefor the Purchase Price without reduction, in which case
Lessor shall convey such title; provided, that, in the event of such
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conveyance, if any portion of the Leased Property shall have been
taken by Condemnation prior to the applicable Purchase Option Date and
Time of Closing, Lessor shall pay over or assign to Lessee at the Time
of Closing, all Awards recovered on account of such Taking, less any
amounts reasonably expended by Lessor in obtaining such Awards, or, to
the extent such Awards have not been recovered as of the applicable
Purchase Option Date and Time of Closing, Lessor shall assign to
Lessee all its rights with respect to any claim therefor.
18.4.10 MERGER BY DEED. The acceptance of the Deed by Lessee
or the grantee designated by Lessee, as the case may be, shall be
deemed to be a full performance and discharge of every agreement and
obligation to be performed by Lessor contained or expressed in this
Lease.
18.4.11 USE OF PURCHASE PRICE TO CLEAR TITLE. To enable
Lessor to make conveyance as provided in this Section, Lessor may, at
the Time of Closing, use the Purchase Price or any portion thereof to
clear the title of any Lien, provided that all instruments so procured
are recorded contemporaneously with the Closing or reasonable
arrangements are made for a recording subsequent to the Time of
Closing in accordance with customary conveyancing practices.
18.4.12 LESSEE'S DEFAULT. If Lessee delivers Lessee's
Purchase Option Notice and fails to consummate the purchase of the
Leased Property in accordance with the terms hereof for any reason
other than Lessor's willful and unexcused refusal to deliver the Deed,
(A) Lessee shall thereafter have no further right to purchase the
Leased Property pursuant to this Section, although this Lease shall
otherwise continue in full force and effect and (B) Lessor shall have
the right to sue for specific performance of Lessee's obligations to
purchase the Leased Property provided such suit for specific
performance is commenced within one (1) year after the applicable
Purchase Option Date on which such sale was supposed to occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 SUBLETTING AND ASSIGNMENT. Except as specifically set forth in
Section 19.2 below, Lessee may not, without the prior written consent of
Lessor, which consent may be withheld in Lessor's sole and absolute discretion,
assign or pledge all or any portion of its interest in this Lease or any of the
other Lease Documents (whether by operation of law or otherwise) or sublet all
or any part of the Leased Property. For purposes of this Section 19.1, the term
"assign" shall be deemed to include, but not be limited to, any one or more
sales, pledges, hypothecations or other transfers (including, without
limitation, any transfer by operation of law) of any of the capital stock of or
partnership interest in Lessee or sales, pledges, hypothecations or other
transfers (including, without limitation, any
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transfer by operation of law) of the capital or the assets of Lessee. Any such
assignment, pledge, sale, hypothecation or other transfer made without Lessor's
consent shall be void and of no force and effect.
19.2 PERMITTED SUBLEASES. Notwithstanding the foregoing, Lessee shall
have the right to enter into Residence Agreements without the prior consent of
Lessor.
19.3 ATTORNMENT. Lessee shall insert in each Sublease approved by
Lessor provisions to the effect that (A) 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 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 Lessor or as Lessor may direct. All rentals received from the
Sublessee by Lessor shall be credited against the amounts owing by Lessee under
this Lease.
ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1 NO MERGER OF TITLE. There shall be no merger of this Lease or of
the leasehold estate created hereby with the fee estate in the Leased Property
by reason of the fact that the same Person may acquire, own or hold, directly
or indirectly (A) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate and (B) the fee estate in the
Leased Property.
20.2 TRANSFERS BY LESSOR. If the original Lessor named herein or any
successor in interest shall convey the Leased Property in accordance with the
terms hereof, other than as security for a debt, and 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, the original Lessor named herein or the applicable successor in
interest so conveying the Leased Property 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 as to the
Leased Property and all such future liabilities and obligations shall thereupon
be binding upon the new owner.
20.3 LESSOR MAY GRANT LIENS. Without the consent of Lessee, but
subject to the terms and conditions set forth below in this Section 20.3,
Lessor may, from time to time, directly or indirectly, create or otherwise
cause to exist any lien, encumbrance or title retention agreement upon the
Leased Property or any interest therein ("Encumbrance"),
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whether to secure any borrowing or other means of financing or refinancing,
provided that Lessee shall have no obligation to make payments under such
Encumbrances. Lessee shall subordinate this Lease to the lien of any such
Encumbrance, on the condition that the beneficiary or holder of such
Encumbrance executes a non-disturbance agreement in conformity with the
provisions of Section 20.4. To the extent that any such Encumbrance consists of
a mortgage or deed of trust on Lessor's interest in the Leased Property the
same shall be referred to herein as a "Fee Mortgage" and the holder thereof
shall be referred to herein as a "Fee Mortgagee".
20.4 SUBORDINATION AND NON-DISTURBANCE. Concurrently with the
execution and delivery of any Fee Mortgage entered into after the date hereof,
provided that the Lessee executes and delivers an agreement of the type
described in the following paragraph, Lessor shall obtain and deliver to Lessee
an agreement by the holder of such Fee Mortgage, pursuant to which, (A) the
applicable Fee Mortgagee consents to this Lease and (B) agrees that,
notwithstanding the terms of the applicable Fee Mortgage held by such Fee
Mortgagee, or any default, expiration, termination, foreclosure, sale, entry or
other act or omission under or pursuant to such Fee Mortgage or a transfer in
lieu of foreclosure, (I) Lessee's rights under this Lease shall not be
disturbed nor shall this Lease be terminated or cancelled at any time, except
in the event that Lessor shall have the right to terminate this Lease under the
terms and provisions expressly set forth herein, (II) Lessee's option to
purchase the Leased Property shall remain in force and effect pursuant to the
terms hereof and (III) in the event that Lessee elects its option to purchase
the Leased Property and performs all of its obligations hereunder in connection
with any such election, the holder of the Fee Mortgage shall release its Fee
Mortgage upon payment by Lessee of the purchase price required hereunder,
provided, that (1) such purchase price is paid to the holder of the Fee
Mortgage, in the event that the Indebtedness secured by the applicable Fee
Mortgage is equal to or greater than the purchase price or (2) in the event
that the purchase price is greater than the Indebtedness secured by the Fee
Mortgage, a portion of the purchase price equal to the Indebtedness secured by
the Fee Mortgage is paid to the Fee Mortgagee and the remainder of the purchase
price is paid to Lessor.
At the request from time to time by any Fee Mortgagee, Lessee shall
(A) subordinate this Lease and all of Lessee's rights and estate hereunder to
the Fee Mortgage held by such Fee Mortgagee and (B) agree that Lessee will
attorn to and recognize such Fee Mortgagee or the purchaser at any foreclosure
sale or any sale under a power of sale contained in any such Fee Mortgage as
Lessor under this Lease for the balance of the Term then remaining. To effect
the intent and purpose of the immediately preceding sentence, Lessee agrees to
execute and deliver such instruments in recordable from as are reasonably
requested by Lessor or the applicable Fee Mortgagee; provided, however, that
such Fee Mortgagee simultaneously executes, delivers and records a written
agreement of the type described in the preceding paragraph.
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ARTICLE 21
LESSOR OBLIGATIONS
21.1 QUIET ENJOYMENT. As long as Lessee shall pay all Rent and all
other sums due under any of the Lease Documents as the same become due and
shall fully comply with all of the terms of this Lease and the other Lease
Documents and fully perform its obligations thereunder, Lessee shall peaceably
and quietly have, hold and enjoy the Leased Property throughout the Term, free
of any claim or other action by Lessor or anyone claiming by, through or under
Lessor, but subject to the Permitted Encumbrances and such Liens as may
hereafter be 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 perform 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 21.
21.2 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 reference to this
Lease and all options contained herein shall be made. Lessee shall pay all
recording costs and taxes associated therewith.
21.3 DEFAULT BY LESSOR. Lessor shall be in default of its obligations
under this Lease only 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 thirty (30) days after notice thereof
from Lessee (or, from and after the Conversion Date, such shorter time as may
be necessary in order to protect the health or welfare of any residents of the
Facility or to insure the continuing compliance of the Facility with the
applicable Legal Requirements), 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 continue if Lessor, within said thirty (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.
ARTICLE 22
NOTICES
Any notice, request, demand, statement or consent made hereunder or
under any of the other Lease Documents shall be in writing and shall be deemed
duly given if personally delivered, sent by certified mail, return receipt
requested, or sent by a nationally recognized commercial overnight delivery
service with provision for a receipt, postage or delivery
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charges prepaid, and shall be deemed given when so personally delivered or
postmarked or placed in the possession of such mail or delivery service and
addressed as follows:
If to Lessee:
With copies to:
If to the Guarantor
or the Developer:
With copies to:
If to Lessor:
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With copies to:
or such other address as Lessor, Lessee, the Guarantor or the Developer shall
hereinafter from time to time designate by a written notice to the others given
in such manner. Any notice given to Lessee, the Guarantor or the Developer by
Lessor at any time shall not imply that such notice or any further or similar
notice was or is required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
The Declaration of Trust establishing the sole shareholder of Lessor,
Meditrust, a Massachusetts business trust ("Meditrust"), dated August 6, 1985
(the "Declaration"), as amended, a copy of which is duly filed in the office of
the Secretary of State of the Commonwealth of Massachusetts, provides that the
name "Meditrust" refers to the trustees under the Declaration collectively as
trustees, but not individually or personally; and that no trustee, officer,
shareholder, employee or agent of Meditrust or any of its Subsidiaries shall be
held to any personal liability, jointly, or severally, for any obligation of,
or claim against Meditrust or any of its Subsidiaries. All Persons dealing with
Meditrust or Lessor, in any way, shall look only to the assets of Meditrust or
Lessor, as applicable, for the payment of any sum or the performance of any
obligation. Furthermore, in no event shall Meditrust or Lessor ever be liable
to Lessee or any other Person for any indirect or consequential damages
incurred by Lessee or such other Person resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee hereby acknowledges and agrees that
Meditrust is not a party to this Lease and that Lessee shall look only to the
assets of Lessor for the payment of any sum or performance of any obligation
due by or from Lessor pursuant to the terms and provisions of the Lease
Documents.
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ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 BROKER'S FEE INDEMNIFICATION. Lessee shall and hereby agrees to
indemnify, defend (with counsel acceptable to Lessor) and hold Lessor harmless
from and against any and all claims for premiums or other charges, finder's
fees, taxes, brokerage fees or commissions and other similar compensation due
in connection with any of the transactions contemplated by the Lease Documents,
except such claims by any Person with whom Lessor has dealt without Lessee's
knowledge in connection with the transactions contemplated by the Lease
Documents. Notwithstanding the foregoing, Lessor shall have the option of
conducting its own defense against any such claims with counsel of Lessor's
choice, but at the expense of Lessee, as aforesaid. This indemnification shall
include all attorneys' fees and expenses and court costs reasonably incurred by
Lessor in connection with the defense against any such claims and the
enforcement of this indemnification agreement and shall survive the termination
of this Lease.
24.2 NO JOINT VENTURE OR PARTNERSHIP. Neither anything contained in
any of the Lease Documents, nor the acts of the parties hereto, shall create,
or be construed to create, a partnership or joint venture between Lessor and
Lessee. Lessee is not the agent or representative of Lessor and nothing
contained herein or in any of the other Lease Documents shall make, or be
construed to make, Lessor liable to any Person for goods delivered to Lessee,
services performed with respect to the Leased Property at the direction of
Lessee or for debts or claims accruing against Lessee.
24.3 AMENDMENTS, WAIVERS AND MODIFICATIONS. Except as otherwise
expressly provided for herein or in any other Lease Document, none of the
terms, covenants, conditions, warranties or representations contained in this
Lease or in any of the other Lease Documents may be renewed, replaced, amended,
modified, extended, substituted, revised, waived, consolidated or terminated
except by an agreement in writing signed by (A) all parties to this Lease or
the other applicable Lease Document, as the case may be, with regard to any
such renewal, replacement, amendment, modification, extension, substitution,
revision, consolidation or termination and (B) the Person against whom
enforcement is sought with regard to any waiver. The provisions of this Lease
and the other Lease Documents shall extend and be applicable to all renewals,
replacements, amendments, extensions, substitutions, revisions, consolidations
and modifications of any of the Lease Documents, the Management Agreements, the
Related Party Agreements, the Permits and/or the Contracts. References herein
and in the other Lease Documents to any of the Lease Documents, the Management
Agreements, the Related Party Agreements, the Permits and/or the Contracts
shall be deemed to include any renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations or modifications thereof.
Notwithstanding the foregoing, any reference contained in any of the
Lease Documents, whether express or implied, to any renewal, replacement,
amendment,
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extension, substitution, revisions, consolidation or modification of any of the
Lease Documents or any Management Agreement, Related Party Agreement, Permit
and/or the Contract is not intended to constitute an agreement or consent by
Lessor to any such renewal, replacement, amendment, substitution, revision,
consolidation or modification; but, rather as a reference only to those
instances where Lessor may give, agree or consent to any such renewal,
replacement, amendment, extension, substitution, revision, consolidation or
modification as the same may be required pursuant to the terms, covenants and
conditions of any of the Lease Documents.
24.4 CAPTIONS AND HEADINGS. The captions and headings set forth in
this Lease and each of the other Lease Documents are included for convenience
and reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of, or the scope or intent of, this
Lease, any of the other Lease Documents or any parts hereof or thereof.
24.5 TIME IS OF THE ESSENCE. Time is of essence of each and every
term, condition, covenant and warranty set forth herein and in the other Lease
Documents.
24.6 COUNTERPARTS. This Lease and the other Lease Documents may be
executed in one or more counterparts, each of which taken together shall
constitute an original and all of which shall constitute one in the same
instrument.
24.7 ENTIRE AGREEMENT. This Lease and the other Lease Documents set
forth the entire agreement of the parties with respect to the subject matter
and shall supersede in all respect those provisions of the letter of intent
dated ____________ (and all prior iterations thereof), from Meditrust to the
Guarantor, accepted by the Guarantor on ________________, relating to the
Project.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, LESSOR AND LESSEE HEREBY MUTUALLY, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY HERETO MAY NOW OR HEREAFTER HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE LEASE OR ANY OF THE LEASE
DOCUMENTS. Without limiting the foregoing, Lessee waives the right to trial by
jury and any notices to quit as may be specified in the Lessor and Lessee Act
of Pennsylvania, Act of April 6, 1951 (68 P.S.C.A. Section 250.101 et seq.), as
the same may have been or may hereafter be amended, and agrees that the notices
provided in this Lease shall be sufficient in any case where a longer period
may be statutorily specified. Lessee hereby certifies that neither Lessor nor
any of Lessor's representatives, agents or counsel has represented expressly or
otherwise that Lessor would not, in the event of any such suit, action or
proceeding seek to enforce this waiver to the right of trial by jury and
acknowledges that Lessor has been induced by this waiver (among other things)
to enter into the transactions
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evidenced by this Lease and the other Lease Documents and further acknowledges
that Lessee (A) has read the provisions of this Lease, and in particular, the
paragraph containing this waiver, (B) has consulted legal counsel, (C)
understands the rights that it is granting in this Lease and the rights that it
waiving in this paragraph in particular and (D) makes the waivers set forth
herein knowingly, voluntarily and intentionally.
24.9 SUCCESSORS AND ASSIGNS. This Lease and the other Lease Documents
shall be binding and inure to the benefit of (A) upon Lessee and Lessee's legal
representatives and permitted successors and assigns and (B) Lessor and any
other Person who may now or hereafter hold the interest of Lessor under this
Lease and their respective successors and assigns. Notwithstanding the
foregoing, Lessee shall not assign any of its rights or obligations hereunder
or under any of the other Lease Documents without the prior written consent of
Lessor, in each instance, which consent may be withheld in Lessor's sole and
absolute discretion.
24.10 NO THIRD PARTY BENEFICIARIES. This Lease and the other Lease
Documents are solely for the benefit of Lessor, its successors, assigns and
participants (if any), the Meditrust Entities, the Indemnified Parties, Lessee,
the Guarantor, the other members of the Leasing Group and their respective
permitted successors and assigns, and, except as otherwise expressly set forth
in any of the Lease Documents, nothing contained therein shall confer upon any
Person other than such parties any right to insist upon or to enforce the
performance or observance of any of the obligations contained therein. All
conditions to the obligations of Lessor to advance or make available proceeds
of insurance or Awards, or to release any deposits held for Impositions or
insurance premiums are imposed solely and exclusively for the benefit of
Lessor, its successors and assigns. No other Person shall have standing to
require satisfaction of such conditions in accordance with their terms, and no
other Person shall, under any circumstances, be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Lessor at any time, if, in Lessor's sole and absolute discretion, Lessor deems
it advisable or desirable to do so.
24.11 GOVERNING LAW. This Lease shall be construed and the rights and
obligations of Lessor and Lessee shall be determined in accordance with the
laws of the State.
Lessee hereby consents to personal jurisdiction in the courts of the
State and the United States District Court for the District in which the Leased
Property is situated as well as to the jurisdiction of all courts from which an
appeal may be taken from the aforesaid courts, for the purpose of any suit,
action or other proceeding arising out of or with respect to any of the Lease
Documents, the negotiation and/or consummation of the transactions evidenced by
the Lease Documents, the Lessor's relationship of any member of the Leasing
Group in connection with the transactions evidenced by the Lease Documents
and/or the performance of any obligation or the exercise of any remedy under
any of the Lease Documents and expressly waives any and all objections Lessee
may have as to venue in any of such courts.
105
<PAGE> 116
24.12 GENERAL. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease or any of the other
Lease Documents shall survive such termination.
If any provision of this Lease or any of the other Lease Documents or
any application thereof shall be invalid or unenforceable, the remainder of
this Lease or the other applicable Lease Document, as the case may be, and any
other application of such term or provision shall not be affected thereby.
Notwithstanding the foregoing, it is the intention of the parties hereto that
if any provision of any of this Lease is capable of two (2) constructions, one
of which would render the provision void and the other of which would render
the provision valid, then such provision shall be construed in accordance with
the construction which renders such provision valid.
If any late charges provided for in any provision of this Lease or any
of the other Lease Documents 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.
Lessee waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance and waives all notices of the existence, creation, or incurring
of new or additional obligations, except as to all of the foregoing as
expressly provided for herein.
THE UNDERSIGNED LESSEE ACKNOWLEDGES THAT IT FULLY UNDERSTANDS THE
CONFESSION OF JUDGMENT CONTAINED IN SECTION 16.2(E) HEREOF AND THAT THE
LESSOR-LESSEE RELATIONSHIP CREATED HEREBY IS COMMERCIAL IN NATURE AND THAT THE
UNDERSIGNED WAIVES ANY RIGHT TO A HEARING WHICH WOULD OTHERWISE BE A CONDITION
TO LESSOR'S OBTAINING THE JUDGMENTS AUTHORIZED BY SECTION 16.2(E).
106
<PAGE> 117
IN WITNESS WHEREOF, the parties have caused this Lease to be executed
and attested by their respective officers thereunto duly authorized.
WITNESS: LESSEE:
- --------------------------
Name:
WITNESS: LESSOR:
- --------------------------
Name:
107
<PAGE> 118
SCHEDULE TO EXHIBIT 10.12 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
FACILITY LEASE AGREEMENT
------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY AGREEMENT DATE INVESTMENT COMMENCEMENT DATE
------- ------- -------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Reading, PA Meditrust Outlook Pointe at 2/27/97 $ 350,000.00 2/27/97
Acquisition Reading
Corporation II
(Lessor) and BCC
at Reading, Inc.
(Lessee)
State College, PA Meditrust Outlook Pointe at 11/1/96 $ 332,662.10 8/2/96
Acquisition State College
Corporation II
(Lessor) and BCC
at State
College, Inc.
(Lessee)
Allegheny, PA Meditrust Outlook Pointe at 8/2/96 $ 275,000.00 8/2/96
Acquisition Altoona
Corporation II
(Lessor) and BCC
at Altoona, Inc.
(Lessee)
Blytheville, AR Meditrust Outlook Pointe at 11/1/96 $3,516,500.00 11/4/94
Acquisition Blytheville
Corporation II
(Lessor) and
Balanced Care at
Blytheville,
Inc. (Lessee)
Maumelle, AR Meditrust Outlook Pointe at 11/1/96 $3,796,500.00 11/4/94
Acquisition Maumelle
Corporation II
(Lessor) and
Balanced Care at
Maumelle, Inc.
(Lessee)
Mountain Home, AR Meditrust Outlook Pointe at 11/1/96 $3,656,700.00 11/4/94
Acquisition Mountain Home
Corporation II
(Lessor) and
Balanced Care at
Mountain Home,
Inc.
(Lessee)
</TABLE>
<PAGE> 119
<TABLE>
<S> <C> <C> <C> <C> <C>
Pocahontas, AR Meditrust Outlook Pointe at 11/1/96 $3,455,500.00 11/4/94
Acquisition Pocahontas
Corporation II
(Lessor) and
Balanced Care at
Pocahontas, Inc.
(Lessee)
Sherwood, AR Meditrust Outlook Pointe at 11/1/96 $3,987,000.00 11/4/94
Acquisition Sherwood
Corporation II
(Lessor) and
Balanced Care at
Sherwood, Inc.
(Lessee)
Hermitage, MO National Care Hermitage 8/30/96 $5,348,485.00 8/30/96
Centers of
Hermitage, Inc.
(Lessor) and BCC
at Hermitage
Park Care
Center, Inc.
(Lessee)
Lebanon, MO National Care Lebanon Care 8/30/96 $5,173,125.00 8/30/96
Centers, Inc.
(Lessor) and
BCC at Lebanon
Care Center,
Inc. (Lessee)
Lebanon, MO National Care Lebanon Park 8/30/96 $8,768,008.00 8/30/96
Centers of
Lebanon, Inc.
(Lessor) and
BCC at Lebanon
Park Manor, Inc.
(Lessee)
Springfield, MO Springfield Mt. Vernon 8/30/96 $6,488,326.00 8/30/96
Retirement
Village, Inc.
(Lessor) and
BCC at Mt.
Vernon Park Care
Center, Inc.
(Lessee)
</TABLE>
<PAGE> 120
<TABLE>
<S> <C> <C> <C> <C> <C>
Nixa, MO National Care Nixa 8/30/96 $4,647,044.00 8/30/96
Centers of Nixa,
Inc. (Lessor)
and BCC at Nixa
Park Center,
Inc. (Lessee)
Springfield, MO National Care Springfield 8/30/96 $7,540,487.00 8/30/96
Centers of
Springfield,
Inc. (Lessor)
and BCC at
Springfield Care
Center, Inc.
(Lessee)
Springfield, MO Mt. Vernon Park West Park 8/30/96 $3,419,523.00 8/30/96
Care Center
West, Inc.
(Lessor) and BCC
at Mt. Vernon
Park Care Center
West, Inc.
(Lessee)
</TABLE>
<PAGE> 121
SCHEDULE TO EXHIBIT 10.12 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
FACILITY LEASE AGREEMENT
------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY INVESTMENT AGREEMENT COMMENCEMENT
- ------- ------- -------- ---------- DATE DATE
---- ----
<S> <C> <C> <C> <C> <C>
Lima, OH Meditrust Acquisition Outlook $176,120.32 9/30/97 10/1/97
Corporation II (Lessor) and Pointe at
TC Realty Corporation I Lima
(Lessee)
Mansfield, OH Meditrust Acquisition Outlook $464,070.23 9/30/97 10/1/97
Corporation II (Lessor) and Pointe at
TC Realty Corporation II Ontario
(Lessee) Village
Scranton, PA Meditrust Acquisition Outlook $27,836.67 9/30/97 10/1/97
Corporation II (Lessor) and Pointe at
TC Realty Corporation III Scranton
(Lessee)
Xenia, OH Meditrust Acquisition Outlook $214,305.50 9/30/97 10/1/97
Corporation II (Lessor) and Pointe at
TC Realty Corporation IV Xenia
(Lessee)
</TABLE>
<PAGE> 1
EXHIBIT 10.13
FORM OF SECURITY AGREEMENT
THIS AGREEMENT entered into as of ___________________________, by and
between _________________________________________, with its principal place of
business at ____________________________________________________________
(hereinafter referred to as the "Debtor"), and ____________________________
CORPORATION II, ___________________________________________________________
_______________________________________________ (hereinafter, the "Secured
Party").
W I T N E S S E T H
WHEREAS, the Secured Party has agreed to lease to the Debtor certain
real property located in __________________________________, and all of the
improvements now or hereafter located thereon, including, without limitation,
the personal care home to be known as _________________________, pursuant to
a Facility Lease Agreement of even date herewith by and between the Secured
Party and the Debtor (the "Lease"); and
WHEREAS, as a condition to the Secured Party entering into the Lease
and entering into or accepting the other Lease Documents (as defined in the
Lease), the Secured Party has required the execution and delivery of this
Agreement as additional security for the complete payment and performance of
the Obligations (as defined in the Lease);
NOW, THEREFORE, in consideration of the Secured Party agreeing to
purchase the Leased Property (as defined in the Lease) and to consummate the
transactions described in the Lease and the other Lease Documents, and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Secured Party and the Debtor hereby agree as follows:
ARTICLE 1. GRANT OF SECURITY INTEREST
1.1 To secure the prompt, punctual and faithful performance of all and
each of the present and future Obligations, the Debtor hereby grants to the
Secured Party a continuing first priority security interest in and to, and
assigns to the Secured Party, all of the Debtor's right, title and interest in
the following properties, assets and rights, all wherever located and whether
now existing or hereafter acquired or arising (all of which, together with any
other property in which the Secured Party may in the future be granted a
security interest pursuant hereto, is referred to hereinafter as the
"Collateral"): (a) all Accounts and all Receivables; (b) all Inventory; (c) all
General Intangibles; (d) all Equipment; (e) all Fixtures; (f) all Goods; (g)
all Tangible Personal Property (as defined in the Lease); (h) all Chattel
Paper; (i) all books, records, ledgers, print-outs, papers, data, file
materials and information relating to the Leased Property, the Collateral, any
account debtors in respect thereof and/or to the operation of the Debtor's
business, and all rights of access to such books, records, ledgers, print-outs,
papers, file materials and information, and all property in which such books,
records, ledgers, print-outs, data, file materials and information are stored,
recorded, and
<PAGE> 2
maintained; (j) all Instruments, Documents of Title, Documents, policies and
certificates of insurance, Securities, deposits, deposit accounts, money, cash
or other property; (k) all federal, state, and local tax refunds and/or
abatements to which the Debtor is, or becomes entitled, no matter how or when
arising, including, but not limited to any loss carryback tax refunds; (l) all
trade secrets, computer programs, customer lists, patient lists, manuals,
assignments of patents and patents pending, developmental ideas and concepts,
and all papers, drawings, blueprints, sketches and documents relating to all of
the foregoing and/or relating to the operation of the Debtor's business and/or
the Collateral; and (m) all insurance proceeds, refunds and premium rebates,
whether any of such proceeds, refunds and premium rebates arise out of any of
the foregoing or otherwise; together with (i) all security pledged, assigned,
hypothecated or granted to or held by the Debtor to secure any of the
foregoing, (ii) General Intangibles arising out of the Debtor's rights in any
Goods, the sale of which gave rise thereto, (iii) any property received in
payment, settlement or compromise of any Account or Receivable, (iv) all
guarantees, endorsements and indemnifications on, or of, any of the foregoing,
(v) all rights, remedies and privileges pertaining to any of the foregoing,
(vi) all powers of attorney for the execution of any evidence of indebtedness
or security or other writing in connection therewith, (vii) all evidences of
the filing of financing statements and other statements and the registration of
other instruments in connection therewith and amendments thereto and (viii) all
of the Debtor's rights to use, in perpetuity, in connection with the operation
of the Leased Property, the name ___________________________ and/or any other
name and the good will of the Debtor with respect thereto.
1.2 The Debtor shall execute, upon request of the Secured Party, all
such instruments as may be required by the Secured Party with respect to the
perfection of the security interests granted herein. A carbon, photographic, or
other reproduction of this Agreement or of any financing statement or other
instrument executed pursuant to this Section 1.2 shall be sufficient for filing
to perfect the security interests granted herein, to the extent permitted under
applicable law.
ARTICLE 2. CERTAIN DEFINITIONS
All capitalized terms not defined herein shall have the same meanings
ascribed to such terms under the Lease.
As herein used, the following terms have the following meanings:
2.1 The term "Accounts" shall have the same meaning ascribed to such
term under the UCC.
2.2 The term "Chattel Paper" shall have the same meaning ascribed to
such term under the UCC.
2.3 The term "Collateral" shall have the same meaning ascribed to such
term in Section 1.1.
-2-
<PAGE> 3
2.4 The term "Debtor" shall have the same meaning ascribed to such term
in the preamble of this Agreement.
2.5 The term "Documents" shall have the same meaning ascribed to such
term under the UCC.
2.6 The term "Documents of Title" shall have the same meaning ascribed
to such term under the UCC.
2.7 The term "Equipment" shall have the same meaning ascribed to such
term under the UCC.
2.8 The term Event of Default shall have the same meaning ascribed to
such term in Article 5 of this Agreement.
2.9 The term "Fixtures" shall have the same meaning ascribed to such
term under the UCC.
2.10 The term "General Intangibles" shall have the same meaning
ascribed to such term under the UCC.
2.11 The term "Goods" shall have the same meaning ascribed to such term
under the UCC.
2.12 The term "Instruments" shall have the same meaning ascribed to
such term under the UCC.
2.13 The term "Inventory" shall have the same meaning ascribed to such
term under the UCC.
2.14 The term "Lease" shall have the same meaning ascribed to such term
in the preamble of this Agreement.
2.15 The term "Liable Person" shall have the same meaning ascribed to
such term in Section 7.3.
2.16 The term "Proceeds" shall have the meaning ascribed to such term
under the UCC.
2.17 The term "Receivables" shall mean collectively, all (I)
Instruments, Documents, Accounts, Proceeds, General Intangibles and Chattel
Paper and (II) rights to payment for goods sold or leased or services rendered
by Debtor or any other party, whether now in existence or arising from time to
time hereafter and whether or not yet earned by
-3-
<PAGE> 4
performance, including, without limitation, obligations evidenced by an
account, note, contract, security agreement, chattel paper, or other evidence
of indebtedness.
2.18 The term "Receivables Collateral" refers to the Debtor's Accounts,
Receivables, Chattel Paper, Instruments, Documents of Title, Documents,
Securities, Letters of Credit, the Secured Party's Acceptance, and any other
rights to payment now held or in which the Debtor has an interest, or hereafter
acquired, or in which the Debtor obtains an interest.
2.19 The term "Secured Party" shall have the meaning ascribed to such
term in the preamble of this Agreement.
2.20 The term "Secured Party's Rights and Remedies" shall have the
meaning ascribed to such term in Section 6.4.
2.21 The term "Securities" shall have the same meaning ascribed to such
term under the UCC.
2.22 The term "UCC" shall mean the Uniform Commercial Code as adopted
in the Commonwealth of Massachusetts.
ARTICLE 3. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 Subject to Section 6.1.2 of the Lease, the Debtor is, and shall
hereafter remain, the owner of the Collateral free and clear of all Liens and
charges with the exceptions of (A) the security interests created herein and
(B) the security interests and other encumbrances, if any, listed in SCHEDULE
3.1 attached hereto and incorporated herein by reference as a material part
hereof.
3.2 The Collateral is and shall be kept and maintained solely at the
following locations (hereinafter collectively referred to as the "Premises"):
the Leased Property and/or the Debtor's Principal Place of Business.
3.3 The Debtor, from time to time, upon reasonable notice and during
normal business hours (except in the case of an emergency), shall accord the
Secured Party and the Secured Party's representatives with such access, to all
properties owned by or over which the Debtor has control, as the Secured Party
and its representatives may reasonably require and in connection with such
access, the Debtor shall permit the Secured Party and such representatives, to
examine, inspect, copy, access and make extracts from any and all of the
Collateral, including, but not limited to, any and all of the Debtor's books,
records, electronically stored data, recorded data (regardless of the medium of
recording), papers, file materials and information (including, without
limitation, all records relating to Accounts and Receivables, the Debtor's
efforts to collect the Accounts and Receivables and any dispute relating to any
Accounts and Receivables), and to verify the Collateral or any portion thereof
-4-
<PAGE> 5
(such verification, may include, without limitation, contact with account
debtors). The Debtor shall make available to the Secured Party, at no cost to
the Secured Party, any copying facilities available to the Debtor. The Debtor
shall provide the Secured Party with such information concerning the Debtor,
the Collateral, the operation of the Debtor's business, and the Debtor's
financial condition as the Secured Party may reasonably request from time to
time. Until the expiration or termination of this Agreement, the Debtor agrees
not to destroy any of the Collateral (including, without limitation, all books,
records, ledgers, print-outs, electronically stored data, recorded data,
papers, file materials and information relating to the Collateral), except in
the ordinary course of business to the extent permitted under the Lease. The
obligations of the Debtor hereunder are subject to, and the parties hereto
shall comply with, all applicable Legal Requirements pertaining to the
maintenance and confidentiality of patient records. The provisions contained in
this Section 3.3 shall survive the expiration or termination of this Agreement.
3.4 The amount represented by the Debtor to the Secured Party from time
to time as owing by each account debtor or by all account debtors in respect of
the Accounts and Receivables will at such time in all material respects be the
correct amount actually owing by such account debtor or debtors thereunder.
3.5 Subject to the terms of the Lease, the Debtor (A) promptly shall
pay, as they become due and payable, all taxes, unemployment contributions and
all other charges of any kind or nature levied, assessed, or claimed against
the Debtor or the Collateral by any Person whose claim could result in a Lien
upon assets of the Debtor or by any Governmental Authority, (B) properly shall
exercise any trust responsibilities imposed upon the Debtor in connection with
amounts withheld from employees' pay and (C) timely shall make all
contributions and other payments as may be required pursuant to any employee
benefit plan now or hereafter established by the Debtor. At its option, the
Secured Party may, but shall not be obligated, to pay all taxes, unemployment
contributions, and any and all other charges levied, assessed, or claimed
against the Debtor or upon the Collateral by any Person or Governmental
Authority, and to make all contributions or other payments on account of the
Debtor's employee benefit plans as the Secured Party may, in its discretion,
deem necessary or desirable to protect, maintain, preserve, collect, or realize
upon any or all of the Collateral or the value thereof or any right or remedy
pertaining thereto.
3.6 The Debtor shall comply with all, and shall not use or permit the
use of any of the Collateral in violation of any, Legal Requirement.
3.7 Subject to the terms of the Lease, the Debtor shall not sell or
offer to sell, lease, or otherwise transfer or dispose of the Collateral or any
part thereof or any interest therein, except, with respect to Inventory, Goods,
Equipment, Fixtures and Tangible Personal Property, in the ordinary conduct of
the Debtor's business.
3.8 Without limiting any of the Debtor's obligations hereunder or under
any of the other Lease Documents, upon the occurrence of an Event of Default,
the Debtor shall
-5-
<PAGE> 6
promptly deliver to the Secured Party, in the same form as received by the
Debtor, all original items of the Receivables Collateral and all security or
collateral for, guarantees of, and Letters of Credit, trade and bankers'
acceptances, and similar letters and instruments in respect of, any of the
Receivables Collateral, each duly endorsed, assigned or otherwise made payable
to the Secured Party.
3.9 The Debtor shall have and maintain insurance at all times with
respect to the Collateral that is required pursuant to the terms of the Lease.
3.10 The Debtor shall do, make, execute and deliver all such additional
and further acts, things, deeds, assurances and instruments as the Secured
Party may reasonably request, to vest more completely in and assure to the
Secured Party its rights hereunder and in or to the Collateral including,
without limitation, compliance with the Federal Assignment of Claims Act.
3.11 The agreements, representations, covenants and warranties
contained herein are in addition to any others previously, presently or
hereafter made by the Debtor to or with the Secured Party in any other
instrument.
3.12 From and after the occurrence of an Event of Default and subject
to applicable law, the Secured Party may, in its sole and absolute discretion,
require the Debtor to establish a lock box with a bank or other financial
institution designated by the Secured Party. If such a lock box is established,
the Debtor shall thereafter require all of its account and contract debtors to
make payment directly to such lock box.
ARTICLE 4. COLLECTION OF ACCOUNTS RECEIVABLE, CONTRACT
RIGHTS AND OTHER RECEIVABLES COLLATERAL.
4.1 From and after the occurrence of an Event of Default and subject to
applicable law, (A) the Secured Party may notify any of the Debtor's account or
contract debtors, either in the name of the Secured Party or the Debtor, to
make payment directly to the Secured Party or such other address as may be
specified by the Secured Party, and may advise any Person of the Secured
Party's security interest in and to the Receivables Collateral, and may collect
directly from the obligors thereon, all amounts due on account of the
Receivables Collateral and (B) at the Secured Party's request, the Debtor will
provide written notifications to any or all of the Debtor's account or contract
debtors concerning the Secured Party's security interest in the Receivables
Collateral and will request that such account or contract debtors forward
payment thereof directly to the Secured Party.
4.2 From and after the date hereof, the Debtor shall hold any proceeds
and collections of any of the Collateral in trust for the Secured Party,
provided that, without limiting any provisions of the other Lease Documents,
until the occurrence of an Event of Default, the Debtor may use such proceeds
to pay bills in the ordinary course of business. From and after the occurrence
of an Event of Default (A) the Debtor shall not commingle
-6-
<PAGE> 7
such proceeds or collections with any other funds of the Debtor and (B) the
Debtor shall deliver all such proceeds to the Secured Party immediately upon
the receipt thereof by the Debtor in the identical form received but duly
endorsed or assigned on behalf of the Debtor to the Secured Party.
4.3 The Debtor hereby irrevocably constitutes and appoints the Secured
Party as the Debtor's true and lawful attorney, with full power of
substitution, such powers to be effective following the occurrence of an Event
of Default, to convert the Receivables Collateral into cash at the sole risk,
cost, and expense of the Debtor, but for the sole benefit of the Secured Party.
Subject to applicable law, the rights and powers granted the Secured Party by
the within appointment include but are not limited to the right and power to:
prosecute, defend, compromise, settle, or release any action relating to the
Collateral; receive, open, and dispose of all mail addressed to the Debtor and
to take therefrom any remittances on or proceeds of any Collateral; sign change
of address forms to change the address to which the Debtor's mail is to be sent
as the Secured Party shall designate; endorse the name of the Debtor in favor
of the Secured Party upon any and all checks or other items constituting
remittances or proceeds of Collateral; sign and endorse the name of the Debtor
on, and to receive as secured party, any of the Collateral, any invoices,
schedules of Collateral, freight or express receipts, or bills of lading,
storage receipts, warehouse receipts, or other documents of title of a same or
different nature relating to the Collateral; sign the name of the Debtor on any
notice to the obligors on the Receivables Collateral; take all such action as
may be necessary to obtain the payment on any Letter of Credit of which the
Debtor is a beneficiary; and sign and file or record on behalf of the Debtor
any financing or other statement in order to perfect or protect the Secured
Party's security interest. The Secured Party shall not be obligated to perform
any of such acts or to exercise any of such powers, but if the Secured Party
elects so to perform or exercise, the Secured Party shall not be accountable
for more than it actually receives as a result of such exercise of power, and
shall not be responsible to Debtor except for the Secured Party's actual
willful misconduct. All powers conferred upon the Secured Party by this
Agreement, being coupled with an interest, shall be irrevocable until
terminated by a written instrument executed by a duly authorized officer of the
Secured Party and shall not be affected by any disability or incapacity which
the Debtor may suffer and shall survive the same. The power of attorney
conferred on the Secured Party pursuant to the provisions of this Article 4 is
provided solely to protect the interests of the Secured Party and shall not
impose any duty on the Secured Party to exercise any such power, and neither
the Secured Party nor such attorney-in-fact shall be liable for any act,
omission, error in judgment or mistake of law, except as the same may result
from its gross negligence or willful misconduct.
ARTICLE 5. EVENTS OF DEFAULT
Upon the occurrence of a default beyond the applicable notice and/or
grace periods, if any, under this Agreement or any of the other Lease Documents
(each, hereinafter referred to as an "Event of Default" hereunder), at the
option of the Secured Party, the Lease Obligations shall become immediately due
and payable by the Debtor; in addition to which,
-7-
<PAGE> 8
the Secured Party may exercise its rights and remedies upon default, as set
forth under this Agreement. The occurrence of any such Event of Default shall
also constitute, without notice or demand, a default under all other Related
Party Agreements.
ARTICLE 6. RIGHTS AND REMEDIES UPON DEFAULT
6.1 Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Party shall have all of the rights and remedies of a
secured party upon default under the UCC; in addition to which, the Secured
Party shall have all of the following rights and remedies: (A) to collect the
Receivables Collateral; (B) to take possession of the Collateral and to
maintain and to use the same at the Premises (or elsewhere) pending any
disposition thereof; (C) to sell, lease, or otherwise dispose of any or all of
the Collateral in its then condition or following such preparation or
processing as the Secured Party deems advisable having due regard to compliance
with any statute or regulation which might affect, limit, or apply to the
Secured Party's disposition of the Collateral; and/or (D) to apply the
Receivables Collateral, or the proceeds of the Collateral, towards (but not
necessarily in complete satisfaction of) the Lease Obligations in such order as
the Secured Party may determine (in its sole and absolute discretion). The
Secured Party may conduct any such sale or other disposition of the Collateral
at the Premises (or elsewhere). Unless the Collateral is perishable, threatens
to decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Secured Party shall give the Debtor such notice as
may be practicable under the circumstances), the Secured Party shall give the
Debtor at least the greater of the minimum notice required by law or seven (7)
days' prior written notice of the date, time and place of any proposed public
sale, and/or of the date after which any private sale or other disposition of
the Collateral may be made. The Secured Party may purchase the Collateral, or
any portion of it, at any public sale conducted pursuant to this Agreement.
6.2 In connection with the Secured Party's exercise of the Secured
Party's Rights and Remedies, in accordance with and to the maximum extent
permitted by applicable law, the Secured Party may enter upon, occupy, and use
any premises owned or occupied by the Debtor, and may exclude the Debtor from
such premises or portion thereof as may have been so entered upon, occupied, or
used by the Secured Party. The Secured Party shall not be required to remove
any of the Collateral from any such premises upon the Secured Party's taking
possession thereof, and may render any Collateral unusable to the Debtor. In no
event shall the Secured Party be liable to the Debtor for use or occupancy by
the Secured Party of any premises pursuant to this Agreement, nor for any
charge (such as wages for the Debtor's employees and utilities) incurred in
connection with the Secured Party's exercise of the Secured Party's Rights and
Remedies.
6.3 Upon the occurrence of any Event of Default, the Secured Party may
require the Debtor to assemble the Collateral and make it available to the
Secured Party at the Debtor's sole risk and expense at a place or places
designated by the Secured Party which are reasonably convenient to both the
Secured Party and the Debtor.
-8-
<PAGE> 9
6.4 The rights, remedies, powers, privileges, and discretions of the
Secured Party hereunder and under the other Lease Documents (herein, the
"Secured Party's Rights and Remedies") shall be cumulative and not exclusive of
any rights or remedies which it otherwise may have. No delay or omission by the
Secured Party in exercising or enforcing any of the Secured Party's Rights and
Remedies shall operate as, or constitute, a waiver thereof. No waiver by the
Secured Party of any Event of Default shall operate as a waiver of any other
default hereunder or under any of the other Lease Documents. No exercise of any
of the Secured Party's Rights and Remedies and no other agreement or
transaction of whatever nature entered into between the Secured Party and the
Debtor at any time, shall preclude any other exercise of the Secured Party's
Rights and Remedies. No waiver by the Secured Party of any of the Secured
Party's Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. All of the
Secured Party's Rights and Remedies and all of the Secured Party's rights,
remedies, powers, privileges, and discretions under any Related Party Agreement
are cumulative and not alternative or exclusive and may be exercised by the
Secured Party at such time or times and in such order of preference as the
Secured Party in its sole discretion may determine.
ARTICLE 7. MISCELLANEOUS
7.1 The Secured Party shall have no duty as to the collection or
protection of the Collateral beyond the safe custody of such of the Collateral
as may come into the possession of the Secured Party and shall have no duty as
to the preservation of rights against prior parties or of any other rights
pertaining thereto. The Secured Party's Rights and Remedies may be exercised
without resort or regard to any other source of satisfaction of the Lease
Obligations.
7.2 The obligations of the Debtor under this Agreement shall continue
in full force and effect until all of the Lease Obligations have been fully
paid and performed.
7.3 The Secured Party shall be at liberty, without giving notice to or
obtaining the assent of the Debtor and without relieving the Debtor of any of
the Lease Obligations, to deal with each other Person who now is or after the
date hereof becomes liable in any manner for any of the Lease Obligations (a
"Liable Person"), in such manner as the Secured Party in its sole discretion
deems fit, and to this end the Debtor gives to the Secured Party full authority
in its sole discretion to do any or all of the following things: (A) extend
credit, make loans, and afford other financial accommodations to any Liable
Person, enter into leases of real and personal property and agreements and
contracts of any nature whatsoever, at such times, in such amounts, and on such
terms as the Secured Party may approve, (B) vary the terms and grant extensions
or renewals of any present or future indebtedness or obligation to the Secured
Party of any Liable Person, (C) grant time, waivers, and other indulgences in
respect thereto, (D) vary, exchange, release or discharge, wholly or partially,
or delay in or abstain from perfecting and enforcing any security or guaranty
or other means of obtaining payment of any of the Lease Obligations which the
Secured Party now has or
-9-
<PAGE> 10
acquires after the date hereof, (E) accept partial payments from any Liable
Person, (F) release or discharge, wholly or partially, any endorser or
guarantor and (G) compromise or make any settlement or other arrangement with
any Liable Party. The Debtor waives all suretyship defenses of every kind and
nature.
7.4 This Agreement shall be in addition to any guaranty or other
security for the Lease Obligations, and it shall not be prejudiced or rendered
unenforceable by the invalidity of any such guaranty or other security.
7.5 The Debtor waives: notice of acceptance hereof, notice of any
action taken or omitted by the Secured Party in reliance hereon, and any
requirement that the Secured Party be diligent or prompt in making demands
hereunder, giving notice of any default by a Liable Person or asserting any
other right of the Secured Party hereunder. The Debtor also irrevocably waives,
to the fullest extent permitted by law, all defenses which at any time may be
available in respect of the Debtor's obligations hereunder by virtue of any
homestead exemption, statute of limitations, valuation, stay, moratorium law or
other similar law now or hereafter in effect.
7.6 As long as the Lease Obligations remain unpaid or undischarged, the
Debtor will not, by paying any sum recoverable hereunder (whether or not
demanded by the Secured Party) or by any means or on any other ground, claim
any set-off or counterclaim against any Liable Person in respect of any
liability of the Debtor to such Liable Person or, in proceedings under the
bankruptcy or other similar laws of the United States, any state or any other
jurisdiction or any insolvency proceedings of any nature, prove in competition
with the Secured Party in respect of any payment hereunder or be entitled to
have the benefit of any counterclaim or proof of claim or dividend or payment
by or on behalf of any Liable Person or the benefit of any other security for
any Liability which, now or hereafter, the Secured Party may hold or in which
it may have any share.
7.7 The Debtor shall pay, on demand, all costs and expenses (including,
without limitation, attorneys' fees and expenses) now or hereafter reasonably
incurred by the Secured Party (A) in connection with (I) the preparation,
execution, and delivery of this Agreement and the other Lease Documents,
including, without limitation, attorneys' fees and expenses, and all costs and
(II) the protection or enforcement of any of the Secured Party's rights and
remedies against the Debtor, any of the Collateral, and any other Liable Person
(including, without limitation, the exercise of any of the Secured Party's
Rights and Remedies) and/or (B) on account of the Secured Party's relationship
with any member of the Leasing Group.
7.8 This Agreement shall be construed, and the rights and obligations
of the Debtor and the Secured Party shall be determined, in accordance with the
laws of the Commonwealth of Massachusetts, except (A) that the laws of the
state where the Collateral is located shall govern this Agreement to the extent
necessary to perfect and/or enforce the Liens created by this Agreement and to
the extent necessary to obtain the benefit of the rights
-10-
<PAGE> 11
and remedies set forth herein with respect to the Collateral and (B) for
procedural requirements which must be governed by the laws of the state in
which the Collateral is located. To the maximum extent permitted by applicable
law, the Debtor hereby submits to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts from
which an appeal may be taken from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of, or with respect to any of the
Lease Documents, the negotiation and/or consummation of the transactions
evidenced by the Lease Documents, the Lessor's relationship of any member of
the Leasing Group in connection with the transactions evidenced by the Lease
Documents and/or the performance of any obligation or the exercise of any
remedy under any of the Lease Documents and expressly waives any and all
objections the Debtor may have as to venue in any of such courts.
7.9 This Agreement shall remain in full force and effect until
specifically terminated in writing by a duly authorized officer of the Secured
Party. In the event that any of the Lease Obligations remain outstanding, such
termination by the Secured Party may be conditioned upon such further
indemnifications provided to the Secured Party by or on behalf of the Debtor as
the Secured Party may request. Until specifically terminated in writing as set
forth above, this Agreement shall itself constitute conclusive evidence of
validity, effectiveness and continuing force hereof and any Person may rely
hereon. Upon the satisfaction in full of all of the Lease Obligations, the
Secured Party, upon the written request of the Debtor, shall execute and
deliver to the Debtor, at the Debtor's expense, all instruments of assignment
or other instruments as may be necessary to establish full title of the Debtor
to the Collateral, subject to any prior sale or other disposition pursuant to
the terms and provisions of this Agreement.
7.10 It is intended that the security interests created by this
Agreement attached to all of the Debtor's assets now owned or hereafter
acquired which are capable of being subject to a security interest.
7.11 The Debtor acknowledges having received a copy of this Agreement.
-11-
<PAGE> 12
7.12 The provisions set forth in Article 22, Article 23 and Sections
2.2, 16.8 through 16.10, 24.2 through 24.10 and 24.12 of the Lease are hereby
incorporated by reference, mutatis, mutandis, and shall be applicable to this
Agreement as if set forth in full herein.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Debtor and the Secured Party duly executed
this Agreement as a sealed instrument as of the day and year first above
written.
WITNESS: DEBTOR:
- --------------------------
Name:
WITNESS: SECURED PARTY:
- --------------------------
Name:
-13-
<PAGE> 14
SCHEDULE TO EXHIBIT 10.13 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
SECURITY AGREEMENT
------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
------- ------- -------- ----
<S> <C> <C> <C>
Reading, PA Meditrust Acquisition Corporation II (Secured Outlook Pointe 2/27/97
Party) and BCC at Reading, Inc. (Debtor) at Reading
State College, PA Meditrust Acquisition Corporation II (Secured Outlook Pointe 8/2/96
Party) and BCC at State College, Inc. (Debtor) at State College
Allegheny, PA Meditrust Acquisition Corporation II (Secured Outlook Pointe 11/1/96
Party) and BCC at Altoona, Inc. (Debtor) at Altoona
Blytheville, AR Meditrust Acquisition Corporation II (Secured Outlook Pointe 11/1/96
Party) and Balanced Care at Blytheville, Inc. at Blytheville
(Debtor)
Maumelle, AR Meditrust Acquisition Corporation II (Secured Outlook Pointe 11/1/96
Party) and Balanced Care at Maumelle, Inc. at Maumelle
(Debtor)
Mountain Home, AR Meditrust Acquisition Corporation II (Secured Outlook Pointe 11/1/96
Party) and Balanced Care at Mountain Home, Inc. at Mountain Home
(Debtor)
Pocahontas, AR Meditrust Acquisition Corporation II (Secured Outlook Pointe 11/1/96
Party) and Balanced Care at Pocahontas, Inc. at Pocahontas
(Debtor)
Sherwood, AR Meditrust Acquisition Corporation II (Secured Outlook Pointe 11/1/96
Party) and Balanced Care at Sherwood, Inc. at Sherwood
(Debtor)
Hawthorn Properties Meditrust Mortgage Investments, Inc. (Secured Hawthorn 8/30/96
Party) and Hawthorn Health Properties, Inc. Properties
(Debtor)
Dixon, MO Meditrust Mortgage Investments, Inc. (Secured Dixon 8/30/96
Party) and Dixon Management, Inc. (Debtor)
Hermitage, MO National Care Centers of Hermitage, Inc. Hermitage 8/30/96
(Secured Party) and BCC at Hermitage Park Care
Center, Inc. (Debtor)
Lebanon, MO National Care Centers, Inc. (Secured Party) and Lebanon Care 8/30/96
BCC at Lebanon Care Center, Inc. (Debtor)
Lebanon, MO National Care Centers of Lebanon, Inc. (Secured Lebanon Park 8/30/96
Party) and BCC at Lebanon Park Manor, Inc.
(Debtor)
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Springfield, MO Springfield Retirement Village, Inc. (Secured Mt. Vernon 8/30/96
Party) and BCC at Mt. Vernon Park Care Center,
Inc. (Debtor)
Nixa, MO National Care Centers of Nixa, Inc. (Secured Nixa 8/30/96
Party) and BCC at Nixa Park Center, Inc.
(Debtor)
Springfield, MO National Care Centers of Springfield, Inc. Springfield 8/30/96
(Secured Party) and BCC at Springfield Care
Center, Inc. (Debtor)
Springfield, MO Mt. Vernon Park Care Center West, Inc. (Secured West Park 8/30/96
Party) and BCC at Mt. Vernon Park Care Center
West, Inc. (Debtor)
</TABLE>
<PAGE> 16
SCHEDULE TO EXHIBIT 10.13 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
SECURITY AGREEMENT
------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
- ------- ------- -------- ----
<S> <C> <C> <C>
Lima, OH TC Realty Corporation I (Debtor) and Outlook Pointe at Lima 9/30/97
Meditrust Acquisition Corporation II
(Secured Party)
Mansfield, OH TC Realty Corporation II (Debtor) and Outlook Pointe at Ontario Village 9/30/97
Meditrust Acquisition Corporation II
(Secured Party)
Scranton, PA TC Realty Corporation III (Debtor) and Outlook Pointe at Scranton 9/30/97
Meditrust Acquisition Corporation II
(Secured Party)
Xenia, OH TC Realty Corporation IV (Debtor) and Outlook Pointe at Xenia 9/30/97
Meditrust Acquisition Corporation II
(Secured Party)
</TABLE>
<PAGE> 1
EXHIBIT 10.16
FORM OF GUARANTY
TO:
1. GUARANTY OF PAYMENT AND PERFORMANCE OF OBLIGATIONS. For value
received and hereby acknowledged and as an inducement to (hereinafter referred
to as the "Lessor") to: (a) enter into that certain lease transaction with
____________, (hereinafter referred to as the "Lessee"), relating to the
personal care home to be known as "_________________________", located in
_____________________________ (hereinafter referred to as the "Facility"),
pursuant to the Facility Lease Agreement of even date herewith by and between
the Lessor and the Lessee (hereinafter referred to as the "Lease"), and (b)
enter into or accept the other Lease Documents (as defined in the Lease) and
make future loans, advances and extensions of credit to, for the account of or
on behalf of the Lessee, the undersigned, BALANCED CARE CORPORATION, a Delaware
corporation, having its principal place of business at 5021 Louise Drive, Suite
200, Mechanicsburg, Pennsylvania 17055 (the "Guarantor"), being the sole
shareholder of the Lessee and, as such, deriving a substantial benefit from the
consummation of the transaction evidenced by the Lease Documents, hereby
unconditionally guarantees to the Lessor the full payment and performance of the
Lease Obligations (as defined in the Lease).
This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance of the Lease Obligations and not
merely of their collectibility and is in no way conditioned upon any
requirement that the Lessor first collect or attempt to collect the Lease
Obligations or any portion thereof from the Lessee or from any endorser, surety
or other guarantor of any of the same or resort to any security or other means
of obtaining payment of any of the Lease Obligations that the Lessor now has or
may acquire after the date hereof, or upon any other contingency whatsoever.
Upon any Lease Default (as defined in the Lease), the Lease Obligations and all
liabilities and obligations of the Guarantor to the Lessor, hereunder or
otherwise, shall, at the option of the Lessor, become immediately due and
payable to the Lessor without further demand or notice of any nature, all of
which are expressly waived by the Guarantor. Payments by the Guarantor
hereunder may be required by the Lessor on any number of occasions. This
Guaranty shall continue in full force and effect until the complete payment and
performance of all of the Lease Obligations.
All payments hereunder received by the Lessor shall be applied by the
Lessor, without any marshalling of assets, towards the payment and/or
performance of the Lease Obligations and any other indebtedness of the
Guarantor hereunder in such order as the Lessor, in its sole and absolute
discretion, may determine.
<PAGE> 2
2. DEFINED TERMS. Capitalized terms used herein and not otherwise
specifically defined herein shall have the same meanings ascribed to such terms
in the Lease.
3. THE GUARANTOR'S FURTHER AGREEMENTS TO PAY. The Guarantor further
agrees, as the principal obligor and not as a guarantor, to pay to the Lessor
forthwith upon demand, in funds immediately available to the Lessor, all costs
and expenses, including without limitation, court costs and attorneys' fees and
expenses and court costs, reasonably incurred or expended by the Lessor in
connection with the collection or enforcement of the Lease Obligations and the
enforcement of all of the other obligations hereunder. Any amounts owed to the
Lessor under this Section 3 shall be a demand obligation and, if not paid
within ten (10) days after demand, shall thereafter, to the extent then
permitted by law, bear interest at the Overdue Rate until the date of payment.
The provisions of this Section 3 shall survive the expiration or earlier
termination of the Lease.
4. LIABILITY OF THE GUARANTOR. This Guaranty is unlimited and the
Guarantor shall be jointly and severally liable with every endorser, surety or
other guarantor of any or all of the Lease Obligations and the continuation of
this Guaranty shall not be affected by the termination, discontinuance, release
or modification of any agreement from (a) any such endorser, surety or
guarantor and/or (b) any other endorser, surety or guarantor of any of the
other Obligations. Nothing contained herein or otherwise shall require the
Lessor to make demand upon or join the Lessee or any such endorser, surety or
guarantor or other party in any suit brought upon this Guaranty; and the
Guarantor hereby waives any right to require marshalling or exhaustion of any
remedy against any collateral, other property, or any other Person primarily or
secondarily liable.
5. THE LESSOR'S FREEDOM TO DEAL WITH THE LESSEE AND OTHER PARTIES. The
Lessor shall be at liberty, without giving notice to or obtaining the assent of
the Guarantor and without relieving the Guarantor of any liability hereunder,
to deal with the Lessee and with each other Person who now is or after the date
hereof becomes liable in any manner for any of the Obligations in such manner
as the Lessor, in its sole and absolute discretion, deems fit. The Lessor and
the other Meditrust Entities have full authority (in their sole and absolute
discretion) to do any or all of the following things, none of which shall
discharge or affect the Guarantor's liability hereunder:
(a) extend credit, make loans and afford other financial
accommodations to the Lessee and/or any of the Related Parties at such times,
in such amounts and on such terms as the Lessor may approve;
(b) modify, amend, vary the terms and grant extensions or renewals of
any present or future indebtedness or of any of the Obligations or any
instrument relating to or securing the same, and, without limitation, this
Guaranty shall survive the expiration or earlier termination of the Lease;
(c) grant time, waivers and other indulgences in respect of any of the
Obligations;
-2-
<PAGE> 3
(d) vary, exchange, release or discharge, wholly or partially, or
delay or abstain from perfecting and enforcing any security or guaranty or
other means of obtaining payment of any of the Obligations which the Lessor or
any of the other Meditrust Entities now has or acquires after the date hereof;
(e) take or omit to take any of the actions referred to in any
instrument evidencing, securing or relating to any of the Obligations or any
actions under this Guaranty;
(f) fail, omit or delay to enforce, assert or exercise any right,
power or remedy conferred on the Lessor or any of the other Meditrust Entities
in this Guaranty or in any other instrument evidencing, securing or relating to
any of the Obligations or take or refrain from taking any other action;
(g) accept partial payments from the Lessee, any other member of the
Leasing Group, any of the Related Parties or any other Person;
(h) release or discharge, wholly or partially, the Lessee, any other
member of the Leasing Group, any of the Related Parties and/or any other Person
now or hereafter primarily or secondarily liable for the Obligations (or any
portion thereof) or accept additional collateral for the payment of any
Obligations;
(i) compromise or make any settlement or other arrangement with the
Lessee, any other member of the Leasing Group, any of the Related Parties or
any other Person referred to in clause (h) above; and
(j) consent to and participate in the proceeds of any assignment,
trust or mortgage for the benefit of creditors.
6. UNENFORCEABILITY OF OBLIGATIONS; INVALIDITY OF SECURITY OR OTHER
GUARANTIES. The obligations of the Guarantor hereunder shall not be affected by
any change in the beneficial ownership of the Lessee, any other member of the
Leasing Group or any of the Related Parties, by reason of any disability of the
Lessee, any other member of the Leasing Group, any Related Party or by any
other circumstance (other than the complete payment and performance of the
Lease Obligations) which might constitute a defense available to, or a
discharge of, the Lessee, any other member of the Leasing Group or any of the
Related Parties in respect of any of the Obligations. If for any reason now or
hereafter the Lessee, any other member of the Leasing Group or any of the
Related Parties has no legal existence or is under no legal obligation to
discharge any of the Obligations undertaken or purported to be undertaken by it
or on its behalf, or if any of the moneys included in the Obligations have
become irrecoverable from the Lessee, any other member of the Leasing Group or
any Related Party by operation of law or for any other reason, this Guaranty
shall nevertheless be binding on the Guarantor and the Guarantor shall remain
unconditionally liable for the complete payment and performance of the Lease
Obligations. This Guaranty shall be in addition to any other guaranty or other
security for the Obligations, and it shall
-3-
<PAGE> 4
not be prejudiced or rendered unenforceable by the invalidity of any such other
guaranty or security. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if, at any time, any payment of the Obligations
is rescinded or must otherwise be returned by the Lessor or any of the other
Meditrust Entities, upon the insolvency, bankruptcy or reorganization of the
Lessee, any other member of the Leasing Group or any of the Related Parties or
otherwise, all as though such payment had not been made. The Guarantor
covenants to cause the Lessee to maintain and preserve the enforceability of
any instruments now or hereafter executed in favor of the Lessor, and to take
no action of any kind which might be the basis for a claim that the Guarantor
has any defense hereunder other than the complete payment and performance of
the Lease Obligations.
It shall not be necessary for the Lessor to inquire into the power of
the Lessee or anyone acting or purporting to act on its behalf, and any Lease
Obligation made or created in reliance upon the professed exercise of such
powers shall be guarantied hereunder. The Guarantor represents that the Lessee
is the bona fide tenant of the Leased Property and that the Lessee has not been
formed or availed of to evade or circumvent the applicable usury laws of any
state or states concerned therewith, and the Guarantor hereby indemnifies the
Lessor and agrees to save it harmless against any damages or expenses suffered
by the Lessor should this representation or any other representation contained
herein prove untrue in any material respect. The aforesaid indemnification
agreement shall include, without limitation, attorneys' fees and expenses and
court costs reasonably incurred by the Lessor in connection with the
enforcement of said indemnification.
The indemnity provisions of this Section 6 shall survive the complete
payment and performance of the Obligations and the expiration or earlier
termination of the Lease.
7. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR. In order to induce
the Lessor to enter into or accept the Lease and the other Lease Documents, the
Guarantor hereby warrants and represents to, and covenants and agrees with, the
Lessor that:
7.1. FORMATION AND AUTHORITY OF THE GUARANTOR.
(a) The Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. The Guarantor has all
requisite corporate power to own and operate its properties and to carry on its
business as now conducted and as proposed to be conducted and is duly qualified
to do business and is in good standing in each jurisdiction where such
qualification is necessary or desirable in order to carry out its business as
now conducted and as proposed to be conducted;
(b) The Guarantor is duly authorized to make and enter into this
Guaranty and all of the other Lease Documents to which the Guarantor is a party
and to carry out the transactions contemplated therein. This Guaranty and all
of the other Lease Documents to which the Guarantor is a party have each been
duly executed and delivered by the Guarantor,
-4-
<PAGE> 5
and each is a legal, valid and binding obligation of the Guarantor, enforceable
in accordance with its terms;
7.2. THE LESSEE AS SUBSIDIARY.
The Lessee is a wholly-owned Subsidiary of the Guarantor.
7.3. NO VIOLATIONS.
The execution, delivery and performance of this Guaranty and the other
Lease Documents and the consummation of the transactions thereby contemplated
shall not result in any breach of, or constitute a default under, or result in
the acceleration of, or constitute an event which, with notice or passage of
time could result in default or acceleration of any obligation of the Guarantor
or any other contract, mortgage, lien, lease, agreement, instrument, franchise,
arbitration award, judgment, decree, bank loan or credit agreement, trust
indenture or other instrument to which the Guarantor is a party or by which the
Guarantor may be bound or affected and do not violate or contravene any Legal
Requirement;
7.4. NO CONSENT OR APPROVAL.
Except as already obtained or filed, as the case may be, no consent or
approval or other authorization of, or exemption by, or declaration or filing
with, any Person and no waiver of any right by any Person is required to
authorize or permit, or is otherwise required as a condition to the Guarantor's
execution and delivery of this Guaranty or any of the other Lease Documents to
which it is a party and the performance of its obligations thereunder, or as a
condition to the validity (assuming the due authorization, execution and
delivery by the Lessor of the Lease and the other Lease Documents to which it
is a party) or enforceability of any of the same and/or the first priority of
any Liens granted thereunder;
7.4. FINANCIAL CONDITION.
(a) The Guarantor is financially solvent and there are no actions,
suits, investigations or proceedings including, without limitation, outstanding
federal or state tax liens, garnishments or insolvency and bankruptcy
proceedings, pending or, to the best of the Guarantor's knowledge and belief,
threatened:
i. against or affecting the Guarantor which, if adversely resolved
against the Guarantor would materially adversely affect the ability of
the Guarantor to perform its obligations under this Guaranty or any of
the Lease Documents to which it is a party;
-5-
<PAGE> 6
ii. against or affecting the Leased Property or the ownership,
construction, development, maintenance, management, repair, use,
occupancy, possession or operation thereof; or
iii. which may involve or affect the validity, priority or
enforceability of this Guaranty, the Lease or any of the other Lease
Documents, at law or in equity, or before or by any arbitrator or
Governmental Authority;
(b) After giving effect to the consummation of the transaction
contemplated by the Lease and the other Lease Documents, the Guarantor:
i. will be able to pay its debts as they become due;
ii. will have sufficient funds and capital to carry on its
business as now conducted or as contemplated to be conducted (in
accordance with the terms of the Lease Documents);
iii. will own property having a value both at fair valuation and
at present fair saleable value greater than the amount required to pay
its debts as they become due; and
iv. will not be rendered insolvent as determined by applicable
law;
(c) The Guarantor is not a party to any agreement, the terms of which
now have or, based upon current circumstances, as far as can be reasonably
foreseen, may have a material adverse effect on its financial condition or
business or on the operation of the Facility;
(d) The Guarantor is not delinquent or claimed to be delinquent under
any material obligation for the payment of borrowed money;
7.5. COMMERCIAL ACTS.
The Guarantor's performance of and compliance with the obligations and
conditions set forth herein and the other Lease Documents to which it is a
party will constitute commercial acts done and performed for commercial
purposes;
7.6. FILING OF TAX RETURNS.
The Guarantor has filed all federal, state and local tax returns which
are required to be filed as to which extensions are not currently in effect and
has paid all taxes, assessments, impositions, fees and other governmental
charges (including interest and penalties) which have become due pursuant to
such returns or pursuant to any assessment or notice of tax claim or deficiency
received by the Guarantor. No tax liability has been asserted by the
-6-
<PAGE> 7
Internal Revenue Service against the Guarantor or any other federal, state or
local taxing authority for taxes, assessments, impositions, fees or other
governmental charges (including interest or penalties thereon) in excess of
those already paid; and
7.7. ACCURACY OF FINANCIAL STATEMENTS AND OTHER INFORMATION.
The financial statements of the Guarantor given to the Lessor in
connection with the consummation of the transaction contemplated by the Lease
Documents were true, complete and accurate and fairly presented the financial
condition of the Guarantor as of the date thereof and for the periods covered
thereby, having been prepared in accordance with GAAP and such financial
statements disclosed all material liabilities, including, without limitation,
contingent liabilities, of the Guarantor. There has been no material adverse
change since such date with respect to the Tangible Net Worth or liquidity of
the Guarantor or with respect to any other matters referred to or contained
therein and no additional material liabilities, including, without limitation,
contingent liabilities of the Guarantor have arisen or been incurred since such
date. The projections heretofore delivered to the Lessor continue to be
reasonable (with respect to the material assumptions upon which such
projections are based) and the Guarantor reasonably anticipates the results
projected therein will be achieved, there having been (a) no material adverse
change in the business, assets or condition, financial or otherwise of the
Guarantor or (b) no material depletion of the Guarantor's cash or decrease in
working capital.
8. CONTINUING REPRESENTATIONS AND WARRANTIES: All representations and
warranties contained in this Guaranty shall constitute continuing
representations and warranties which shall remain true, correct and complete as
long as this Guaranty is in force and effect. Notwithstanding the provisions of
the foregoing sentence but without derogation from any other terms and
provisions of this Guaranty, including, without limitation, those terms and
provisions containing covenants to be performed or conditions to be satisfied
on the part of the Guarantor, the representations and warranties contained in
Sections 7.4(a), 7.4(c), 7.4(d), in the second sentence of Section 7.6 and in
the second and third sentences of Section 7.7 hereof shall not constitute
continuing representations and warranties hereunder.
9. NO CONTEST WITH THE LESSOR. No set-off, counterclaim, reduction or
diminution of any obligation, or any claim or defense of any kind or nature
which the Guarantor has or may have against the Lessee, any other member of the
Leasing Group, any of the Related Parties or the Lessor shall be available
hereunder to the Guarantor. The Guarantor shall not assert and hereby waives
any right whatsoever that the Guarantor may have at law or in equity,
including, without limitation, any right of subrogation or to seek
contribution, indemnification or any other form of reimbursement from the
Lessee, any other endorser, surety or guarantor of any of the Obligations or
any other Person now or hereafter primarily or secondarily liable for any of
the Obligations. The Guarantor shall not, in any proceedings under the
Bankruptcy Code or insolvency proceedings of any nature, prove in competition
with the Lessor in respect of any payment hereunder or be entitled to have the
benefit of any counterclaim or proof of claim or dividend or payment by or on
behalf of the
-7-
<PAGE> 8
Lessee, any other member of the Leasing Group or any of the Related Parties or
the benefit of any other security for any Obligation which, now or hereafter,
the Guarantor may hold in competition with the Lessor.
10. SET-OFF. In addition to any rights now or hereafter granted under
any agreement or applicable law and not by way of limitation of any such
rights, upon the occurrence of any Lease Default, including, without
limitation, any default by the Guarantor hereunder, the Lessor and the other
Meditrust Entities are hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the
Guarantor or to any other Person, all of which are hereby expressly waived, to
set off and to appropriate and apply any and all deposits and any other
indebtedness at any time held by or owing to the Lessor (or any of the other
Meditrust Entities) to or for the credit or the account of the Guarantor
against and on account of the obligations and liabilities of the Guarantor to
the Lessor or any of the other Meditrust Entities under this Guaranty or
otherwise, irrespective of whether or not the Lessor or any of the other
Meditrust Entities shall have made any demand hereunder or under any Related
Party Agreement and although said obligations, liabilities or claims, or any of
them, may then be contingent or unmatured and without regard to the
availability or adequacy of other collateral. The Guarantor also grants to the
Lessor (and the other Meditrust Entities) a security interest in all of the
Guarantor's deposits, securities and other property at any time and from time
to time, in the possession of the Lessor (or any of the other Meditrust
Entities) and, upon the occurrence of any Lease Default, the Lessor and the
other Meditrust Entities may exercise all rights and remedies of a secured
party under the Massachusetts Uniform Commercial Code. The Lessor and the other
Meditrust Entities shall have no duty to take steps to preserve rights against
prior parties as to such securities or other property.
The Guarantor hereby agrees that all collateral now or hereafter
granted as security for any indebtedness of the Guarantor to the Lessor and/or
the other Meditrust Entities shall be deemed to be additional collateral
securing the Obligations.
11. WAIVERS. The Guarantor waives presentment for payment, demand,
protest, notice of nonpayment, notice of dishonor, protest of any dishonor,
suretyship defenses, notice of protest and protest of the Lease Documents and,
and all other notices in connection with (a) the delivery or the acceptance of
the Lease Documents and any reliance thereon and/or (b) the performance,
default (except notice of default as specifically elsewhere required under any
of the Lease Documents) or enforcement of any obligation under the Lease
Documents, and agrees that its liability shall be unconditional without regard
to the liability of any other party and shall not be in any manner affected by
any indulgence, extension of time, renewal, waiver or modification granted or
consented to by the Lessor; and the Guarantor consents to any and all
extensions of time, renewals, waivers or modifications that may be granted or
consented to by the Lessor with respect to the payment or performance of any
obligations under the Lease Documents and to the release of the Collateral (or
any part thereof), with or without substitution, and agrees that additional
makers, endorsers, guarantors or sureties may become parties to the Lease
Documents
-8-
<PAGE> 9
without notice to the Guarantor or affecting the liability of the Guarantor
hereunder or under any of the other Lease Documents to which the Guarantor is a
party.
12. INDEMNIFICATION. Except with respect to the gross negligence or
wilful misconduct of the Lessor or any of the other Indemnified Parties, as to
which no indemnity is provided, the Guarantor hereby agrees to defend with
counsel acceptable to the Lessor, indemnify and hold harmless the Lessor and
each of the other Indemnified Parties from and against all damages, losses,
claims, liabilities, obligations, penalties, causes of action, costs and
expenses (including, without limitation, attorneys' fees, court costs and other
expenses of litigation) suffered by, or claimed or asserted against, the Lessor
or any of the other Indemnified Parties, directly or indirectly, based on,
arising out of or resulting from (a) the use and occupancy of the Leased
Property or any business conducted therein, (b) any act, fault, omission to act
or misconduct by (i) any member of the Leasing Group, (ii) any Affiliate of the
Lessee or (iii) any employee, agent, licensee, business invitee, guest,
customer, contractor or sublessee of any of the foregoing parties, relating to,
directly or indirectly, the Leased Property, (c) any accident, injury or damage
whatsoever caused to any Person, including, without limitation, any claim of
malpractice, or to the property of any Person in or about the Leased Property
or outside of the Leased Property where such accident, injury or damage results
or is claimed to have resulted from any act, fault, omission to act or
misconduct by any member of the Leasing Group or any Affiliate of the Lessee or
any employee, agent, licensee, contractor or sublessee of any of the foregoing
parties, (d) any Lease Default, (e) any claim brought or threatened against any
of the Indemnified Parties by any member of the Leasing Group or by any other
Person on account of (i) the Lessor's relationship with any member of the
Leasing Group pertaining in any way to the Leased Property and/or the
transaction evidenced by the Lease Documents and/or (ii) the Lessor's
negotiation of, entering into and/or performing any of its obligations and/or
exercising any of its right and remedies under any of the Lease Documents, (f)
any attempt by any member of the Leasing Group or any Affiliate of the Lessee
to transfer or relocate any of the Permits to any location other than the
Leased Property and/or (g) the enforcement of this indemnity. Any amounts which
become payable by the Guarantor under this Section 12 shall be a demand
obligation of the Guarantor to the Lessor. The indemnity provided for in this
Section 12 shall survive any termination of this Guaranty.
13. NOTICES. Any notice, request, demand, statement or consent made
hereunder shall be in writing and shall be deemed duly given if personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally recognized commercial overnight delivery service with provisions for
a receipt, postage or delivery charges prepaid, and shall be deemed given when
postmarked or placed in the possession of such mail or delivery service and
addressed as follows:
-9-
<PAGE> 10
IF TO THE GUARANTOR: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attn: President
WITH COPIES TO: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attn: General Counsel
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: ________________________
IF TO THE LESSOR:
WITH COPIES TO: Attn: ________________________
or at such other place as any of the parties hereto may from time to time
hereafter designate to the others in writing. Any notice given to the Guarantor
by the Lessor at any time shall not imply that such notice or any further or
similar notice was or is required.
14. GOVERNING LAW. This Guaranty shall be construed, and the rights
and obligations of the Lessor and the Guarantor shall be determined, in
accordance with the laws of the Commonwealth of Massachusetts.
The Guarantor hereby consents to personal jurisdiction in the courts
of the Commonwealth of Massachusetts and the United States District Court for
the District of Massachusetts as well as to the jurisdiction of all courts from
which an appeal may be taken from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of or with respect to any of the
Lease Documents, the negotiation and/or consummation of the transactions
evidenced by the Lease Documents, the Lessor's relationship of any member of
the Leasing Group in connection with the transactions evidenced by the Lease
Documents and/or the performance of any obligation or the exercise of any
remedy under any of the Lease Documents and expressly waives any and all
objections the Guarantor may have as to venue in any of such courts.
-10-
<PAGE> 11
15. GENERAL PROVISIONS; RULES OF CONSTRUCTION. The provisions set
forth in Article 23 and Sections 2.2, 11.5.4, 16.8 through 16.10, 17.2, 24.2
through 24.10 and 24.12 of the Lease are hereby incorporated herein by
reference, mutatis, mutandis and shall be applicable to this Guaranty as if set
forth in full herein.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as an
instrument under seal as of the __________________________.
WITNESS: GUARANTOR:
- ------- ---------
____________________
Name:
-11-
<PAGE> 12
SCHEDULE TO EXHIBIT 10.16 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
GUARANTY
--------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
------- ------- -------- ----
<S> <C> <C> <C>
Harmony Manor, WI Meditrust Mortgage Investments, Inc. and BCC of Harmony Manor facilities 5/2/96
Wisconsin, Inc.
Reading, PA Meditrust Acquisition Corporation II and BCC at Outlook Pointe at Reading 2/27/97
Reading, Inc.
State College, PA Meditrust Acquisition Corporation II and BCC at Outlook Pointe at State 8/2/96
State College, Inc. College
Allegheny, PA Meditrust Acquisition Corporation II and BCC at Outlook Pointe at Altoona 8/2/96
Altoona, Inc.
Blytheville, AR Meditrust Acquisition Corporation II and Outlook Pointe at Blytheville 11/1/96
Balanced Care at Blytheville, Inc.
Maumelle, AR Meditrust Acquisition Corporation II and Outlook Pointe at Maumelle 11/1/96
Balanced Care at Maumelle, Inc.
Mountain Home, AR Meditrust Acquisition Corporation II and Outlook Pointe at Mountain 11/1/96
Balanced Care at Mountain Home, Inc. Home
Pocahontas, AR Meditrust Acquisition Corporation II and Outlook Pointe at Pocahontas 11/1/96
Balanced Care at Pocahontas, Inc.
Sherwood, AR Meditrust Acquisition Corporation II and Outlook Pointe at Sherwood 11/1/96
Balanced Care at Sherwood, Inc.
Hawthorn Properties Balanced Care Corporation and National Care Hawthorn Property Facilities 8/30/96
(7 guaranties): Centers of Hermitage, Inc., National Care
Hermitage Centers, Inc., National Care Centers of Lebanon,
Lebanon Care Inc., Springfield Retirement Village, Inc.,
Lebanon Park National Care Centers of Nixa, Inc., National
Mt. Vernon Care Centers of Springfield, Inc. and Mt. Vernon
Nixa Park Care Center West, Inc.
Springfield
West Park
Hawthorn Properties Dixon Management, Inc. and National Care Centers Hawthorn Property Facilities 8/30/96
(7 guaranties) of Hermitage, Inc., National Care Centers, Inc.,
National Care Centers of Lebanon, Inc.,
Springfield Retirement Village, Inc., National
Care Centers of Nixa, Inc., National Care
Centers of Springfield, Inc. and Mt. Vernon Park
Care Center West, Inc.
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
Hawthorn Properties BCC at Nevada Park Care Center, Inc. and Hawthorn Property Facilities 8/30/96
(7 guaranties) National Care Centers of Hermitage, Inc.,
National Care Centers, Inc., National Care
Centers of Lebanon, Inc., Springfield Retirement
Village, Inc., National Care Centers of Nixa,
Inc., National Care Centers of Springfield, Inc.
and Mt. Vernon Park Care Center West, Inc.
Hawthorn Properties BCC at Republic Park Center, Inc. and National Hawthorn Property Facilities 8/30/96
(7 guaranties) Care Centers of Hermitage, Inc., National Care
Centers, Inc., National Care Centers of Lebanon,
Inc., Springfield Retirement Village, Inc.,
National Care Centers of Nixa, Inc., National
Care Centers of Springfield, Inc. and Mt. Vernon
Park Care Center West, Inc.
</TABLE>
<PAGE> 14
SCHEDULE TO EXHIBIT 10.16 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
GUARANTY
--------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
- ------- ------- -------- ----
<S> <C> <C> <C>
Lima, OH Meditrust Acquisition Corporation II Outlook Pointe at Lima 9/30/97
(Lessor); TC Realty Corporation I
(Lessee); and Balanced Care Corporation
(Guarantor)
Scranton, PA Meditrust Acquisition Corporation II Outlook Pointe at Scranton 9/30/97
(Lessor); TC Realty Corporation III
(Lessee); and Balanced Care Corporation
(Guarantor)
Xenia, OH Meditrust Acquisition Corporation II Outlook Pointe at Xenia 9/30/97
(Lessor); TC Realty Corporation IV
(Lessee); and Balanced Care Corporation
(Guarantor)
</TABLE>
<PAGE> 1
EXHIBIT 10.18
GUARANTY
(BCC DEVELOPMENT AND MANAGEMENT CO. - )
TO: MEDITRUST ACQUISITION CORPORATION II
1. GUARANTY OF PAYMENT AND PERFORMANCE OF OBLIGATIONS. For value
received and hereby acknowledged and as an inducement to MEDITRUST ACQUISITION
CORPORATION II, a Delaware corporation, having its principal office at 197 First
Avenue, Needham Heights, Massachusetts 02194 (hereinafter referred to as the
"Lessor") to: (a) enter into that certain lease transaction with a Delaware
corporation, having its principal place of business at 5021 Louise Drive, Suite
200, Mechanicsburg, Pennsylvania 17055 (hereinafter referred to as the
"Lessee"), relating to the personal care home to be known as " ",
located in , (hereinafter referred to as the
"Facility"), pursuant to the Facility Lease Agreement of even date herewith by
and between the Lessor and the Lessee (hereinafter referred to as the "Lease"),
and (b) enter into or accept the other Lease Documents (as defined in the Lease)
and make future loans, advances and extensions of credit to, for the account of
or on behalf of the Lessee, the undersigned, BCC DEVELOPMENT AND MANAGEMENT CO.,
a Delaware corporation and an Affiliate (as defined in the Lease) of the Lessee,
having its principal place of business at 5021 Louise Drive, Suite 200,
Mechanicsburg, Pennsylvania 17055 (the "Guarantor"), having entered into a
Development Agreement of even date herewith with the Lessee regarding the
development of the Leased Property and the construction of the Facility and,
accordingly, deriving a substantial benefit from the consummation of the
transaction evidenced by the Lease Documents, hereby unconditionally guarantees
to the Lessor the full payment and performance of the Lease Obligations (as
defined in the Lease).
This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance of the Lease Obligations and not
merely of their collectibility and is in no way conditioned upon any requirement
that the Lessor first collect or attempt to collect the Lease Obligations or any
portion thereof from the Lessee or from any endorser, surety or other guarantor
of any of the same or resort to any security or other means of obtaining payment
of any of the Lease Obligations that the Lessor now has or may acquire after the
date hereof, or upon any other contingency whatsoever. Upon any Lease Default
(as defined in the Lease), the Lease Obligations and all liabilities and
obligations of the Guarantor to the Lessor, hereunder or otherwise, shall, at
the option of the Lessor, become immediately due and payable to the Lessor
without further demand or notice of any nature, all of which are expressly
waived by the Guarantor. Payments by the Guarantor hereunder may be required by
the Lessor on any number of occasions. This Guaranty shall continue in full
force and effect until the complete payment and performance of all of the Lease
Obligations.
All payments hereunder received by the Lessor shall be applied by the
Lessor, without any marshalling of assets, towards the payment and/or
performance of the Lease Obligations and any
<PAGE> 2
other indebtedness of the Guarantor hereunder in such order as the Lessor, in
its sole and absolute discretion, may determine.
2. DEFINED TERMS. Capitalized terms used herein and not otherwise
specifically defined herein shall have the same meanings ascribed to such terms
in the Lease.
3. THE GUARANTOR'S FURTHER AGREEMENTS TO PAY. The Guarantor further
agrees, as the principal obligor and not as a guarantor, to pay to the Lessor
forthwith upon demand, in funds immediately available to the Lessor, all costs
and expenses, including without limitation, court costs and attorneys' fees and
expenses and court costs, reasonably incurred or expended by the Lessor in
connection with the collection or enforcement of the Lease Obligations and the
enforcement of all of the other obligations hereunder. Any amounts owed to the
Lessor under this Section 3 shall be a demand obligation and, if not paid within
ten (10) days after demand, shall thereafter, to the extent then permitted by
law, bear interest at the Overdue Rate until the date of payment. The provisions
of this Section 3 shall survive the expiration or earlier termination of the
Lease.
4. LIABILITY OF THE GUARANTOR. This Guaranty is unlimited and the
Guarantor shall be jointly and severally liable with every endorser, surety or
other guarantor of any or all of the Lease Obligations and the continuation of
this Guaranty shall not be affected by the termination, discontinuance, release
or modification of any agreement from (a) any such endorser, surety or guarantor
and/or (b) any other endorser, surety or guarantor of any of the other
Obligations. Nothing contained herein or otherwise shall require the Lessor to
make demand upon or join the Lessee or any such endorser, surety or guarantor or
other party in any suit brought upon this Guaranty; and the Guarantor hereby
waives any right to require marshalling or exhaustion of any remedy against any
collateral, other property, or any other Person primarily or secondarily liable.
5. THE LESSOR'S FREEDOM TO DEAL WITH THE LESSEE AND OTHER PARTIES. The
Lessor shall be at liberty, without giving notice to or obtaining the assent of
the Guarantor and without relieving the Guarantor of any liability hereunder, to
deal with the Lessee and with each other Person who now is or after the date
hereof becomes liable in any manner for any of the Obligations in such manner as
the Lessor, in its sole and absolute discretion, deems fit. The Lessor and the
other Meditrust Entities have full authority (in their sole and absolute
discretion) to do any or all of the following things, none of which shall
discharge or affect the Guarantor's liability hereunder:
(a) extend credit, make loans and afford other financial accommodations
to the Lessee and/or any of the Related Parties at such times, in such amounts
and on such terms as the Lessor may approve;
(b) modify, amend, vary the terms and grant extensions or renewals of
any present or future indebtedness or of any of the Obligations or any
instrument relating to or securing the same, and, without limitation, this
Guaranty shall survive the expiration or earlier termination of the Lease;
- 2 -
<PAGE> 3
(c) grant time, waivers and other indulgences in respect of any of the
Obligations;
(d) vary, exchange, release or discharge, wholly or partially, or delay
or abstain from perfecting and enforcing any security or guaranty or other means
of obtaining payment of any of the Obligations which the Lessor or any of the
other Meditrust Entities now has or acquires after the date hereof;
(e) take or omit to take any of the actions referred to in any
instrument evidencing, securing or relating to any of the Obligations or any
actions under this Guaranty;
(f) fail, omit or delay to enforce, assert or exercise any right, power
or remedy conferred on the Lessor or any of the other Meditrust Entities in this
Guaranty or in any other instrument evidencing, securing or relating to any of
the Obligations or take or refrain from taking any other action;
(g) accept partial payments from the Lessee, any other member of the
Leasing Group, any of the Related Parties or any other Person;
(h) release or discharge, wholly or partially, the Lessee, any other
member of the Leasing Group, any of the Related Parties and/or any other Person
now or hereafter primarily or secondarily liable for the Obligations (or any
portion thereof) or accept additional collateral for the payment of any
Obligations;
(i) compromise or make any settlement or other arrangement with the
Lessee, any other member of the Leasing Group, any of the Related Parties or any
other Person referred to in clause (h) above; and
(j) consent to and participate in the proceeds of any assignment, trust
or mortgage for the benefit of creditors.
6. UNENFORCEABILITY OF OBLIGATIONS; INVALIDITY OF SECURITY OR OTHER
GUARANTIES. The obligations of the Guarantor hereunder shall not be affected by
any change in the beneficial ownership of the Lessee, any other member of the
Leasing Group or any of the Related Parties, by reason of any disability of the
Lessee, any other member of the Leasing Group, any Related Party or by any other
circumstance (other than the complete payment and performance of the Lease
Obligations) which might constitute a defense available to, or a discharge of,
the Lessee, any other member of the Leasing Group or any of the Related Parties
in respect of any of the Obligations. If for any reason now or hereafter the
Lessee, any other member of the Leasing Group or any of the Related Parties has
no legal existence or is under no legal obligation to discharge any of the
Obligations undertaken or purported to be undertaken by it or on its behalf, or
if any of the moneys included in the Obligations have become irrecoverable from
the Lessee, any other member of the Leasing Group or any Related Party by
operation of law or for any other reason, this Guaranty shall nevertheless be
binding on the Guarantor and the Guarantor shall remain unconditionally liable
for the complete payment and performance of the Lease Obligations. This Guaranty
shall be in addition to any other guaranty or other security for the
Obligations, and
- 3 -
<PAGE> 4
it shall not be prejudiced or rendered unenforceable by the invalidity of any
such other guaranty or security. This Guaranty shall continue to be effective or
be reinstated, as the case may be, if, at any time, any payment of the
Obligations is rescinded or must otherwise be returned by the Lessor or any of
the other Meditrust Entities, upon the insolvency, bankruptcy or reorganization
of the Lessee, any other member of the Leasing Group or any of the Related
Parties or otherwise, all as though such payment had not been made. The
Guarantor covenants to cause the Lessee to maintain and preserve the
enforceability of any instruments now or hereafter executed in favor of the
Lessor, and to take no action of any kind which might be the basis for a claim
that the Guarantor has any defense hereunder other than the complete payment and
performance of the Lease Obligations.
It shall not be necessary for the Lessor to inquire into the power of
the Lessee or anyone acting or purporting to act on its behalf, and any Lease
Obligation made or created in reliance upon the professed exercise of such
powers shall be guarantied hereunder. The Guarantor represents that the Lessee
is the bona fide tenant of the Leased Property and that the Lessee has not been
formed or availed of to evade or circumvent the applicable usury laws of any
state or states concerned therewith, and the Guarantor hereby indemnifies the
Lessor and agrees to save it harmless against any damages or expenses suffered
by the Lessor should this representation or any other representation contained
herein prove untrue in any material respect. The aforesaid indemnification
agreement shall include, without limitation, attorneys' fees and expenses and
court costs reasonably incurred by the Lessor in connection with the enforcement
of said indemnification.
The indemnity provisions of this Section 6 shall survive the complete
payment and performance of the Obligations and the expiration or earlier
termination of the Lease.
7. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR. In order to induce
the Lessor to enter into or accept the Lease and the other Lease Documents, the
Guarantor hereby warrants and represents to, and covenants and agrees with, the
Lessor that:
7.1. FORMATION AND AUTHORITY OF THE GUARANTOR.
(a) The Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. The Guarantor has all requisite
corporate power to own and operate its properties and to carry on its business
as now conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction where such qualification
is necessary or desirable in order to carry out its business as now conducted
and as proposed to be conducted;
(b) The Guarantor is duly authorized to make and enter into this
Guaranty and all of the other Lease Documents to which the Guarantor is a party
and to carry out the transactions contemplated therein. This Guaranty and all of
the other Lease Documents to which the Guarantor is a party have each been duly
executed and delivered by the Guarantor, and each is a legal, valid and binding
obligation of the Guarantor, enforceable in accordance with its terms;
- 4 -
<PAGE> 5
7.2. THE LESSEE AS AFFILIATE OF GUARANTOR.
The Lessee is a wholly-owned Subsidiary of the sole shareholder of the
Guarantor.
7.3. NO VIOLATIONS.
The execution, delivery and performance of this Guaranty and the other
Lease Documents and the consummation of the transactions thereby contemplated
shall not result in any breach of, or constitute a default under, or result in
the acceleration of, or constitute an event which, with notice or passage of
time could result in default or acceleration of any obligation of the Guarantor
or any other contract, mortgage, lien, lease, agreement, instrument, franchise,
arbitration award, judgment, decree, bank loan or credit agreement, trust
indenture or other instrument to which the Guarantor is a party or by which the
Guarantor may be bound or affected and do not violate or contravene any Legal
Requirement;
7.4. NO CONSENT OR APPROVAL.
Except as already obtained or filed, as the case may be, no consent or
approval or other authorization of, or exemption by, or declaration or filing
with, any Person and no waiver of any right by any Person is required to
authorize or permit, or is otherwise required as a condition to the Guarantor's
execution and delivery of this Guaranty or any of the other Lease Documents to
which it is a party and the performance of its obligations thereunder, or as a
condition to the validity (assuming the due authorization, execution and
delivery by the Lessor of the Lease and the other Lease Documents to which it is
a party) or enforceability of any of the same and/or the first priority of any
Liens granted thereunder;
7.4. FINANCIAL CONDITION.
(a) The Guarantor is financially solvent and there are no actions,
suits, investigations or proceedings including, without limitation, outstanding
federal or state tax liens, garnishments or insolvency and bankruptcy
proceedings, pending or, to the best of the Guarantor's knowledge and belief,
threatened:
i. against or affecting the Guarantor which, if adversely
resolved against the Guarantor would materially adversely affect the
ability of the Guarantor to perform its obligations under this Guaranty
or any of the Lease Documents to which it is a party;
ii. against or affecting the Leased Property or the ownership,
construction, development, maintenance, management, repair, use,
occupancy, possession or operation thereof; or
iii. which may involve or affect the validity, priority or
enforceability of this Guaranty, the Lease or any of the other Lease
Documents, at law or in equity, or before or by any arbitrator or
Governmental Authority;
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<PAGE> 6
(b) After giving effect to the consummation of the transaction
contemplated by the Lease and the other Lease Documents, the Guarantor:
i. will be able to pay its debts as they become due;
ii. will have sufficient funds and capital to carry on its
business as now conducted or as contemplated to be conducted (in
accordance with the terms of the Lease Documents);
iii. will own property having a value both at fair valuation and
at present fair saleable value greater than the amount required to pay
its debts as they become due; and
iv. will not be rendered insolvent as determined by applicable
law;
(c) The Guarantor is not a party to any agreement, the terms of which
now have or, based upon current circumstances, as far as can be reasonably
foreseen, may have a material adverse effect on its financial condition or
business or on the operation of the Facility;
(d) The Guarantor is not delinquent or claimed to be delinquent under
any material obligation for the payment of borrowed money;
7.5. COMMERCIAL ACTS.
The Guarantor's performance of and compliance with the obligations and
conditions set forth herein and the other Lease Documents to which it is a party
will constitute commercial acts done and performed for commercial purposes;
7.6. FILING OF TAX RETURNS.
The Guarantor has filed all federal, state and local tax returns which
are required to be filed as to which extensions are not currently in effect and
has paid all taxes, assessments, impositions, fees and other governmental
charges (including interest and penalties) which have become due pursuant to
such returns or pursuant to any assessment or notice of tax claim or deficiency
received by the Guarantor. No tax liability has been asserted by the Internal
Revenue Service against the Guarantor or any other federal, state or local
taxing authority for taxes, assessments, impositions, fees or other governmental
charges (including interest or penalties thereon) in excess of those already
paid; and
7.7. ACCURACY OF FINANCIAL STATEMENTS AND OTHER INFORMATION.
The financial statements of the Guarantor given to the Lessor in
connection with the consummation of the transaction contemplated by the Lease
Documents were true, complete and accurate and fairly presented the financial
condition of the Guarantor as of the date thereof and for the periods covered
thereby, having been prepared in accordance with GAAP and such financial
statements disclosed all material liabilities, including, without limitation,
contingent
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<PAGE> 7
liabilities, of the Guarantor. There has been no material adverse change since
such date with respect to the Tangible Net Worth or liquidity of the Guarantor
or with respect to any other matters referred to or contained therein and no
additional material liabilities, including, without limitation, contingent
liabilities of the Guarantor have arisen or been incurred since such date. The
projections heretofore delivered to the Lessor continue to be reasonable (with
respect to the material assumptions upon which such projections are based) and
the Guarantor reasonably anticipates the results projected therein will be
achieved, there having been (a) no material adverse change in the business,
assets or condition, financial or otherwise of the Guarantor or (b) no material
depletion of the Guarantor's cash or decrease in working capital.
8. CONTINUING REPRESENTATIONS AND WARRANTIES: All representations and
warranties contained in this Guaranty shall constitute continuing
representations and warranties which shall remain true, correct and complete as
long as this Guaranty is in force and effect. Notwithstanding the provisions of
the foregoing sentence but without derogation from any other terms and
provisions of this Guaranty, including, without limitation, those terms and
provisions containing covenants to be performed or conditions to be satisfied on
the part of the Guarantor, the representations and warranties contained in
Sections 7.4(a), 7.4(c), 7.4(d), in the second sentence of Section 7.6 and in
the second and third sentences of Section 7.7 hereof shall not constitute
continuing representations and warranties hereunder.
9. NO CONTEST WITH THE LESSOR. No set-off, counterclaim, reduction or
diminution of any obligation, or any claim or defense of any kind or nature
which the Guarantor has or may have against the Lessee, any other member of the
Leasing Group, any of the Related Parties or the Lessor shall be available
hereunder to the Guarantor. The Guarantor shall not assert and hereby waives any
right whatsoever that the Guarantor may have at law or in equity, including,
without limitation, any right of subrogation or to seek contribution,
indemnification or any other form of reimbursement from the Lessee, any other
endorser, surety or guarantor of any of the Obligations or any other Person now
or hereafter primarily or secondarily liable for any of the Obligations. The
Guarantor shall not, in any proceedings under the Bankruptcy Code or insolvency
proceedings of any nature, prove in competition with the Lessor in respect of
any payment hereunder or be entitled to have the benefit of any counterclaim or
proof of claim or dividend or payment by or on behalf of the Lessee, any other
member of the Leasing Group or any of the Related Parties or the benefit of any
other security for any Obligation which, now or hereafter, the Guarantor may
hold in competition with the Lessor.
10. SET-OFF. In addition to any rights now or hereafter granted under
any agreement or applicable law and not by way of limitation of any such rights,
upon the occurrence of any Lease Default, including, without limitation, any
default by the Guarantor hereunder, the Lessor and the other Meditrust Entities
are hereby authorized at any time or from time to time, without presentment,
demand, protest or other notice of any kind to the Guarantor or to any other
Person, all of which are hereby expressly waived, to set off and to appropriate
and apply any and all deposits and any other indebtedness at any time held by or
owing to the Lessor (or any of the other Meditrust Entities) to or for the
credit or the account of the Guarantor against and on account of the obligations
and liabilities of the Guarantor to the Lessor or any of the other Meditrust
Entities under this Guaranty or otherwise, irrespective of whether or not the
Lessor or
- 7 -
<PAGE> 8
any of the other Meditrust Entities shall have made any demand hereunder or
under any Related Party Agreement and although said obligations, liabilities or
claims, or any of them, may then be contingent or unmatured and without regard
to the availability or adequacy of other collateral. The Guarantor also grants
to the Lessor (and the other Meditrust Entities) a security interest in all of
the Guarantor's deposits, securities and other property at any time and from
time to time, in the possession of the Lessor (or any of the other Meditrust
Entities) and, upon the occurrence of any Lease Default, the Lessor and the
other Meditrust Entities may exercise all rights and remedies of a secured party
under the Massachusetts Uniform Commercial Code. The Lessor and the other
Meditrust Entities shall have no duty to take steps to preserve rights against
prior parties as to such securities or other property.
The Guarantor hereby agrees that all collateral now or hereafter
granted as security for any indebtedness of the Guarantor to the Lessor and/or
the other Meditrust Entities shall be deemed to be additional collateral
securing the Obligations.
11. WAIVERS. The Guarantor waives presentment for payment, demand,
protest, notice of nonpayment, notice of dishonor, protest of any dishonor,
suretyship defenses, notice of protest and protest of the Lease Documents and,
and all other notices in connection with (a) the delivery or the acceptance of
the Lease Documents and any reliance thereon and/or (b) the performance, default
(except notice of default as specifically elsewhere required under any of the
Lease Documents) or enforcement of any obligation under the Lease Documents, and
agrees that its liability shall be unconditional without regard to the liability
of any other party and shall not be in any manner affected by any indulgence,
extension of time, renewal, waiver or modification granted or consented to by
the Lessor; and the Guarantor consents to any and all extensions of time,
renewals, waivers or modifications that may be granted or consented to by the
Lessor with respect to the payment or performance of any obligations under the
Lease Documents and to the release of the Collateral (or any part thereof), with
or without substitution, and agrees that additional makers, endorsers,
guarantors or sureties may become parties to the Lease Documents without notice
to the Guarantor or affecting the liability of the Guarantor hereunder or under
any of the other Lease Documents to which the Guarantor is a party.
12. INDEMNIFICATION. Except with respect to the gross negligence or
wilful misconduct of the Lessor or any of the other Indemnified Parties, as to
which no indemnity is provided, the Guarantor hereby agrees to defend with
counsel acceptable to the Lessor, indemnify and hold harmless the Lessor and
each of the other Indemnified Parties from and against all damages, losses,
claims, liabilities, obligations, penalties, causes of action, costs and
expenses (including, without limitation, attorneys' fees, court costs and other
expenses of litigation) suffered by, or claimed or asserted against, the Lessor
or any of the other Indemnified Parties, directly or indirectly, based on,
arising out of or resulting from (a) the use and occupancy of the Leased
Property or any business conducted therein, (b) any act, fault, omission to act
or misconduct by (i) any member of the Leasing Group, (ii) any Affiliate of the
Lessee or (iii) any employee, agent, licensee, business invitee, guest,
customer, contractor or sublessee of any of the foregoing parties, relating to,
directly or indirectly, the Leased Property, (c) any accident, injury or damage
whatsoever caused to any Person, including, without limitation, any claim of
malpractice, or to the property of any Person in or about the Leased Property or
outside of the
- 8 -
<PAGE> 9
Leased Property where such accident, injury or damage results or is claimed to
have resulted from any act, fault, omission to act or misconduct by any member
of the Leasing Group or any Affiliate of the Lessee or any employee, agent,
licensee, contractor or sublessee of any of the foregoing parties, (d) any Lease
Default, (e) any claim brought or threatened against any of the Indemnified
Parties by any member of the Leasing Group or by any other Person on account of
(i) the Lessor's relationship with any member of the Leasing Group pertaining in
any way to the Leased Property and/or the transaction evidenced by the Lease
Documents and/or (ii) the Lessor's negotiation of, entering into and/or
performing any of its obligations and/or exercising any of its right and
remedies under any of the Lease Documents, (f) any attempt by any member of the
Leasing Group or any Affiliate of the Lessee to transfer or relocate any of the
Permits to any location other than the Leased Property and/or (g) the
enforcement of this indemnity. Any amounts which become payable by the Guarantor
under this Section 12 shall be a demand obligation of the Guarantor to the
Lessor. The indemnity provided for in this Section 12 shall survive any
termination of this Guaranty.
13. NOTICES. Any notice, request, demand, statement or consent made
hereunder shall be in writing and shall be deemed duly given if personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally recognized commercial overnight delivery service with provisions for
a receipt, postage or delivery charges prepaid, and shall be deemed given when
postmarked or placed in the possession of such mail or delivery service and
addressed as follows:
IF TO THE GUARANTOR: BCC Development and Management Co.
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attn: President
WITH COPIES TO: BCC Development and Management Co.
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attn: General Counsel
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Donald Kortlandt, Esq.
IF TO THE LESSOR: Meditrust Acquisition Corporation II
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: President
WITH COPIES TO: Meditrust Acquisition Corporation II
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: General Counsel
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<PAGE> 10
Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110-2699
Attn: Marianne Ajemian, Esq.
or at such other place as any of the parties hereto may from time to time
hereafter designate to the others in writing. Any notice given to the Guarantor
by the Lessor at any time shall not imply that such notice or any further or
similar notice was or is required.
14. GOVERNING LAW. This Guaranty shall be construed, and the rights and
obligations of the Lessor and the Guarantor shall be determined, in accordance
with the laws of the Commonwealth of Massachusetts.
The Guarantor hereby consents to personal jurisdiction in the courts of
the Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts as well as to the jurisdiction of all courts from
which an appeal may be taken from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of or with respect to any of the
Lease Documents, the negotiation and/or consummation of the transactions
evidenced by the Lease Documents, the Lessor's relationship of any member of the
Leasing Group in connection with the transactions evidenced by the Lease
Documents and/or the performance of any obligation or the exercise of any remedy
under any of the Lease Documents and expressly waives any and all objections the
Guarantor may have as to venue in any of such courts.
15. GENERAL PROVISIONS; RULES OF CONSTRUCTION. The provisions set forth
in Article 23 and Sections 2.2, 11.5.4, 16.8 through 16.10, 17.2, 24.2 through
24.10 and 24.12 of the Lease are hereby incorporated herein by reference,
MUTATIS, MUTANDIS and shall be applicable to this Guaranty as if set forth in
full herein.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as an
instrument under seal as of the .
WITNESS: GUARANTOR:
BCC DEVELOPMENT AND MANAGEMENT CO., a
Delaware corporation
By:
- ------------------------ ------------------------------------
Name: Name:
Title:
<PAGE> 11
SCHEDULE TO EXHIBIT 10.18 FILED
PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF REGULATION S-K
GUARANTY (DEVELOPMENT)
----------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
------- ------- -------- ----
<S> <C> <C> <C>
Reading, PA Meditrust Acquisition Corporation II Outlook Pointe at Reading 2/27/97
and BCC at Reading, Inc.
State College, PA Meditrust Acquisition Corporation II Outlook Pointe at State College 8/2/96
and BCC at State College, Inc.
Allegheny, PA Meditrust Acquisition Corporation II Outlook Pointe at Altoona 8/2/96
and BCC at Altoona, Inc.
Blytheville, AR Meditrust Acquisition Corporation II Outlook Pointe at Blytheville 11/1/96
and Balanced Care at Blytheville, Inc.
Maumelle, AR Meditrust Acquisition Corporation II Outlook Pointe at Maumelle 11/1/96
and Balanced Care at Maumelle, Inc.
Mountain Home, AR Meditrust Acquisition Corporation II Outlook Pointe at Mountain 11/1/96
and Balanced Care at Mountain Home
Home, Inc.
Pocahontas, AR Meditrust Acquisition Corporation II Outlook Pointe at Pocahontas 11/1/96
and Balanced Care at Pocahontas, Inc.
Sherwood, AR Meditrust Acquisition Corporation II Outlook Pointe at Sherwood 11/1/96
and Balanced Care at Sherwood, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.21
ENVIRONMENTAL INDEMNITY AGREEMENT
( )
THIS AGREEMENT is made as of the 30th day of September, 1997, by and
between TC REALTY CORPORATION __, a Delaware corporation (the "Lessee"); BCC
DEVELOPMENT AND MANAGEMENT CO., a Delaware corporation, having its principal
place of business at 5021 Louise Drive, Suite 200, Mechanicsburg, PA 17055 (the
"Developer"); and MEDITRUST ACQUISITION CORPORATION II, a Delaware corporation,
having its principal address at 197 First Avenue, Needham Heights, Massachusetts
02194 (the "Lessor").
W I T N E S S E T H
WHEREAS, the Lessor has agreed to lease to the Lessee certain real
property located in _________, as more particularly described in EXHIBIT A
attached hereto and incorporated herein by reference and all of the improvements
now or hereafter situated thereon (such real property and improvements are
hereinafter collectively referred to as the "Leased Property"), pursuant to a
Facility Lease Agreement of even date herewith by and between the Lessor and the
Lessee (the "Lease") and all capitalized terms used herein and not specifically
defined herein shall have the same meanings ascribed to such terms in the Lease;
WHEREAS, the Developer, being a party to the Leasehold Improvement
Agreement (as defined in the Lease) of even date herewith with the Lessor and
the Lessee regarding the development of the Leased Property, shall derive
substantial benefits from the consummation of the transaction described in the
Lease and the other Lease Documents;
WHEREAS, the Lessee and the Developer are hereinafter collectively
referred to as the "Indemnitors";
WHEREAS, the Lessor has required that the Indemnitors execute and
deliver this Agreement as a condition of the Lessor's agreeing to purchase the
Leased Property, enter into the Lease and to enter into or accept delivery of
the other Lease Documents; and
WHEREAS, as a material inducement to the Lessor to purchase the Leased
Property and to consummate the transaction described in the Lease and the other
Lease Documents, the Indemnitors have agreed to enter into this Agreement,
acknowledging that the Lessor intends to rely upon the representations,
warranties, covenants and indemnifications contained herein.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and
<PAGE> 2
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:
1. DEFINITIONS: For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the terms defined
in this Section have the meanings ascribed to them in this Section:
ENVIRONMENTAL ENFORCEMENT ACTIONS: Collectively, all actions or orders
instituted, threatened, required or completed by any Governmental Authority and
all claims made or threatened by any Person against any of the Indemnitors or
the Leased Property (or any other occupant, prior occupant or prior owner
thereof), arising out of or in connection with any of the Environmental Laws or
the assessment, monitoring, clean-up, containment, remediation or removal of, or
damages caused or alleged to be caused by, any Hazardous Substances (i) located
on or under the Leased Property, (ii) emanating from the Leased Property or
(iii) generated, stored, transported, utilized, disposed of, managed or released
by any of the Indemnitors (whether or not on, under or from the Leased
Property).
ENVIRONMENTAL LAWS: Collectively, all Legal Requirements applicable to
(i) environmental conditions on, under or emanating from the Leased Property
including, without limitation, the ___________, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and Recovery
Act, the Federal Water Pollution Control Act and the Federal Clean Air Act and
(ii) the generation, storage, transportation, utilization, disposal, management
or release (whether or not on, under or from the Leased Property) of Hazardous
Substances by either of the Indemnitors.
ENVIRONMENTAL REPORT: The Environmental Site Assessment Report as more
particularly set forth in EXHIBIT B attached hereto and made a part hereof.
GOVERNMENTAL AUTHORITIES: Collectively, all agencies, authorities,
bodies, boards, commissions, courts, instrumentalities, legislatures and offices
of any nature whatsoever for any government unit or political subdivision,
whether federal, state, county, district, municipal, city or otherwise, and
whether now or hereafter in existence.
HAZARDOUS SUBSTANCES: Collectively, (i) any "hazardous material,"
"hazardous substance," "hazardous waste," "oil," "regulated substance," "toxic
substance," "restricted hazardous waste", "special waste" or words of similar
import as defined under any of the Environmental Laws; (ii) asbestos in any
form; (iii) urea formaldehyde foam insulation; (iv) polychlorinated biphenyls;
(v) radon gas; (vi) flammable explosives; (vii) radioactive materials; (viii)
any chemical, contaminant, solvent, material, pollutant or substance that may be
dangerous or detrimental to the Leased Property, the environment, or the health
and safety of the patients, residents and other occupants of the Leased Property
or of the owners or occupants of any other real property nearby the Leased
Property and (ix) any substance, the generation, storage, transportation,
utilization, disposal, management, release or location of
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<PAGE> 3
which, on, under or from the Leased Property is prohibited or otherwise
regulated pursuant to any of the Environmental Laws.
Notwithstanding the foregoing, the term Hazardous Substances as defined
herein shall not include (a) pharmaceuticals and cleaning agents of the types
and in the quantities and concentrations normally stocked by health care
providers similar to the Facility, (b) oil in de minimis amounts typically
associated with the use of certain portions of the Leased Property for driving
and parking motor vehicles or (c) medical wastes generated at the Facility;
provided that the foregoing are used, stored, transported and/or disposed of in
accordance with all Legal Requirements.
SURROUNDING PROPERTY: Any real property that is located within a
one-half (1/2) mile radius of the Leased Property.
2. REPRESENTATIONS AND WARRANTIES: The Indemnitors each represent and
warrant to the Lessor, the same to be true as of the date hereof and throughout
the period that the Lease or any of the other Lease Documents shall remain in
force and effect, that:
(i) to the actual knowledge of the Indemnitors, except as may be
disclosed in the Environmental Report, no Hazardous Substance has been or is
currently generated, stored, transported, utilized, disposed of, managed,
released or located on, under or from the Leased Property (whether or not in
reportable quantities), except for de minimis releases typically associated with
the use of certain portions of the Leased Property for driving and parking motor
vehicles, or in any manner introduced onto the Leased Property, including,
without limitation, the septic, sewage or other waste disposal systems serving
the Leased Property;
(ii) except as may be disclosed in the Environmental Report, neither of
the Indemnitors has any knowledge of any threat of release of any Hazardous
Substance on, under or from the Leased Property;
(iii) neither of the Indemnitors has received any notice from any state
or local Governmental Authority in the state where the Facility is located, the
United States Environmental Protection Agency or any other Governmental
Authority claiming that (a) the Leased Property or any use thereof violates any
of the Environmental Laws or (b) either of the Indemnitors or any of their
respective employees or agents have violated any of the Environmental Laws;
(iv) neither of the Indemnitors has incurred any liability to the town,
city or county in which the Facility is located, the State of Arkansas, the
United States of America or any other Governmental Authority under any of the
Environmental Laws;
(v) to the actual knowledge of the Indemnitors, no lien against the
Leased Property has arisen under or related to any of the Environmental Laws;
- 3 -
<PAGE> 4
(vi) to the actual knowledge of the Indemnitors, except as may be
disclosed in the Environmental Report, there are no Environmental Enforcement
Actions pending, or to the best of the Indemnitors' information, knowledge and
belief, threatened;
(vii) except as may be disclosed in the Environmental Report, neither
of the Indemnitors has any knowledge that any Hazardous Substance has been or is
currently generated, stored, transported, utilized, disposed of, managed,
released or located on, under or from any Surrounding Property in violation of,
or allegedly in violation of any of, the Environmental Laws;
(viii) except as may be disclosed in the Environmental Report, neither
of the Indemnitors has any knowledge of any threat of release of any Hazardous
Substance on, under or from any Surrounding Property;
(ix) neither of the Indemnitors has any knowledge of any action or
order instituted or threatened against any Person by any Governmental Authority
arising out of or in connection with the Environmental Laws involving the
assessment, monitoring, clean-up, containment, remediation or removal of or
damages caused or alleged to be caused by (a) any Hazardous Substances
generated, stored, transported, utilized, disposed of, managed, released or
located on, under or from any Surrounding Property or (b) the threat of release
of any Hazardous Substance on, under or from any Surrounding Property; and
(x) to the actual knowledge of the Indemnitors, except as may be
disclosed in the Environmental Report, there are no underground storage tanks on
or under the Leased Property.
As used in this Agreement, the terms "generated," "stored,"
"transported," "utilized," "disposed," "managed," "released" and "threat of
release" (and all conjugates thereof) shall have the meanings and definitions
set forth in the Environmental Laws.
3. MAINTENANCE OF LEASED PROPERTY: The Indemnitors each covenant that,
as long as the Lease or any of the other Lease Documents shall remain in force
and effect, neither of the Indemnitors shall:
(i) generate, store, transport, utilize, dispose of, manage, release or
locate, or permit the generation, storage, transportation, utilization,
disposal, management, release or threat of release, or location of any Hazardous
Substances on, under or from the Leased Property, except for de minimis releases
typically associated with the use of certain portions of the Leased Property for
driving and parking motor vehicles; or
(ii) permit any lien arising under or related to any of the
Environmental Laws to attach to the Leased Property.
- 4 -
<PAGE> 5
In addition to all other covenants contained herein, the Indemnitors
agree that the Leased Property shall be maintained in compliance with the
Environmental Laws.
4. NOTICE OF ENVIRONMENTAL CONDITIONS: The Indemnitors shall provide
the Lessor with immediate written notice upon: (i) either of the Indemnitors
becoming aware of (a) the presence of, any release or any threat of release of
any Hazardous Substances on, under or from the Leased Property (whether or not
caused by any of the Indemnitors), (b) any Environmental Enforcement Action
instituted or threatened, (c) any enforcement, assessment, monitoring, clean-up,
containment, removal, remediation, restoration or other action or order
instituted, threatened, required or completed by any Governmental Authority
pursuant to any of the Environmental Laws with respect to any Surrounding
Property and/or (d) any condition or occurrence on any Surrounding Property that
may constitute a violation of any of the Environmental Laws and (ii) the receipt
by either of the Indemnitors of any notice relating to the Leased Property or
any Hazardous Substance allegedly originating on, under or from the Leased
Property, from any Governmental Authority pursuant to any of the Environmental
Laws.
At least six (6) months, but not more than nine (9) months, prior to
the expiration of the Term of the Lease, the Lessee shall at its own cost and
expense obtain a professional environmental assessment of the Leased Property,
all in accordance with the scope of Section 6 below and with the Lessor's then
standard requirements. Such assessment shall be set forth in a written report
addressed to and delivered to the Lessor at least four (4) months before the end
of the Term of the Lease.
5. INDEMNITORS' AGREEMENT TO TAKE REMEDIAL ACTIONS: Upon either of the
Indemnitors becoming aware of the presence of, any release, or any threat of
release of any Hazardous Substances on, under or from the Leased Property or any
Surrounding Property (whether or not caused by any of the Indemnitors), the
Indemnitors shall immediately take all such actions or cause the responsible
party to take all such actions to arrange for the assessment, monitoring,
clean-up, containment, removal, remediation or restoration of the Leased
Property and the Surrounding Property, but only to the extent that the presence
of any Hazardous Substances on the Surrounding Property originated on, under or
from the Leased Property as (i) are required pursuant to any of the
Environmental Laws or by any Governmental Authority and (ii) may otherwise be
advisable and reasonably requested by the Lessor.
The Indemnitors shall provide the Lessor, or cause the responsible
party to provide the Lessor, within thirty (30) days after a demand by the
Lessor, with a bond, letter of credit or other similar financial assurance, in
form, amount and substance reasonably satisfactory to the Lessor evidencing to
the Lessor's reasonable satisfaction that the necessary financial resources are
available to pay all costs associated with the aforementioned actions, the
release of any lien against the Leased Property, the release or other
satisfaction of the liability, if any, of any of
- 5 -
<PAGE> 6
the Indemnitors arising under or related to any of the Environmental Laws and
the satisfaction of any applicable Environmental Enforcement Actions.
6. LESSOR'S RIGHTS TO INSPECT THE PROPERTY AND TAKE REMEDIAL ACTIONS:
As long as the Lease or any of the other Lease Documents shall remain in force
and effect, the Lessor shall have the right, but not the obligation, to enter
upon the Leased Property (at reasonable times and upon reasonable notice to the
Lessee, except in the event of an emergency), and may expend funds to:
(i) for good and reasonable cause, cause one or more environmental
assessments of the Leased Property to be undertaken. Such environmental
assessments may include, without limitation, (a) detailed visual inspections of
the Leased Property, including, without limitation, all storage areas, storage
tanks, drains, dry wells and leaching areas, (b) the taking of soil and surface
water samples, (c) the performances of soil and ground water analyses and (d)
the performance of such other investigations or analyses as are necessary or
appropriate and consistent with sound professional environmental engineering
practice in order for the Lessor to obtain a complete assessment of the
compliance of the Leased Property and the use thereof with all Environmental
Laws and to make a determination as to whether there is any risk of
contamination (x) to the Leased Property resulting from Hazardous Substances
originating on, under or from any Surrounding Property or (y) to any Surrounding
Property resulting from Hazardous Substances originating on, under or from the
Leased Property;
(ii) cure any breach of the representations, warranties, conditions and
covenants of this Agreement including, without limitation, any violation by any
of the Indemnitors or the Leased Property (or any other occupant, prior occupant
or prior owner thereof) of any of the Environmental Laws;
(iii) take any actions as are necessary to (a) prevent the migration of
Hazardous Substances on, under or from the Leased Property to any other
property; (b) clean-up, contain, remediate or remove any Hazardous Substances
on, under or from any other property, which Hazardous Substances originated on,
under or from the Leased Property or (c) prevent the migration of any Hazardous
Substances on, under or from any other property to the Leased Property; and
(iv) comply with, settle or otherwise satisfy any Environmental
Enforcement Action (including, without limitation, the payment of any fines or
penalties imposed by any Governmental Authority); PROVIDED, HOWEVER, that unless
a Lease Default has occurred, the Lessor shall not settle or otherwise satisfy
any Environmental Enforcement Action without the prior consent of the
Indemnitors, which consent shall not be unreasonably withheld.
Any amounts paid or advanced by the Lessor and all costs and expenses
reasonably incurred in connection with any action taken pursuant to the terms of
this Section 6 (including, without limitation, environmental consultants' and
experts' fees and expenses, attorneys' fees
- 6 -
<PAGE> 7
and expenses, court costs and all costs of assessment, monitoring, clean-up,
containment, remediation, removal and restoration) shall be a demand obligation
of the Indemnitors to the Lessor, and, to the extent permitted by applicable
law, shall be added to the Lease Obligations and, if not paid within ten (10)
days after demand, shall thereafter, to the extent permitted by applicable law,
bear interest at the Overdue Rate until the date of payment.
Subject to the provisions of applicable law, the exercise by the Lessor
of any of the rights and remedies set forth in this Section 6 shall not operate
or be deemed (a) to place upon the Lessor any responsibility for the operation,
control, care, service, management, maintenance or repair of the Leased Property
or (b) to make the Lessor the "operator" of the Leased Property or a
"responsible party" within the meaning of any of the Environmental Laws.
Furthermore, the Lessor, by making any such payment or incurring any such costs,
shall be subrogated (but only until the complete payment and performance of the
Obligations) to all rights of each of the Indemnitors or any other occupant of
the Leased Property to seek reimbursement from any Person, including, without
limitation, any predecessor to the Lessor's fee title to the Leased Property,
who may be a "responsible party" under any of the Environmental Laws, in
connection with the presence of Hazardous Substances on, under or from the
Leased Property.
Without limiting the generality of the provisions incorporated by
reference pursuant to Section 11 hereof, any partial exercise by the Lessor of
any of the rights and remedies set forth in this Section 6, including, without
limitation, any partial undertaking on the part of the Lessor to cure any
failure by either of the Indemnitors or the Leased Property (or any other
occupant, prior occupant or prior owner thereof) to comply with any of the
Environmental Laws, shall not obligate the Lessor to complete such actions taken
or require the Lessor to expend further sums to cure such non-compliance.
7. INDEMNIFICATION: Each of the Indemnitors shall and hereby agrees to
indemnify, defend (with counsel reasonably acceptable to the Lessor) and hold
the Lessor harmless from and against any claim, liability, loss, cost, damage or
expense (including, without limitation, environmental consultants' and experts'
fees and expenses, attorneys' fees and expenses, court costs and all costs of
assessment, monitoring, clean-up, containment, removal, remediation and
restoration reasonably incurred by the Lessor) arising out of or in connection
with (i) any breach of any of the representations, warranties, conditions and
covenants of this Agreement or any of the other Lease Documents (whether any
such matters arise before or after any action is commenced to terminate the
Lease or to evict the Lessee), (ii) the Lessor's exercise of any of its rights
and remedies hereunder or (iii) the enforcement of the aforesaid indemnification
agreement; EXCLUDING, HOWEVER, any claim, liability, loss, cost, damage or
expense resulting from the Lessor's gross negligence or willful misconduct.
Notwithstanding the foregoing, the Lessor shall have the option of conducting
its defense with counsel of the Lessor's choice, but at the expense of the
Indemnitors as aforesaid.
The matters covered by the foregoing indemnity with respect to any
property other than
- 7 -
<PAGE> 8
the Leased Property shall not include any costs incurred as
a result of the clean-up, containment, remediation or removal of Hazardous
Substances on, under or from such other property or the restoration thereof if
such Hazardous Substances did not originate on, under or from the Leased
Property, unless the clean-up, containment, remediation or removal thereof or
the restoration of such other property is either required in connection with any
Environmental Enforcement Action or is necessary to prevent the migration of
Hazardous Substances from such other property to the Leased Property. The
Indemnitors each acknowledge and agree that their obligations pursuant to the
provisions hereof are in addition to any and all other legal liabilities and
responsibilities (at law or in equity) that either of the Indemnitors may
otherwise have as an "operator" of the Leased Property or a "responsible party"
within the meaning of any of the Environmental Laws, as the case may be.
The indemnity provisions of this Section 7 shall survive the payment
and performance of the Obligations and/or the expiration or termination of the
Lease.
8. JOINT AND SEVERAL LIABILITY: All obligations of the Indemnitors
under this Agreement shall be joint and several.
9. NOTICES: Any notice, request, demand, statement or consent made
hereunder shall be in writing and shall be deemed duly given if personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally recognized commercial overnight delivery service with provisions for
a receipt, postage or delivery charges prepaid, and shall be deemed given when
postmarked or placed in the possession of such mail or delivery service and
addressed as follows:
IF TO THE DEVELOPER: BCC Development and Management Co.
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: Brad Hollinger, President
WITH COPIES TO: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: General Counsel
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburg, PA 15222-2312
Attn: Donald Kortlandt, Esq.
IF TO THE LESSEE: TC Realty Corporation __
1200 Corporate Center Way, Suite 100
Wellington, FL 33414
Attn: President
- 8 -
<PAGE> 9
WITH COPIES TO: Lawrence B. Juran, P.A.
1200 Corporate Center Way, Suite 100
Wellington, FL 33414
IF TO THE LESSOR: Meditrust Acquisition Corporation II
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: President
WITH COPIES TO: Meditrust Acquisition Corporation II
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: General Counsel
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110-2699
Attn: Marianne Ajemian, Esq.
or at such other place as any of the parties hereto may from time to time
hereafter designate to the others in writing. Any notice given to either of the
Indemnitors by the Lessor at any time shall not imply that such notice or any
further or similar notice was or is required.
10. INTENTIONALLY OMITTED.
11. GENERAL PROVISIONS; RULES OF CONSTRUCTION: The provisions set forth
in Article 23 and Sections 2.2, 16.8 through 16.10, 24.2 through 24.12 of the
Lease are hereby incorporated herein by reference, MUTATIS, MUTANDIS and shall
be applicable to this Agreement as if set forth in full herein.
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as a sealed instrument on the date first above-mentioned.
WITNESSES: LESSEE:
TC REALTY CORPORATION __, a Delaware corporation
By: /s/ KIM M. PRIESING
- ---------------------- ---------------------------------------
Name: Name: Kim M. Priesing
Title: President
- ----------------------
Name:
WITNESSES: DEVELOPER:
BCC DEVELOPMENT AND MANAGEMENT CO.,
a Delaware corporation
By:
- ---------------------- ---------------------------------------
Name: Name:
Title:
- ----------------------
Name:
WITNESSES: LESSOR:
MEDITRUST ACQUISITION CORPORATION II,
a Delaware corporation
By:
- ---------------------- ---------------------------------------
Name: Name:
Title:
- ----------------------
Name:
- 10 -
<PAGE> 11
SCHEDULE TO EXHIBIT 10.21 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
ENVIRONMENTAL INDEMNITY AGREEMENT
---------------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY
- ------- ------- --------
<S> <C> <C>
Lima, OH TC Realty Corporation I (Lessee), Outlook Pointe at Lima
BCC Development and Management
Corporation (Developer) and
Meditrust Acquisition Corporation II
(Lessor)
Mansfield, OH TC Realty Corporation II (Lessee), Outlook Pointe at Ontario Village
BCC Development and Management
Corporation (Developer) and
Meditrust Acquisition Corporation II
(Lessor)
Scranton, PA TC Realty Corporation III (Lessee), Outlook Pointe at Scranton
BCC Development and Management
Corporation (Developer) and
Meditrust Acquisition Corporation II
(Lessor)
Xenia, OH TC Realty Corporation IV (Lessee), Outlook Pointe at Xenia
BCC Development and Management
Corporation (Developer) and
Meditrust Acquisition Corporation II
(Lessor)
</TABLE>
<PAGE> 1
EXHIBIT 10.22
FORM OF LEASE
THIS LEASE ("Lease") dated as of January 31, 1997 is entered into by
and between ("Lessor") _____________________, and _____________________,
("Lessee").
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;
<PAGE> 2
(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 Lessor or
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 Permitted Exceptions, to have and to hold for
a fixed term of 11 years (the "Initial Term") commencing on February 1, 1997
(the "Commencement Date") and ending at midnight on the last day of the 132nd
month after the Commencement Date.
ARTICLE II
RENT
2.1 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 Section 2.1(b), the "Minimum Rent") for the
Leased Property the annual sum of $__________ payable in advance in 12 equal,
consecutive monthly installments of $_________, on the first day of each
calendar month of the Term. Minimum Rent shall be prorated as to any partial
month, and is subject to adjustment as provided in Sections 2.1(b), 9.3(b)(iv)
and 20.1 below; and
(b) Increases to Minimum Rent. Commencing on the first anniversary
date of the Commencement Date and on each anniversary date thereafter
throughout the remainder of the Initial Term and any Extended Term (each such
anniversary date individually being referred to as an "Adjustment Date"), the
then current Minimum Rent shall be increased annually effective as of such
Adjustment Date By 125% of the increase in the Consumer Price Index for the
Base Period (as defined below); provided, however, if the increase in the
Consumer Price Index for
2
<PAGE> 3
such Base Period is greater than 2.4%, Lessor and Lessee mutually agree to use
their best efforts to negotiate the increase in Minimum Rent based on the fair
rental value of the Leased roperty to become effective on the Adjustment Date.
As used herein, "Base Period" shall mean the following:
(i) For the first Adjustment Date, the twelve-month period
commencing on the first day of the month that is two months prior to the
Commencement Date; and
(ii) For each subsequent Adjustment Date, the Twelve month
period commencing on the first day of the month that is two months prior to the
previous Adjustment Date.
(c) Capital Expenditures. Lessee shall make an annual Facility upgrade
expenditure in an amount equal to $200 per bed for capital improvements, such
amount to be increased $50 per bed on each Adjustment Date. If requested by
Lessor, Lessee shall promptly provide evidence of such capital expenditures. In
the event Lessee fails to make the required capital expenditure in any Lease
year, Lessee shall deposit in a money market account with an Acceptable
Financial Institution amounts not less than the difference between the required
capital expenditures and the amounts actually spent. Such account shall be in
the name of the Lessor. Lessee shall make detailed requests for such funds in
writing to Lessor in the same form as a Request pursuant to 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) Lease Deposit. On the Commencement Date, Lessee must deposit with
an Acceptable Financial Institution and thereafter maintain with Lessor a lease
deposit equal to approximately six (6) months Minimum Rent, rounded upward to
the nearest $1,000.00. Lessor reserves the right to require additional deposits
if the Minimum Rents increases during the Term. Upon achievement of a Rent
Coverage Ratio (as hereinafter defined), on a combined basis, of 1.25 (or
greater) to 1.0, provided no Default or Event of Default (as hereinafter
defined) exists, such lease deposit may be reduced upon Lessee's request to
three (3) months Minimum Rent, rounded upward to the nearest $1,000.00.
(e) Payment of Minimum Rent. All payments of Minimum Rent shall be
made in lawful money of the United States by wire/ACH transfer of same day
funds to Lessor's account #0000041032 at First Commercial Bank, Birmingham,
Alabama. ABA Routing #062003605, Attention: Todd Beard, with advice to
__________ 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.
2.2 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.l(b) and will provide Lessee with written notice
of same.
3
<PAGE> 4
2.3 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 (10) 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 due 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 per year for such twelve-month period. 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.
2.4 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.
2.5 RENT COVERAGE. From and after September 30, 1997, for the
Applicable Period, the Facilities (on a combined basis) must achieve and
maintain the following:
(a) A Rent Coverage Ratio of not less than 1.25 to 1.0, and
(b) An Adjusted Rent Coverage Ratio of not less than 1.0 to 1.0.
From and after September 30, 1997, for the Applicable Period, the
Facility must achieve and maintain a Rent Coverage Ratio of not less than 1.2
to 1.0.
"Rent Coverage Ratio" means, for each Applicable Period, the ratio of
(i) Cash Flow, plus management fees as determined on an accrual basis of
accounting for the Facility (or Facilities, if applicable), to (ii) the Minimum
Rent payable under the Lease (or Leases, if applicable).
4
<PAGE> 5
"Adjusted Rent Coverage Ratio" means, for each Applicable Period, the
ratio of (i) Cash low to (ii) the Minimum Rent payable under the Leases.
"Cash Flow" means the pre-tax income of the Facility (or Facilities,
if applicable) plus (i) lease expense with respect to the Lease (or Leases, if
applicable) and (ii) non-cash expenses or allowances for depreciation and
amortization with respect to the Facility (or Facilities, if applicable). In
calculating "pre-tax" income, any extraordinary income or extraordinary loss
shall be excluded.
Rent Coverage will be measured quarterly and the first such test shall
consist of an Applicable Period of 3 months, the second such test will consist
of an Applicable Period of 6 months, the third such test will consist of an
Applicable Period of 9 months, and each subsequent test will consist of an
Applicable Period of 12 months.
2.6 GUARANTY/GUARANTOR.
(a) The Rent and other obligations pursuant to the Lease are
unlimitedly guaranteed by Balanced Care Corporation ("Guarantor") pursuant to a
guaranty agreement ("Guaranty") executed simultaneously herewith which is
attached hereto as Exhibit 2.6 and made a part hereof.
(b) Throughout the Term of the Lease, Guarantor shall maintain the
following:
(i) a ratio of consolidated current assets to consolidated
current liabilities equal to or greater than 1.0 to 1.0.;
(ii) a tangible net worth equal to or greater than
$5,000,000, unless otherwise approved (or waived) by Lessor, approval
of which shall not be unreasonably withheld (for purposes of this
Section 2.6(b)(ii), the line item identified as "Mandatorily
Redeemable Preferred B Stock" reflected on Guarantor's consolidated
financial statement shall be included in Guarantor's shareholder's
equity).
(iii) a Consolidated Cash Flow Coverage not less than 1.0 to
1.0.
"Consolidated Cash Flow Coverage" shall mean a ratio of (i) earnings
before interest, taxes, depreciation, amortization, rent and its home office
expense minus an assumed five percent (5%) management fee to (ii) all interest
and rent payments.
5
<PAGE> 6
ARTICLE III
IMPOSITIONS
3.1 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. Lessee's obligation to pay such
Impositions and the amount thereof shall be deemed absolutely fixed upon the
date such Impositions become a lien upon the Leased Property or any part
thereof. 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 becomes 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 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.
3.2 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.
6
<PAGE> 7
3.3 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.
3.4 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.
ARTICLE IV
NO TERMINATION
Except as provided in this Lease and to the extent provided by law,
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.
7
<PAGE> 8
ARTICLE V
OWNERSHIP OF LEASED PROPERTY
5.1 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.
5.2 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. 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. Lessee shall provide Lessor with a
list of Personal Property provided by Lessee, updated at least semi-annually
for all items of Personal Property with a value in excess of $50,000.
ARTICLE VI
CONDITION AND USE OF LEASED PROPERTY
6.1 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 present condition. Lessee waives any claim
or action against 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.
6.2 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 personal care facility and for such other uses as may be necessary in
connection with or incidental to such use (the "Primary Intended Use"). Lessee
shall not use the Leased Property or any portion thereof for
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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 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, 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
(ordinary wear and tear excepted) 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) might reasonably tend to impair
Lessor's estate therein or in any portion thereof, or (ii) may reasonably
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.
6.3 MANAGEMENT OF FACILITY. Unless otherwise agreed to in writing by
Lessor (i) Lessee shall cause the Facility to be managed (including any leasing
activities) 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 Event of Default.
6.4 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
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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 has no adverse effect on the Primary Intended
Use of the Leased Property and does not reduce the value thereof.
ARTICLE VII
LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS
7.1 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.
7.2 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.
7.3 OCCUPANCY. From and after September 30, 1997, the Lessee must
achieve and maintain a daily average occupancy of the Facility of not less than
75% for each calendar quarter. For the first quarter that the Facility fails to
achieve and maintain this daily average occupancy, Lessee shall cause the
Manager to use its best efforts to increase occupancy at the Facility. After
the Facility fails to achieve and maintain this daily average occupancy for two
(2) consecutive calendar quarters, Lessee shall engage a consultant acceptable
to Lessor, with recognized expertise in the long term care industry, to assist
Manager in improving the Facility's occupancy level. If for three (3)
consecutive quarters the Facility fails to maintain its occupancy
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requirements and if at such time the Rent Coverage Ratio for the Facility is
less than 1.40 to 1.0, then, for so long as such conditions exist, the Lessee
shall not be permitted to exercise its purchase rights provided for in Section
29 or its renewal rights provided for in Section 34.
ARTICLE VIII
REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS
8.1 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
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 complete
or to diligently pursue completion of 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, 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) or the gross negligence or willful acts of Lessor, 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 (i) constituting the consent or request of Lessor,
expressed or implied, to any
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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, or (ii) giving Lessee any right, power or permission to contract for
or permit the performance of any labor or services or the finishing of any
materials or other property in such fashion as would permit the making of any
claim against Lessor in respect thereof or to make any agreement that may
create, or in any way be the basis for, any right, title, interest, lien, claim
or other encumbrance upon the estate of Lessor in the Leased Property or any
portion 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.
8.2 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 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.
8.3 INSPECTIONS. From time to time during the Term, Lessor and its
agents shall have the right to inspect the Leased Property and all systems
contained therein at any reasonable time to determine Lessee's compliance with
its obligations under this Lease, including those
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obligations set forth in Article VII and this Article VIII. Lessee shall be
responsible for the costs of such inspections which costs shall equal $1,000.00
per year during the Term.
ARTICLE IX
CAPITAL ADDITIONS
9.1 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.l(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.
Notwithstanding the foregoing, Lessee shall be permitted to construct or
install Capital Additions whose cost does not exceed $25,000 in any one Lease
year without the need to obtain the prior written consent of Lessor provided
that such improvements shall be architecturally integrated into and consistent
with the Leased Property.
(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 unless the Capital Addition Cost
is less than $25,000. 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.
9.2 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:
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(a) There shall be no adjustment in the Minimum Rent by reason of any
such Capital Addition.
(b) Upon the expiration or earlier termination of this Lease, Lessor
shall compensate Lessee for all Capital Additions (if consented to by Lessor
and Lessor's consent is required) 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) any 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.
9.3 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, a five
percent (5%) development fee 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 (other than described in (i)), 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;
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(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) a deed conveying title to Lessor to any land and
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) 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.
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(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.
9.4 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.
9.5 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.
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)
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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
12.1 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 either pay to Lessor monthly the
amounts required and Lessor shall transfer such amounts to such Facility
Mortgagee or, pursuant to written direction by Lessor, Lessee shall make such
deposits directly with 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 90% of 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 rental value insurance policy covering risk
of loss during the first 6 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 $5,000,000.00 per occurrence
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in respect of bodily injury and death and $5,000,000.00 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.
12.2 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 the insurance company which is then providing
the largest amount of casualty insurance carried on the Leased Property,
hereinafter referred to as the "impartial appraiser. 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.
12.3 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.
12.4 WAIVER OF SUBROGATION. All insurance policies 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.
12.5 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
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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
for 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.
12.6 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 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.
12.7 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.
12.8 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
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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.
12.9 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
13.1 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.
13.2 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 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
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(ii) offer either (A) to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Repurchase Price 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 offer, either:
(i) offer either (A) to acquire that Leased Property from Lessor for a
purchase price equal to the Minimum Repurchase Price 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 Repurchase Price 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) or option
(ii), and if option (i) is chosen, such
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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),
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.
13.3 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 Repurchase Price 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
13.4 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.
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13.5 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.
13.6 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.
13.7 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.
13.8 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.
13.9 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
14.1 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.
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14.2 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.
14.3 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 Repurchase Price 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
(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) or option
(iii), and if option (ii) 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 before the partial Taking, or (b) terminate the offer and this Lease
by written notice to Lessor.
14.4 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.
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14.5 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 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 any 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.
14.6 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.
14.7 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 and Lease obligations 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
15.1 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 or other
agreement between Lessor or any of its Affiliates and Lessee or any of its
Affiliates, or
(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, or
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(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), or
(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 and such petition is not discharged within
sixty days of filing,
(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 or Guarantor 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 $1,000,000.00 in
the aggregate and the same shall be accelerated by the lenders or other
applicable parties,
(f) Lessee shall default beyond any applicable grace period contained
in one or more of the Leases,
(g) An Event of Default should occur pursuant to the Guaranty, or
(h) any certificate, financial statement or information, or any
representation or warranty provided herein or pursuant to this Lease by Lessee
should prove to be false or misleading in any material respect. Notwithstanding
the foregoing, it shall not be an Event of Default hereunder if upon
discovering such false or misleading statements and before Lessor relies upon
the same (i) Lessor notifies Lessee and (ii) Lessee, within ten (10) days of
such notice, takes appropriate action necessary to correct such false or
misleading statements.
15.2 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
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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
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 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), 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
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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 Repurchase Price 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 lowest rate of
capitalization (highest present worth) reasonably consistent with industry
standards at the time of such determination and allowed by applicable law.
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.
15.3 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), 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 and a reasonable allowance for Lessor's administrative
efforts, salaries and overhead attributable directly or indirectly to Lessee's
default and Lessor's pursuing the rights and remedies provided herein and under
applicable law.
15.4 WAIVER. If this Lease is terminated pursuant to law or the
provisions of this Article XV, Lessee waives, to the extent permitted by
applicable law, (a) any right of redemption, reentry or repossession and (b)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt.
15.5 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
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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.
15.6 NOTICES BY LESSOR. The provisions of this Article XV concerning
notices shall be liberally construed insofar as the contents of such notices
are concerned, and any such notice shall be sufficient if it shall generally
apprise Lessee of the nature and approximate extent of any default.
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.
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 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 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
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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 Repurchase
Price in accordance with Article XXVIII. All expenses of such conveyance,
including the cost of title examination or standard coverage title insurance,
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 l/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
19.1 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).
19.2 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 Repurchase Price
on the first Payment Date occurring not less than 120 days after the date of
such Officer's Certificate.
19.3 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 Repurchase Price 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.
ARTICLE XX
SUBSTITUTION OF PROPERTY
20.1 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.
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(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) 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 to 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
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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.
(f) The Minimum Repurchase Price of any Substitute Property or
Substitute Properties shall be an amount equal to the Minimum Repurchase Price
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.
20.2 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
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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 Repurchase Price, 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 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;
(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.
20.3 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.
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20.4 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.
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
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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
23.1 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. No sublease or assignment
shall release Lessee or Guarantor from their obligations under the Lease or
Guaranty.
23.2 NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT. Except for
existing Tenant Leases, Lessee shall insert in each sublease permitted under
Section 23.1 provisions to the effect that (a) 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
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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
24.1 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) the amounts of and the dates to which the
Rent has been paid, and such other matters regarding the Lease as Lessor may
reasonably request. 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.
24.2 FINANCIAL STATEMENTS AND CERTIFICATES. Lessee will furnish or
cause to be furnished the following statements to Lessor; provided that Lessor
shall keep confidential items furnished by Lessee which are not generally
available to the public:
(a) Within one hundred (100) days after the end of each year,
a copy of the consolidated audited financial statements of Guarantor with
consolidating supplemental schedules which include manager and all of
Guarantor's subsidiaries, prepared by KPMG Peat Marwick, LLP, or another
nationally recognized accounting firm or independent certified public
accounting firm acceptable to Lessor, which statements shall include a balance
sheet and a statement of income and expenses for the year then ended.
(b) [intentionally omitted]
(c) Within forty-five (45) days after the end of each
calendar quarter:
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(i) Current consolidated financial statements of Guarantor
(including manager) and consolidating financial statements of Lessee
(which shall include supplemental schedules of assets, liabilities,
income and expenses of Lessee) certified to be true and correct; and
(ii) A certificate of Lessee, in form acceptable to Lessor,
that no Default or Event of Default then exists and no event has
occurred (that has not been cured) and no condition currently exists
(herein, a "Default") that would, but for the giving of any required
notice or explanation of any applicable cure period, constitute an
Event of Default.
(d) Upon Lessor's request, within fifteen (15) days of the
end of each calendar month, an aged accounts receivable report of the Facility
from Lessee in sufficient detail to show amounts due from each class of
patient-mix (i.e. private, Medicare (if applicable), Medicaid (if applicable)
and V.A.) by the account age classifications of 30 days, 60 days, 90 days, 120
days.
(e) Upon Lessor's request, within thirty (30) days of the end
of each calendar month, a current year-to-date operating statement from the
Lessee for the Facility.
(f) Upon Lessor's request, within fifteen (15) days of the
end of each calendar month, monthly census information of the Facility in
sufficient detail to show patient-mix on a daily average basis for such month.
(g) Within ten (10) days of filing or receipt (i) all cost
reports, if any, and any amendments thereto filed with respect to the Facility
and (ii) all responses, audits reports, or inquiries with respect to such cost
reports, all of which Lessee shall prepare and file on a timely basis.
(h) Within ten (10) days of Lessee's receipt, copies of all
licensure and certification survey reports, if any, and statements of
deficiencies (with plans of correction attached thereto).
(i) Within three (3) days of Lessee's receipt, any and all
notices (regardless of form) from any and all licensing and/or certifying
agencies that the license and/or any applicable reimbursement contract or
certification of 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.
(j) Upon Lessor's request, evidence of payment by Lessee of
any applicable provider bed taxes or similar taxes, which taxes Lessee agrees
to pay.
The Lessee shall correct any deficiency within the date
required by any licensure and certification agency. Lessor reserves the right
to require such other financial information and
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tax returns of Lessee and Guarantor at such other times as it shall deem
necessary. All financial statements must be in such form and detail as the
Lessor shall from time to time request.
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 fully 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.
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:
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With a copy to:
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.
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ARTICLE XXVIII
APPRAISAL
In the event that it becomes necessary to determine the Fair Market Value, Fair
Market Value Purchase Price, the Fair Market Added Value, the Minimum
Repurchase Price 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 to 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
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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.
ARTICLE XXIX
PURCHASE RIGHTS
(a) 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 propose to sell the Leased Property, or 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 or proposes to offer the
Leased Property for sale, Lessor shall promptly notify Lessee of the purchase
price 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.
(b) Purchase Option. Not more than 180 days prior to the end of the
Initial Term and each Extended Term exercised by Lessee pursuant to the terms
of Article 34, Lessee shall have the option to purchase the Leased Property
upon written notice to Lessor for a purchase price equal to the Minimum
Repurchase Price. If not sooner exercised, the option to purchase granted
hereby will expire and be of no further force and effect upon the expiration of
the Term or the earlier termination of this Lease.
ARTICLE XXX
DEFAULT BY LESSOR
30.1 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
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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 Price or the Minimum Repurchase Price
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.
30.2 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.
ARTICLE XXXI
ARBITRATION
31.1 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.
31.2 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
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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.
31.3 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.
31.4 Arbitration Procedure. Said arbitrators shall give each to 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.
31.5 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.
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
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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.
ARTICLE XXXIII
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 the holder of an Encumbrance. Lessee
agrees to execute at the request from time to time of Lessor or an
institutional investor 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.
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 (3)
consecutive five (5) year periods ("Extended Term") for a maximum possible Term
of twenty-six (26) years, by giving written notice to Lessor of each such
extension at least 180 days, but not more than 270 days, prior to the
expiration of the then-current Term; subject, however, to the provisions of
Section 13.7
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hereof. Lessor agrees to use its best efforts to provide Lessee with prior
written notice at least 210 days prior to the expiration of the then-current
Term. Lessee may not exercise its option for more than one Extended Term at a
time. 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
MISCELLANEOUS
35.1 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.
35.2 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.
35.3 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.
35.4 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.
35.5 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
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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.
35.6 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 Alabama, 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.
35.7 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. Recordation shall be at Lessee's expense.
35.8 TRANSFER OF LICENSES. Upon the expiration or earlier termination
of the Term, Lessee shall take all action necessary to effect or useful in
effecting the transfer 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.
35.9 DEPOSIT ACCOUNT. All deposit accounts established pursuant to
this Lease shall either be in Lessee's name or in Lessor's name as and for the
benefit of Lessee, at Lessee's option. Lessee shall be entitled to receive all
interest on such accounts and to select investments in money market accounts or
certificates of deposit up to a two (2) month maturity, so long as no Event of
Default exists. Lessor shall have an assignment of such accounts as collateral
for Lessee's obligations hereunder. Upon termination of the Lease without any
Event of Default
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then existing or these being amounts owed to Lessor, Lessee shall be entitled
to receive the balance of funds in such accounts.
35.10 LEASE TERMINATION. Upon any termination or expiration of this
Lease Agreement for any reason (other than the exercise by Lessee of a purchase
option provided for herein), the Lessee shall peacably quit and surrender to
Lessor the Leased Property and the right to receive all rental and other income
of and from the same. Upon such surrender, Lessee shall fully cooperate with
Lessor or Lessor's designee to enable Lessor or Lessor's designee to obtain all
such licenses, permits, certifications, and any other such items necessary to
operate the Leased Property as a personal care facility and, to the extent
applicable, qualify for third-party payor programs, such as Medicare or
Medicaid.
35.11 FACILITY ADDITION. The Lessee shall construct a 13 unit, 20 bed
addition at the Facility, and Lessor shall, from time to time, advance funds
for such addition in amounts not to exceed $425,000 in the aggregate. Such
funds shall be advanced in accordance with a line item cost budget ("Cost
Budget") satisfactory to Lessor. Lessor will not be obligated to advance any
funds without first having been provided the following:
(a) Any proposed change in the Cost Budget, which must be satisfactory
to Lessor.
(b) AIA draw request forms properly executed with certification by the
Lessee, Lessee's architect and general contractor stating that such draw
requests are for reimbursement of actual costs incurred for the completion of
the project and in line with the Cost Budget supplied by the Lessee.
(c) For costs not included within the general construction contract,
invoices or other evidence to Lessor confirming that such costs have ben
incurred.
(d) Title insurance date down endorsements, and if requested by
Lessor, lien waivers from the general contractor for all preceding draws, or as
to items not covered by the construction contract, lien waivers from the
persons responsible for the work for which an advance is being requested.
ARTICLE XXXVI
GLOSSARY OF TERMS
36.1 For purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (a) the terms defined in
this Article XXXVI have the meanings assigned to them in this Article XXXVI 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,
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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.
"Acceptable Financial Institution" means AmSouth Bank, Colonial Bank,
SouthTrust Bank or First Commercial Bank, each in Birmingham, Alabama, or such
other financial institution as may be acceptable to Lessor.
"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. 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 voting securities,
partnership interests or other equity interests.
"Agent" has the meaning set forth in Article XXXII hereof.
"Applicable Period" means, except as described in Section 2.5, the
immediately preceding twelve (12) months.
"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 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.
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"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, (G) commitment fees, if any, charged by any Lending Institution advancing
or offering to advance any portion of the financing for such Capital Additions,
(H) a development fee not exceeding five percent (5%) of total Capital
Additions Cost.
"Cash Adjustment" has the meaning set forth in Section 20.l(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.
"Consolidated Financial Statements" means for any fiscal year or other
accounting period for Lessee and its 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
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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.
"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 price as set forth in the Purchase and Sale Agreement
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.
"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.
"Facilities" means, collectively, the following facilities: Kingston
Manor Personal Care and Retirement Center in Kingston, Pa., Mid-Valley Manor in
Peckville, Pa., Blakely Pine Health Care Center in Blakely, Pa., Kingston
Health Care Center in Kingston, Pa., West Side Manor Personal Care and
Retirement Center in Wyoming, Pa., Old Forge Manor Personal Care and Retirement
Center in Old Forge, Pa., and Bloomsburg Manor Personal Care and Retirement
Center in Bloomsburg, Pa.
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"Facility" means the ________ square foot building to be operated on
the Leased Property.
"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 Price" 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 12.1.
53
<PAGE> 54
"Guarantor" has the meaning set forth in Section 2.6.
"Guaranty" has the meaning set forth in Section 2.6.
"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 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
54
<PAGE> 55
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.
"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.
"Leases" means, collectively, this Lease and those certain leases of
even date herewith with respect to the Facilities and between Lessor, as the
lessor and the following entities as lessees thereunder: BCC at Blakely, Inc.,
BCC at Bloomsburg, Inc., BCC at Kingston I, Inc., BCC at Kingston II, Inc., BCC
at Mid-Valley, Inc., BCC at Old Forge, Inc., and BCC at West View, Inc.
"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
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.
55
<PAGE> 56
"Lessee" means _______________________, a Delaware corporation, its
successors and assigns.
"Lessor" means CAPSTONE CAPITAL OF PENNSYLVANIA, INC., a Pennsylvania
corporation, and its successors and assigns.
"Minimum Rent" has the meaning set forth in Section 2.1(a).
"Minimum Repurchase Price" means the greater of (i) the Fair Market
Value of the Leased Property at the time of repurchase hereunder by Lessee or
(ii) the purchase price paid by Lessor for the Leased Property pursuant to the
Purchase and Sale Agreement (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.
"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.
"Permitted Exceptions" has the meaning set forth in Article I hereof.
"Permitted Liens" means (i) liens described on Exhibit E attached
hereto, (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
56
<PAGE> 57
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 or useful 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.
"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 its 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 and Sale Agreement" means the agreement dated on or about
December 27,1996, between _______________ as "Seller", and Lessor as
"Purchaser" relating to the acquisition by Lessor of the Leased Property.
"Rent" means, collectively, the Minimum Rent and the Additional
Charges.
57
<PAGE> 58
"Request" has the meaning set forth in Section 9.3(a).
"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 residency agreements and similar rental
agreements (written or verbal, now or hereafter in effect), if any, that grant
a possessory interest in and to any individual unit in the Improvements, 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.
"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, 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.
58
<PAGE> 59
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:
LESSEE:
59
<PAGE> 60
SCHEDULE TO EXHIBIT 10.22 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
LEASE AGREEMENT
---------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE ANNUAL RENT
------- ------- -------- ---- -----------
<S> <C> <C> <C> <C>
Bloomsburg, PA Capstone Capital Bloomsburg Manor Personal Care 1/31/97 $348,800.00
Corporation of and Retirement Center
Pennsylvania, Inc. (Lessor)
and BCC at Bloomsburg, Inc.
(Lessee)
Blakely, PA Capstone Capital Blakely-Pine Health Care Center 1/31/97 $248,800.00
Corporation of
Pennsylvania, Inc. (Lessor)
and BCC at Blakely, Inc.
(Lessee)
Kingston I, PA Capstone Capital Kingston Manor Personal Care 1/31/97 $347,400.00
Corporation of and Retirement Center
Pennsylvania, Inc. (Lessor)
and BCC at Kingston I, Inc.
(Lessee)
Kingston II, PA Capstone Capital Kingston Health Care Center 1/31/97 $424,500.00
Corporation of
Pennsylvania, Inc. (Lessor)
and BCC at Kingston II,
Inc. (Lessee)
Mid-Valley, PA Capstone Capital Mid-Valley Manor Personal Care 1/31/97 $329,200.00
Corporation of and Retirement Center
Pennsylvania, Inc. (Lessor)
and BCC at Mid-Valley, Inc.
(Lessee)
Old Forge, PA Capstone Capital Old Forge Manor Personal Care 1/31/97 $228,600.00
Corporation of and Retirement Center
Pennsylvania, Inc. (Lessor)
and BCC at Old Forge, Inc.
(Lessee)
West View, PA Capstone Capital West Side Manor Personal Care 1/31/97 $237,700.00
Corporation of and Retirement Center
Pennsylvania, Inc. (Lessor)
and BCC at West View, Inc.
(Lessee)
Harrisburg, PA Capstone Capital Outlook Pointe at Harrisburg 3/28/97 Pursuant to
Corporation of formula in Lease
Pennsylvania, Inc. (Lessor)
and BCC at Harrisburg, Inc.
(Lessee)
</TABLE>
<PAGE> 61
<TABLE>
<S> <C> <C> <C> <C>
Greensboro, NC Capstone Capital Outlook Pointe at Greensboro 3/28/97 Same as
Corporation (Lessor) and Harrisburg Lease
BCC at Greensboro, Inc.
(Lessee)
Ravenna, OH Capstone Capital Outlook Pointe at Ravenna 3/28/97 Same as
Corporation (Lessor) and Harrisburg Lease
BCC at Ravenna, Inc.
(Lessee)
Nevada, MO (2 Capstone Capital Joe Clark Residential Care Home 5/15/97 $133.375.00
Leases) Corporation (Lessor) and 1501 E. Ashland Street
BCC at Missouri, Inc. Nevada, MO
(Lessee)
Butler, MO Capstone Capital Joe Clark Residential Care Home 5/15/97 $133,375.00
Corporation (Lessor) and 300 S. Delaware Street
BCC at Missouri, Inc. Butler, MO
(Lessee)
Lamar, MO Capstone Capital Joe Clark Residential Care Home 8/18/97 $133,375.00
Corporation (Lessor) and 3 Southwest First Lane
BCC at Lamar, Inc. (Lessee) Lamar, MO
Roanoke, VA ALCO II, L.L.C. (Lessor) Outlook Pointe at Roanoke 6/30/97 Pursuant to
and BCC at Roanoke (Lessee) formula in Lease
Harrisonburg, VA ALCO I, L.L.C. (Lessor) Outlook Pointe at Harrisonburg 6/30/97 Same as Roanoke
and BCC at Harrisonburg, Lease
Inc. (Lessee)
Danville, VA ALCO III, L.L.C. (Lessor) Outlook Pointe at Danville 9/3/97 Same as Roanoke
and BCC at Danville, Inc. Lease
(Lessee)
</TABLE>
<PAGE> 62
SCHEDULE TO EXHIBIT 10.22 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
LEASE
-----
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE ANNUAL RENT
- ------- ------- -------- ---- -----------
<S> <C> <C> <C> <C>
Hampden Township, PA Capstone Capital of Pennsylvania, Inc. Outlook Pointe at 9/30/97 Pursuant to formula in lease
(Lessor) and ALCO VI, L.L.C. (Lessee) Creekview
</TABLE>
<PAGE> 1
EXHIBIT 10.23
FORM OF
ASSIGNMENT AND SECURITY AGREEMENT
THIS ASSIGNMENT AND SECURITY AGREEMENT, made as of _________________
________________ by and between _______________________ ("Lessee") and its
successors and assigns ("Lessor").
R E C I T A L S:
A. Lessee desires to enter into a lease agreement (the "Lease" and
together with any other documents executed in connection therewith, the "Lease
Documents") with respect to a facility known as ______________________________
_________________ (the "Facility"), located at certain real property more
particularly described in Exhibit A hereto (the real property and improvements
now or hereafter existing thereat are referred to herein as the "Property").
B. As a condition precedent to Lessor entering into the Lease, Lessor
requires a security interest in all of Lessee's right, title, and interest in
and to the Collateral hereinafter defined.
NOW, THEREFORE, in consideration of the recitals, Ten Dollars ($10.00)
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Lessee and Lessor hereby covenant and agree as herein
provided.
1. DEFINITIONS. For the purposes of this Assignment and Security
Agreement (referred to herein as the "Assignment" or the "Agreement"), the
following defined terms shall have the following meanings:
"ACCOUNTS" means any rights of Lessee arising from the operation of
the Facility to payment for goods sold or leased or for services rendered, not
evidenced by an Instrument, including, without limitation, (i) all accounts
arising from the operation of the Facility and (ii) all rights to payment (if
any) from Medicare or Medicaid programs or similar state or federal programs,
boards, bureaus or agencies and rights to payments from patients or private
insurers, arising from the operation of the Facility. Accounts shall include
the proceeds thereof (whether cash or noncash, moveable or immoveable, tangible
or intangible) received from the sale, exchange, transfer, collection or other
disposition or substitution thereof.
"ACCRUED RENTS" means all rights of Lessee, as lessor or sublessor,
to payment arising when rent is earned under leases for retail space or other
space in the Facility (including, without limitation, rights to payment earned
under written leases for space in the Facility for the operation of ongoing
retail businesses such as barbershops, beauty shops, medical offices,
pharmacies and specialty shops).
<PAGE> 2
"COLLATERAL" means Accounts, Accrued Rents, General Intangibles,
Instruments, Money, and, to the extent assignable, Permits and Reimbursement
Contracts, whether now owned or hereafter at any time acquired by Lessee and
wherever located, and includes all replacements, additions, accessions,
substitutions, proceeds (including without limitation, proceeds of insurance)
and products relating thereto; provided, however, that with respect to any
items which are leased and not owned by Lessee, the term "Collateral" includes
the leasehold interest only of Lessee together with any options to purchase any
of said items and any additional or greater rights with respect to such items
which Lessee may hereafter acquire.
"EVENT OF DEFAULT" means any Event of Default as defined in the
Lease.
"GENERAL INTANGIBLES" means all intangible personal property of
Lessee arising out of or connected with the Facility (other than Accounts,
Accrued Rents, Instruments, Money and Permits).
"INSTRUMENTS" means all instruments, chattel paper, documents or
other writings obtained by Lessee from or in connection with the operation of
the Facility (including, without limitation, all ledger sheets, computer
records and printouts, data bases, programs, books of account and files of
Lessee relating thereto).
"LEASE DEFAULT" means a default under the Lease which is not timely
cured within applicable cure periods, if any.
"LEASE OBLIGATIONS" means the aggregate of all amounts owing from
time to time under the Lease and all expenses, charges and other amounts from
time to time owing under this Agreement or the Lease, and all covenants,
agreements and other obligations from time to time owing to, or for the benefit
of, Lessor pursuant to the Lease.
"MONEY" means all monies, cash, rights to deposit or savings
accounts or other items of legal tender obtained from or for use in connection
with the operation of the Facility.
"PERMITS" means all licenses, permits and certificates obtained by
or in the name of Lessee in connection with the operation, use or occupancy of
the Facility, including, without limitation, business licenses, state health
department licenses, food service licenses, licenses to conduct business,
certificates of need and all such other permits, licenses and rights, obtained
by or in the name of Lessee from any governmental, quasi-governmental or
private Person whatsoever concerning operation, use or occupancy.
"PERSON" means any person, firm, corporation, partnership trust or
other entity.
"REIMBURSEMENT CONTRACTS" means all third party reimbursement
contracts for the Facility which are now or hereafter in effect with respect to
patients qualifying for
2
<PAGE> 3
coverage under the same, including Medicare, Medicaid, and any successor
program or other similar reimbursement program and private insurance
agreements.
Singular terms shall include the plural forms and vice versa, as
applicable, of the terms defined.
Terms contained in this Agreement shall, unless otherwise defined
herein or unless the context otherwise indicates, have the meanings, if any,
assigned to them by the Uniform Commercial Code in effect in the State of
Alabama.
All references to other documents or instruments shall be deemed to
refer to such documents or instruments as they may hereafter be extended,
renewed, modified, or amended and all replacements and substitutions therefor,
except that any amendments to the Lease without Lessor's prior written consent
will be void.
2. SECURITY INTEREST. Lessee hereby grants to Lessor a security
interest in the Collateral in order to secure payment and performance of the
Lease Obligations. Until the occurrence of an Event of Default, however, Lessee
shall have the right to collect all proceeds of the Collateral and to take
other action with respect to the Collateral, subject to the provisions of this
Assignment.
3. COLLATERAL SECURITY. Upon the payment of the Lease Obligations and
such payment becoming final and no longer subject to refund or rescission under
bankruptcy or other applicable law, the security interest in the Collateral
created by Section 1, and all rights herein granted to Lessor, shall be
released and all the estate, right, title, interest, claim and demand of Lessor
in and to the Collateral shall revert to Lessee, and Lessor shall at the
request of Lessee deliver to Lessee an instrument cancelling this Assignment
and terminating the security interest in the Collateral created by this
Assignment, but until such time the same shall remain in full force and effect.
4. TITLE. Lessee will defend the Collateral against all claims and
demands of all entities at any time claiming the Collateral, or any portion
thereof or interest therein.
5. FURTHER ACTIONS. Lessee will, at the request of Lessor (i) join
with Lessor in executing one or more financing statements or other documents
necessary or appropriate to evidence or secure the Lease Obligations, or
perfect the security interest in the Collateral created by this Assignment, in
form and content satisfactory to Lessor; (ii) mark any chattel paper to reflect
Lessor's interest therein; and (iii) take any other action or execute any other
instrument deemed necessary or appropriate in the judgment of Lessor to perfect
or continue the perfection of the security interest of Lessor in the Collateral
and to protect the Collateral against the rights, claims or interests of all
other entities.
6. NO ENCUMBRANCES. Except for any lease or grant of purchase money
security interests in new items of tangible personal property having an
aggregate cost during the Lease term of an amount not to exceed $25,000, Lessee
will not, without the express
3
<PAGE> 4
prior written approval of Lessor, in any way encumber, or hypothecate, or
create or permit to exist any lien, security interest or encumbrance or other
interest in the Collateral except the security interest in favor of Lessor.
7. COLLECTION. Lessee will diligently, in accordance with good
business practices, pursue collection of all portions of the Collateral which
consist of obligations or indebtedness owed to Lessee by other Persons, and
Lessee will, in a timely manner, in accordance with good business practices,
file (and assign to Lessor) any liens available to protect the rights of Lessee
to payment of such obligations or indebtedness and will give all prior notices
thereof required by law.
8. RECORDS. Lessee will, upon request by Lessor at any time and from
time to time, deliver or make available to Lessor records and schedules
reflecting the accurate and complete status, condition and location of the
Collateral.
9. INFORMATION. Lessee will promptly advise Lessor by notice if Lessee
should change its principal place of business or chief executive office from
the address set forth in Section 15 hereof, which Lessee represents to be its
present principal place of business and chief executive office. Lessee will
advise Lessor of any information which may adversely affect the value of the
Collateral or the rights or remedies of Lessor with respect to the Collateral.
10. BOOKS AND RECORDS. Lessee will maintain complete and accurate
account books and records with respect to the operation of the Facility, which
books and records shall reflect the consistent application of generally
accepted accounting principles, and Lessee will make such books and records
available at reasonable times for inspection and copying by Lessor or its
agents.
11. REMEDIES. In addition to all other remedies available under the
Lease and as otherwise may be available at law or in equity, Lessor may, upon
the occurrence of an Event of Default, pursue any, all or any combination of
the remedies described in subsections 11(a) through 11(g):
(a) Exercise any and all of the rights and remedies for which
provision is made by the applicable Uniform Commercial Code, together
with the right to recover the reasonable attorneys' fees and legal
expenses incurred by Lessor in the enforcement of this Assignment or
in connection with any redemption of the Collateral, including fees
and expenses on appeal and in any bankruptcy proceedings.
(b) Require Lessee to assemble the Collateral, or any portion
thereof, and make such available at one or more places as Lessor may
designate, and to deliver possession of the Collateral to Lessor,
which shall have full right to enter upon any or all of the premises
and property of Lessee to exercise Lessor's rights hereunder.
4
<PAGE> 5
(c) Use, operate and control the Collateral to preserve the
Collateral or the value thereof.
(d) Enforce one or more remedies hereunder, successively or
concurrently, and such action shall not operate to estop or prevent
Lessor from pursuing any other or further remedy which Lessor may
have.
(e) In connection with any public or private sale under the
applicable Uniform Commercial Code, Lessor shall give Lessee ten (10)
business days' notice of the time and place of any public sale of the
Collateral or of the time after which any private sale or other
intended disposition thereof is to be made, which notice shall be
deemed to be reasonable notice of such sale or other disposition. Such
notice may be mailed to Lessee at the address and in the manner set
forth in Section 14.
(f) In the event Lessor recovers possession of all or any part of
the Collateral pursuant to a writ of possession or other judicial
process, whether prejudgment or otherwise, Lessor may thereafter
retain, sell or otherwise dispose of such Collateral in accordance
with this Assignment or the applicable Uniform Commercial Code, and
following such retention, sale or other disposition, Lessor may
voluntarily dismiss without prejudice the judicial action in which
such writ of possession or other judicial process was issued. Subject
to the provisions of applicable law, Lessee hereby consents to the
voluntary dismissal by Lessor of such judicial action, and Lessee
further consents to the exoneration of any bond which Lessor may have
filed in such action.
(g) Lessor may notify Lessee's account debtors with respect to
any Accounts to make payment directly to Lessor or to one or more
accounts as designated by Lessor (which in Lessor's judgment will in
the case of Medicare or Medicaid Accounts comply with any legal
requirements of Medicare or Medicaid), and Lessor is hereby authorized
by Lessee (and is appointed attorney-in-fact of Lessee) to sign and
endorse Lessee's name upon any such notice to account debtors and upon
any check, draft, money order or other form of payment of any Account,
and, after applying the same first to expenses of collection and
enforcement of the Accounts, including attorneys' fees, the Lessor may
apply the same to reduce the Lease Obligations in such order as Lessor
shall elect. Lessor shall not be liable for failure to collect or to
enforce any Accounts or for any action or omission on the part Lessor,
its officers, agents and employees in enforcing such Accounts.
12. WAIVER OF CERTAIN LAWS. Lessee agrees that in case of any Event of
Default, neither Lessee nor anyone claiming through or under Lessee will set
up, claim or seek to take advantage of any appraisement, valuation, stay,
extension, homestead, exemption or redemption laws now or hereafter in force,
or otherwise seek to prevent or hinder the enforcement of this Agreement, or
the final and absolute realization of Lessor upon the security interests
created by this Agreement, and Lessee, for Lessee and all who may at any time
claim through or under any Lessee, hereby waives to the full extent that Lessee
may
5
<PAGE> 6
lawfully do, the benefit of all such laws, and any and all right to have the
assets comprising the security intended to be created hereby (that is, the
Collateral) marshalled upon any exercise of the remedies provided herein.
13. RECORDING AND FILING. A UCC-1 financing statement may be filed
and/or recorded, and from time to time thereafter be refiled and/or rerecorded
at the option of Lessor, in the local and state filing offices in Pennsylvania
and other states where Lessor deems advisable in order to perfect or continue
the perfection of Lessor's interest in the Collateral or any part thereof, and
Lessee agrees to pay (or reimburse the Lessor if Lessor pays) the fees and
taxes for such filing or recording.
14. NOTICES. Each notice to Lessee required herein, or by applicable
law, shall be in writing and shall be deemed received (a) on the date
delivered, if sent by hand delivery (to the person or department if one is
specified below), (b) three (3) days following the date deposited in U. S.
mail, certified or registered, with return receipt requested, or (c) one (1)
day following the date deposited with Federal Express or other national
overnight carrier, and in each case addressed as follows:
If to Lessee:
Balanced Care Corporation
5021 Louise Drive - Suite 200
Mechanicsburg, Pennsylvania 17055
Attn: Robin Barber, Esq.
If to Lessor:
Capstone Capital of Pennsylvania
1000 Urban Center Parkway
Birmingham, Alabama 35242
Attn: Daryl D. McCombs
Any party may change its address to another single address by notice given as
herein provided, except any change of address notice must be actually received
in order to be effective.
15. [Intentionally Omitted]
16. WAIVER. No consent or waiver, express or implied, by any party to
this Agreement to or of any breach or default by any other party to this
Agreement in the performance by such other party of the obligations thereof
under this Agreement shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance by such other party of the
same or any other obligations of such other party under this Agreement. Failure
on the part of any party to this Agreement to complain of any
6
<PAGE> 7
act or failure to act of any other party to this Agreement or to declare such
other party in default, irrespective of how long such failure continues, shall
not constitute a waiver by such party of the rights thereof under this
Agreement.
17. SEVERABILITY, COMPLETE AGREEMENT. If any provision of this
Agreement or the application thereof to any Person or circumstance shall be
invalid or unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to any other Person or circumstance shall not be
affected thereby, and such provisions shall be enforced to the greatest extent
permitted by law. This Agreement and the Lease Documents, and the instruments
executed in connection herewith, constitute the full and complete agreement of
the parties and supersede all prior negotiations, correspondence, and memoranda
relating to the subject matter thereof.
18. AMENDMENT. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
19. HEADINGS; NUMBER AND GENDER. The headings of the sections,
paragraphs and subdivisions of this Agreement are for convenience of reference
only, are not to be considered a part hereof and shall not limit or otherwise
affect any of the terms hereof.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
21. BINDING AGREEMENT. The provisions of this Agreement shall apply
to, inure to the benefit of, and bind Lessee and Lessor and their respective
successors and assigns thereof.
22. INTERPRETATIONS. No provisions of this Agreement shall be
construed against or interpreted to the disadvantage of any party to this
Agreement by any court or other governmental or judicial authority by reason of
such party's having or being deemed to have structured or dictated such
provision.
23. RELATIONSHIP OF PARTIES. No express or implied term, provision or
condition of this Agreement, considered without reference to any other or
external agreement, shall or shall be deemed to constitute the parties of this
Agreement as partners or joint venturers.
24. COSTS AND EXPENSES. Lessee will bear all expenses (including legal
fees and expenses of Lessor's counsel and including fees and expenses on appeal
and in bankruptcy) in connection with any advice or other representation with
respect to this Agreement, or to collect the Lease Obligations, or any part
thereof, or to take any action with respect to any suit or proceeding relating
to this Agreement or the Collateral, either where Lessor is named as a party or
participates as a party, or to protect, collect, or liquidate any of the
Collateral
7
<PAGE> 8
for the Lease Obligations or to attempt to enforce any security interest or
lien granted to Lessor by the Lessee.
25. CONTROLLING LAW. The validity, interpretation, enforcement and
effect of this Agreement shall be governed by, and construed in accordance
with, the laws of the State of Alabama.
26. WAIVER OF JURY TRIAL. LESSEE HEREBY WAIVES ANY RIGHT THAT IT MAY
HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR
THE LEASE, OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR
INCIDENTAL TO ANY DEALINGS OF LESSOR AND/OR LESSEE WITH RESPECT TO THE LEASE OR
IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF EITHER PARTY'S RIGHTS AND
REMEDIES UNDER THIS AGREEMENT OR OTHERWISE, OR THE CONDUCT OR THE RELATIONSHIP
OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. LESSEE
AGREES THAT LESSOR MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF LESSEE
IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF LESSOR TO
ENTER INTO THE LEASE, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY
DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN
BORROWER, LESSEE AND LESSSORSHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, Lessee and Lessor have cause this Agreement to be
properly executed as of the day and year first above written.
LESSEE:
8
<PAGE> 9
LESSOR:
By:
Its:
9
<PAGE> 10
SCHEDULE TO EXHIBIT 10.23 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
ASSIGNMENT AND SECURITY AGREEMENT
---------------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
------- ------- -------- ----
<S> <C> <C> <C>
Bloomsburg, PA Capstone Capital of Pennsylvania, Inc. and Bloomsburg Manor Personal Care and 1/31/97
BCC at Bloomsburg, Inc. Retirement Center
Blakely, PA Capstone Capital of Pennsylvania, Inc. and Blakely-Pine Health Care Center 1/31/97
BCC at Blakely, Inc.
Kingston I, PA Capstone Capital of Pennsylvania, Inc. and Kingston Manor Personal Care and 1/31/97
BCC at Kingston I, Inc. Retirement Center
Kingston II, PA Capstone Capital of Pennsylvania, Inc. and Kingston Health Care Center 1/31/97
BCC at Kingston II, Inc.
Mid-Valley, PA Capstone Capital of Pennsylvania, Inc. and Mid-Valley Manor Personal Care and 1/31/97
BCC at Mid-Valley, Inc. Retirement Center
Old Forge, PA Capstone Capital of Pennsylvania, Inc. and Old Forge Manor Personal Care and 1/31/97
BCC at Old Forge, Inc. Retirement Center
West View, PA Capstone Capital of Pennsylvania, Inc. and West Side Manor Personal Care and 1/31/97
BCC at West View, Inc. Retirement Center
Nevada, MO (2 Capstone Capital Corporation and Joe Clark Residential Care Home 5/15/97
Agreements) BCC at Missouri, Inc. 1501 E. Ashland Street
Nevada, MO
Butler, MO Capstone Capital Corporation and Joe Clark Residential Care Home 5/15/97
BCC at Missouri, Inc. 300 S. Delaware Street
Butler, MO
Lamar, MO Capstone Capital Corporation and Joe Clark Residential Care Home 8/18/97
BCC at Lamar, Inc. 3 Southwest First Lane
Lamar, MO
Roanoke, VA ALCO II, L.L.C. and BCC at Roanoke, Inc. Outlook Pointe at Roanoke 6/30/97
Harrisonburg, VA ALCO I, L.L.C. and BCC at Harrisonburg, Outlook Pointe at Harrisonburg 6/30/97
Inc.
Danville, VA ALCO III, L.L.C. and BCC at Danville, Inc. Outlook Pointe at Danville 9/3/97
</TABLE>
<PAGE> 11
SCHEDULE TO EXHIBIT 10.23 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
SECURITY AGREEMENT
------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
- ------- ------- -------- ----
<S> <C> <C> <C>
Hampden Township, PA Capstone Capital of Pennsylvania, Inc. and Outlook Pointe at 9/30/97
ALCO VI, L.L.C. Creekview
</TABLE>
<PAGE> 1
EXHIBIT 10.24
(________ )
FORM OF ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT ("Agreement") is made as of _______________
____________, by and between BALANCED CARE CORPORATION, a Delaware corporation
having a principal place of business at 5021 Louise Drive, Suite 200,
Mechanicsburg, Pennsylvania 17055 (the "Assignor") and CAPSTONE CAPITAL OF
PENNSYLVANIA, INC., a Pennsylvania corporation having a principal place of
business at 1000 Urban Center Drive, Suite 630, Birmingham, Alabama 35242 (the
"Assignee").
WHEREAS, the Assignor is the Purchaser and _________________________
_____________________________ is the Seller under that certain Asset Purchase
Agreement dated as of __________________ (the "Asset Purchase Agreement"):
capitalized terms used herein and not otherwise defined have the meanings
provided for therein; and
WHEREAS, the Assignor desires to assign all of its rights and certain
of its obligations under the Asset Purchase Agreement to the Assignee; and
WHEREAS, a condition to Assignee's agreement to accept an assignment of
Assignor's rights and certain of its obligations under the Asset Purchase
Agreement (the "Assignment") is the execution of a Lease Agreement of even date
herewith ("Lease Agreement") by and between Assignee, as lessor, and __________,
a Delaware corporation and a wholly owned subsidiary of Assignor ("BCC"), as
lessee, with respect to the Purchased Assets, together with all other documents
provided for or contemplated by the Lease Agreement, including, without
limitation, a guaranty agreement to be executed by Assignor in favor Assignee
with respect to all obligations of BCC under the Lease Agreement, all in form
and content satisfactory to Assignee; and
WHEREAS, Assignee's agreement to accept the Assignment is further
subject to those conditions, limitations and agreements of Assignor set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby act and
agree as follows:
1. (a) Except as provided in subsection (b) below, the Assignor hereby
assigns, sets over and transfers to the Assignee all of the Assignor's right,
title and interest as the Purchaser under the Asset Purchase Agreement,
including, without limitation, any Purchaser Indemnitee's right to
indemnification by Seller under the Asset Purchase Agreement. The Assignor
further relinquishes and conveys to Assignee all of Assignor's right, title and
interest in and to the Real Property Owned and equipment, machinery and other
tangible personal property ("Equipment").
<PAGE> 2
(b) Notwithstanding subsection (a) above, Assignor does not assign
to Assignee any of Assignor's rights under the Asset Purchase Agreement
relating to the Other Assets. For this purpose, the term "Other Assets" means
all intangible personal property conveyed pursuant to the Asset Purchase
Agreement, including, but not limited to, goodwill and the "going concern" of
the Business. In no event does the term "Other Assets" include any Real
Property Owned, Equipment or any intangible assets directly related thereto.
2. The Assignor represents and warrants to the Assignee that (a) the
Assignor has not made or executed any other assignment of any of its rights
under the Asset Purchase Agreement, (b) the Assignor has all requisite
corporate power and authority to execute, deliver and perform this Agreement,
(c) the Asset Purchase Agreement is in full force and effect and the Seller and
the Assignor have fully performed their respective obligations thereunder as of
this date, (d) a true and correct copy of the Asset Purchase Agreement has been
provided to the Assignee by the Assignor and (e) except as already obtained,
the execution and delivery of this Agreement by the Assignor and the
performance of its obligations hereunder do not require the consent, license,
permission, action or approval by any party, including, without limitation, the
Seller.
3. The Assignee's obligations under the Asset Purchase Agreement shall
be limited solely to (a) payment of the Purchase Price and (b) acceptance of
delivery of a deed to the Real Property Owned together with and any other
documents required to be delivered under the Asset Purchase Agreement on the
Closing Date. The Assignee shall not be responsible to Seller or to any other
party for the performance of any agreements, covenants, warranties, obligations
and liabilities of the Purchaser under the Asset Purchase Agreement, except as
specifically provided for herein.
4. Except as set forth in Section 3 above, the Assignor shall be
liable to the Seller for, and the Assignor covenants and agrees with the
Assignee that the Assignor will fulfill and perform, all of the Purchaser's
obligations under the Asset Purchase Agreement, including, without limitation,
the Purchaser's obligation to indemnify any Seller Indemnitee under the Asset
Purchase Agreement.
5. In addition to the parties to whom notice is to be given under
Section 15.5 of the Asset Purchase Agreement, any notice to be given or
received by the Purchaser shall also be given to the Assignee, as follows:
If to Assignee, to:
Capstone Capital of Pennsylvania, Inc.
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attn: Daryl D. McCombs
Tel: (205) 967-2092
Fax: (205) 967-9066
2
<PAGE> 3
With a required copy to:
Johnston, Barton, Proctor & Powell
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203-2618
Attn: Haskins W. Jones, Esq.
Tel: (205) 458-9400
Fax: (205) 458-9500
6. This Agreement shall be binding upon and insure to the benefit of
the parties hereto and their respective successors and assigns.
7. This Agreement may be executed in one or more counterparts, all of
which shall constitute one and the same instrument. This Agreement is intended
to take effect as a sealed instrument and shall be construed in accordance with
the laws of the State of Alabama.
[SIGNATURES ON FOLLOWING PAGE]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the date and year first written above.
ASSIGNOR:
BALANCED CARE CORPORATION, a Delaware
Corporation
By:
-------------------------------
Name:
Title:
ASSIGNEE
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.
a Pennsylvania Corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
4
<PAGE> 5
SCHEDULE TO EXHIBIT 10.24 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
ASSIGNMENT AGREEMENT
--------------------
<TABLE>
<CAPTION>
PROJECT SELLER LESSEE DATE OF DATE OF
- ------- ------ ------ ASSIGNMENT UNDERLYING
---------- AGREEMENT
----------
<S> <C> <C> <C> <C>
Hampden James E. Grandon, Jr., Jean ALCO VI, L.L.C. 9/30/97 6/10/97
Township, Pa Grandon and JIM JAM, L.L.P.
</TABLE>
<PAGE> 1
EXHIBIT 10.25
[__________]
FORM OF
ASSIGNMENT OF RENTS AND LEASES
THIS ASSIGNMENT made as of the ______________________, by ________
_______________ (the "Lessee") to Capstone Capital Corporation of Pennsylvania,
a Pennsylvania corporation (the "Lessor").
R E C I T A L S:
This Assignment is made as additional security for the payment of
amounts due or to become due from time to time by Lessee to Lessor in
connection with that certain Lease of even date herewith (the "Lease"), and as
additional security for the full and faithful performance by Lessee of all
obligations pursuant to the Lease and all other obligations pursuant to
documents now or hereafter executed by Lessee in connection with the Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, and as an
inducement to the Lessor to enter the Lease, Lessee does hereby sell, assign,
transfer and set over unto Lessor, its successors and assigns, (a) all of
Lessee's interest in and to all leases presently existing or hereafter made,
whether written or verbal, or any letting of, or agreement for the use or
occupancy of, any part of the property described in Exhibit A attached hereto,
and the improvements now or hereafter located thereon, including, without
limitation, all the rents, issues, and profits now due and which may hereafter
become due under or by virtue of said leases and agreements, and (b) 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 payment of the Lease obligations.
Lessee agrees that this Assignment shall cover all future leases,
whether written or verbal, or any letting of, or any agreement for the use or
occupancy of, any part of said property.
Except for any lease or grant of purchase money security interests in
new items of tangible personal property having an aggregate cost during the
Lease term of an amount not to exceed $25,000. Lessee further agrees that it
will not assign the rent or any part of the rent of said property, nor collect
rents under any leases or other agreements relating to use of any part of the
property, for a period further in advance than one (1) month without the
written consent of the Lessor, nor take any action that results in the creation
of any lien upon or against the property which is the subject of the Lease or
any lessee's interest therein.
<PAGE> 2
Lessee agrees that it has not and will not enter into any lease except
for Tenant Leases and except as may otherwise expressly permitted by the Lease.
Lessee further agrees that this Assignment is to remain in full force
and effect until such time as the Lease obligations are paid in full.
Although it is the intention of the parties that this instrument be a
present assignment, it is expressly understood and agreed by Lessee and Lessor
that said Lessee reserves, and is entitled to collect, said rents, income and
profit upon, but not more than one (1) month in advance of, their accrual under
the aforesaid leases, and to retain, use and enjoy the same unless and until
the occurrence of an Event of Default beyond any applicable cure period
pursuant to (and as defined in) the Lease, or until the violation of any term,
condition or agreement of this Assignment which is not cured within thirty (30)
days of written notice of such violation from Lessor to Lessee which shall be
given and deemed received when sent in the manner set forth in the Lease, each
of which shall constitute an "Event of Default" hereunder. Upon an Event of
Default beyond any applicable cure period, Lessee's privilege to collect the
rents shall automatically terminate.
Lessee does hereby authorize and empower Lessor to collect directly
from the lessees, upon demand, and any Event of Default hereunder, all of the
rents, issues and profits now due or which may hereafter become due under or by
virtue of any lease, whether written or verbal, or any letting of, or agreement
for the use or occupancy of, any part of said property and to take such action,
legal or equitable, as may be deemed necessary to enforce payment of such
rents, issues and profits. Lessee hereby authorizes and directs the lessees
under leases to pay to Lessor all rents and other sums as the same become due,
upon notice from Lessor that an Event of Default has occurred hereunder. Any
lessee making such payment to Lessor shall be under no obligation to inquire
into or determine the actual existence of any Event of Default claimed by
Lessor.
Any amount received or collected by Lessor by virtue of this
Assignment shall be applied for the following purposes, but not necessarily in
the order named, priority and application of such funds being within the sole
discretion of Lessor:
(1) to the payment of all necessary expenses for the
operation, protection and preservation of the property, including the
usual and customary fees for management services;
(2) to the payment of taxes and assessments levied and
assessed against the property as said taxes and assessments become due
and payable;
(3) to the payment of premiums due and payable on any
insurance policy related to the property;
(4) to the payment of Lease obligations; and
(5) the balance remaining after payment of the above shall be
paid to the Lessee.
2
<PAGE> 3
Lessee hereby agrees to indemnify Lessor for, and to save it harmless from, any
and all liability, loss or damage which Lessor might incur under said leases or
by virtue of this Assignment, as a result of any act, or failure to act, prior
to Lessor taking possession and from any and all claims and demands whatsoever
which may be asserted against Lessor thereunder or hereunder, and, without
limiting the generality of the foregoing, covenants that this Assignment shall
not operate (prior to Lessor taking possession) to place responsibility for the
control, care, management or repair of said property upon Lessor, nor the
carrying out of any of the terms and conditions of said leases; nor shall it
operate (prior to Lessor taking possession) to make Lessor responsible or
liable for any waste committed on the property by the tenants or any other
party, or for any negligence in the management, upkeep repair or control of
said property resulting in loss or injury or death to any tenant, licensee,
invitee, employee, stranger or other person.
The term "Lease" shall refer to such instrument as it may hereafter be
amended by Lessee and Lessor. This Assignment shall be binding upon the Lessee,
its successors and assigns, and shall inure to the benefit of Lessor, its
successors and assigns.
LESSEE WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTE, THIS
ASSIGNMENT AND ANY OTHER LEASE DOCUMENTS. LESSEE CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF LESSOR OR LESSOR'S COUNSEL HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT LESSOR WOULD NOT, IN THE EVENT OF SUCH LITIGATION,
SEEK TO ENFORCE THIS WAIVER OF THE JURY TRIAL PROVISION. LESSEE ACKNOWLEDGES
THAT LESSOR HAS BEEN INDUCED TO MAKE THE LEASE SECURED HEREBY IN PART BY THE
PROVISIONS OF THIS WAIVER.
[SIGNATURES ON FOLLOWING PAGE]
3
<PAGE> 4
IN WITNESS WHEREOF, the Lessee has caused these presents to be
executed by its duly authorized officer as of the day and year first above
written.
----------------------------------
BY:
-------------------------------
ITS:
-------------------------------
4
<PAGE> 5
SCHEDULE TO EXHIBIT 10.25 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
ASSIGNMENT OF RENTS AND LEASES
------------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES DATE
------- ------- ----
<S> <C> <C>
Bloomsburg, PA Capstone Capital of Pennsylvania, Inc. and BCC at Bloomsburg, Inc. 1/31/97
Blakely, PA Capstone Capital of Pennsylvania, Inc. and BCC at Blakely, Inc. 1/31/97
Kingston I, PA Capstone Capital of Pennsylvania, Inc. and BCC at Kingston I, Inc. 1/31/97
Kingston II, PA Capstone Capital of Pennsylvania, Inc. and BCC at Kingston II, Inc. 1/31/97
Mid-Valley, PA Capstone Capital of Pennsylvania, Inc. and BCC at Mid-Valley, Inc. 1/31/97
Old Forge, PA Capstone Capital of Pennsylvania, Inc. and BCC at Old Forge, Inc. 1/31/97
West View, PA Capstone Capital of Pennsylvania, Inc. and BCC at West View, Inc. 1/31/97
</TABLE>
<PAGE> 6
SCHEDULE TO EXHIBIT 10.25 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
ASSIGNMENT OF RENTS AND LEASES
------------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY LOAN AMOUNT DATE
- ------- ------- -------- ----------- ----
<S> <C> <C> <C> <C>
Darlington, PA BCC at Darlington (Borrower) Feltrop Personal $5,875,000.00 9/30/97
and Capstone Capital of Care Home
Pennsylvania, Inc. (Lender)
Hampden Township, PA ALCO VI, L.L.C. (Lessee) and Outlook Pointe at N/A 9/30/97
Capstone Capital of Creekview
Pennsylvania, Inc. (Lessor)
Butler, PA Balanced Care at Butler, Inc. Silver Haven $246,000.00 10/31/97
(Borrower) and Capstone Capital
of Pennsylvania, Inc. (Lender)
Sarver, PA Balanced Care at Sarver, Inc. Sterling Care of $286,000.00 10/31/97
(Borrower) and Capstone Capital Sarver
of Pennsylvania, Inc. (Lender)
Saxonburg, PA Balanced Care at Saxonburg, Sterling Care of $8,618,000.00 10/31/97
Inc. (Borrower) and Capstone Saxonburg
Capital of Pennsylvania, Inc.
(Lender)
</TABLE>
<PAGE> 1
EXHIBIT 10.26
(_________)
FORM OF
GUARANTY OF PAYMENT AND PERFORMANCE
THIS GUARANTY OF PAYMENT AND PERFORMANCE ("this Guaranty") made as of
the _________________________, by BALANCED CARE CORPORATION, a Delaware
corporation, "Guarantor" in favor of CAPSTONE CAPITAL OF PENNSYLVANIA, INC., a
Pennsylvania corporation, its successors and assigns (the "Lessor").
R E C I T A L S:
Pursuant to a Lease Agreement of even date herewith (as the same may
hereafter be amended, the "Lease") between ______________________, (the
"Lessee"), and Lessor, Lessor has agreed to lease to Lessee certain real and
personal property and improvements comprising the _________________________
______________________________________________________ provided as one of the
conditions therefor Lessor requires that the Guarantor guarantee the Lease
Obligations (as defined hereunder), now existing or hereafter incurred, owing
to the Lessor pursuant to the Lease. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, and in
order to induce the Lessor to enter into the Lease, and as security for the
payment of all Rent and all other obligations of Lessee under the Lease
("Obligations"), including, but not limited to, the payment of all expenses,
charges and other amounts from time to time owing to Lessor pursuant to the
Lease the performance of all covenants, agreements and other obligations from
time to time owing to or for the benefit of Lessor pursuant to the Lease, the
Guarantor agrees and covenants with Lessor and represents and warrants to
Lessor as follows:
l. Guarantee of Lease Obligations. The Guarantor hereby
unconditionally guarantees to the Lessor (a) the due, regular, and punctual
payment and performance of the Obligations, including, but not limited to, (i)
the payment obligations of the Lease, and (ii) the indemnity obligations of the
Lease (which guaranty shall survive concurrently with such indemnity
obligations); (b) upon the failure of the Lessee timely to pay or perform any
of the Obligations, the payment of all reasonable costs and expenses incurred
by Lessor in paying or performing such Obligations (but Lessor shall not be
required to pay or perform such Obligations); and (c) all reasonable costs,
attorneys' fees, and expenses that may be incurred by the Lessor by reason of a
Default by the Lessee, including reasonable fees and expenses in any appellate
or bankruptcy proceedings.
<PAGE> 2
Upon any Event of Default pursuant to the Lease, the Guarantor
unconditionally promises to pay to the Lessor such amounts as are necessary to
cure the Event of Default.
This Guaranty is unconditional and the Guarantor agrees that the
Lessor, upon the occurrence of an Event of Default pursuant to the Lease, shall
not be required to assert any claim or cause of action against the Lessee
before asserting any claim or cause of action against the Guarantor under this
Guaranty. The Guarantor further agrees that the Lessor shall not be required to
pursue or foreclose on any collateral that it may receive from the Lessee or
others as security for any of the Lease Obligations before making a claim or
asserting a cause of action against the Guarantor under this Guaranty.
The failure of the Lessor to perfect its security interest in any of
the collateral as set forth in the Lease or any other collateral now or
hereafter securing all or any part of the Obligations shall not release the
Guarantor from its liabilities and obligations hereunder.
Notice of acceptance of this Guaranty and of any Default by the Lessee
is hereby waived by the Guarantor, except to the extent notice is otherwise
expressly required by the Lease. Presentment, protest, demand, and notice of
protest and demand, and notice of receipt of any and all collateral, and of the
exercise of possessory remedies or foreclosure on any and all collateral
received by the Lessor from the Lessee or the Guarantor are hereby waived. All
settlements, compromises, compositions, accounts stated, and agreed balances in
good faith between any primary or secondary obligors on any accounts received
as collateral shall be binding upon the Guarantor.
This Guaranty shall not be affected, modified, or impaired by the
voluntary or involuntary liquidation, dissolution, sale or other disposition of
all or substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangements, composition with creditors or readjustment of, or
other similar proceedings affecting the Lessee or the Guarantor, or any of the
assets belonging to any of them, nor shall this Guaranty be affected, modified,
or impaired by the invalidity of the Lease.
Without notice to the Guarantor, without the consent of the Guarantor,
and without affecting or limiting the Guarantor's liability hereunder, the
Lessor may:
(a) grant the Lessee extensions of time for payment of the Obligations
or any part thereof;
(b) renew any of the Obligations or make further advances to Lessee;
2
<PAGE> 3
(c) grant the Lessee extensions of time for performance of agreements
or other indulgences;
(d) at any time release any or all of the collateral, or security
interest in any collateral, that now or hereafter secures any of the
Obligations;
(e) compromise, settle, release, or terminate any or all of the
obligations, covenants, or agreements of the Lessee under the Lease;
(f) at any time release any one or more other guarantors from their
guarantees of any of the Obligations; and
(g) with the Lessee's written consent modify or amend any obligations,
covenant, or agreement of the Lessee as set forth in the Lease (and such
amendments shall nevertheless be binding upon Guarantor)
This Guaranty shall continue to be effective, or be reinstated, as the
case may be, if at any time any whole or partial payment or performance of any
Obligation is or is sought to be rescinded or must otherwise be restored or
returned by the Lessor upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Lessee or Guarantor upon or as a result of
the appointment of a receiver, intervenor, or conservator of, or trustee or
similar officer for, the Lessee or guarantor of or for any substantial part of
its property, or otherwise, all as though such payments and performance had not
been made. This Guaranty shall not be affected in any way by the transfer or
other disposition of any of the collateral described in and granted to Lessor
pursuant to the Lease, whether by operation of law, or otherwise.
2. Representations and Warranties of the Guarantor. To induce the
Lessor to enter into the Lease, the Guarantor represents and warrants to the
Lessor as follows:
(a) Power to Incur Obligations. The Guarantor has full power and
unrestricted right to enter into this Guaranty and to incur the obligations
provided for herein and the execution and delivery of this Guaranty has been
authorized by all required corporate action.
(b) Conflicts. This Guaranty does not violate, conflict with or
constitute any default under any decree, judgment, or any other agreement or
instrument binding upon the Guarantor or the articles of incorporation or
bylaws of Guarantor.
(c) Pending Matters. No action or investigation is pending, or to
the best of Guarantor's knowledge, threatened before or by any state or federal
court or administrative agency which might result in any material adverse
change in the financial condition or operations
3
<PAGE> 4
or prospects of Guarantor. Guarantor is not in violation of any agreement, the
violation of which might reasonably be expected to have a materially adverse
effect on its business or assets, and Guarantor is not in violation of any
order, judgment, or decree of any state or federal court.
(d) Financial Statements Accurate. All financial statements
heretofore provided by the Guarantor are true and complete in all material
respects as of their respective dates and fairly present the financial
condition of the Guarantor, and there are no liabilities, direct or indirect,
fixed or contingent, as of the respective dates of such statements which are
not reflected therein or in the notes thereto or in a written certificate
delivered with such statements. The financial statements of the Guarantor are
prepared on a consistent basis from year to year. There has been no material
adverse change in the financial condition, operations, or prospects of
Guarantor since the dates of such statements except as fully disclosed in
writing with the delivery of such statements.
(e) No Defaults or Restrictions. There is no declared default under
any agreement or instrument that caused or would cause a material adverse
effect on the business, properties, and financial operations or condition of
Guarantor.
(f) Payment of Taxes. Guarantor has filed all federal, state, and
local tax returns which are required to be filed and has paid, or made adequate
provision for the payment of, all taxes which have or may become due pursuant
to said return or to assessments received by Guarantor.
(g) Disclosure. Neither the Guaranty nor any other document,
financial statement, credit information, certificate or statement required
herein to be furnished to Lessor by Guarantor in connection with the Guaranty
contains any untrue, incorrect or misleading statement of material fact. All
representations and warranties made herein or any certificate or other document
delivered to Lessor by or on behalf of Guarantor pursuant to or in connection
with this Guaranty shall be deemed to have been relied upon by Lessor
notwithstanding any investigation heretofore or hereafter made by Lessor or on
its behalf.
(h) Organization. Guarantor is a Delaware corporation duly
organized and validly existing and is duly qualified and in good standing in
each jurisdiction in which its business or assets makes its qualification
necessary.
(i) Stock Ownership. On the date hereof, the capital stock of
Guarantor is owned as set forth in Exhibit A.
3. Affirmative Covenants of the Guarantor. The Guarantor covenants and
agrees that so long as the Obligations are outstanding, it shall comply with
each of the following affirmative covenants:
4
<PAGE> 5
(a) Payment of Lease/Performance of Lease Obligations. Within five
(5) business days of Lessor's demand thereof, duly and punctually pay or cause
to be paid all Obligations in accordance with its terms.
(b) Payment of Taxes. Pay and discharge all taxes, assessments, and
governmental charges or levies imposed upon it, including, without limitation,
all current tax liabilities of all kinds, all required withholdings of income
taxes of employees, all required old age and unemployment contributions, and
all so-called provider taxes.
(c) Reporting Requirements. From time to time upon request, furnish
to Lessor such information regarding the business affairs, finances, and
conditions of the Guarantor and its respective properties in such detail as the
Lessor reasonably may request; will furnish to Lessor, as soon as available and
in any event furnish to Lessor such financial reports and statements as set
forth in the Lease Agreement.
(d) Payment of Indebtedness. Pay duly and punctually or cause to be
paid, all principal and interest of any indebtedness of Guarantor legally due
its creditors, comply with and perform all conditions terms and obligations of
the notes and other instruments evidencing such indebtedness and any mortgages,
deeds of trust, security agreements and other instruments evidencing security
for such indebtedness.
(e) Notice of Loss. Notify Lessor of any event causing a loss or
reduction in value of Guarantor's assets which has a material adverse effect on
Guarantor's net worth (as set forth in the Lease Agreement).
(f) Existence. Maintain its existence and, in each jurisdiction in
which its business or assets makes qualification necessary, its qualification
and good standing.
(g) Financial Covenants.
(a) Throughout the Term of the Lease, Guarantor shall maintain
the following:
(i) a ratio of consolidated current assets to consolidated
current liabilities equal to or greater than 1.0 to 1.0.;
(ii) a tangible net worth equal to or greater than $5,000,000,
unless otherwise approved (or waived) by Lessor, approval of which
shall not be unreasonably withheld (for purposes of this Section
3(g)(a)(ii), the line item identified as "Mandatorily Redeemable
Preferred B Stock" reflected on Guarantor's consolidated financial
statement shall be included in Guarantor's shareholder's equity).
5
<PAGE> 6
(iii) a Consolidated Cash Flow Coverage not less than 1.0 to
1.0.
"Consolidated Cash Flow Coverage" shall mean a ratio of (i) earnings
before interest, taxes, depreciation, amortization, rent and home office
expense minus an assumed five percent (5%) management fee to (ii) all interest
and rent payments.
(b) Comply with all other requirements and covenants to be
maintained and performed by Guarantor pursuant to the Lease.
4. Negative Covenant of the Guarantors. So long as any of the Lease
Obligations are outstanding, Guarantor shall not, without Lessor's prior
approval, which approval shall not be unreasonably be withheld:
(a) Changes in Accounting. Change its method of accounting to one
inconsistent with the method heretofore used by the Guarantor.
(b) Merger, Consolidation, Etc. Enter in any merger, consolidation
or similar transaction, or sell, assign, lease or otherwise dispose of (whether
in one transaction or in a series of transactions), all or substantially all of
its assets (whether now or hereafter acquired) such that, immediately after
giving effect to such merger, consolidation or sale, the survivor or purchaser
of the same has a consolidated net worth less than the consolidated net worth
of Guarantor immediately prior to such merger, consolidation or sale.
(c) Transfer of Stock. Permit the transfer of any of its capital
stock which would cause a change in control of Guarantor other than transfer in
connection with a registered public offering or transfer to family members or
transfer upon such shareholder's death.
5. Events of Default. Guarantor's violation of any covenant set forth
in paragraph 4 hereof, or Guarantor's failure to properly and timely perform or
observe any covenant or condition set forth in this Guaranty (other than that
in paragraph 4) which is not cured within any applicable cure period as set
forth herein or, if no cure period is specified therefor, is not cured within
thirty (30) days of Lessor's notice to Guarantor of such default, or the
falsity of any representation or warranty herein or in any financial statement,
certificate or other information heretofore or hereafter provided by Guarantor
to Lessor, shall constitute an "Event of Default" hereunder and under each of
the Lease Documents. The foregoing provision or any other provision requiring
or providing for notice or demand from Lessor is deemed eliminated if Lessor is
prevented from giving such notice or demand by bankruptcy or other applicable
law, and the Event of Default shall occur on the occurrence of such event or
condition if not cured within any applicable period measured from he occurrence
of such event or condition rather than from notice or demand.
6
<PAGE> 7
6. Subordination. Guarantor expressly subordinates its right to
payments of any indebtedness owing from Lessee to Guarantor, whether now
existing or arising at any time in the future (including, but not limited to,
rights to payment arising by virtue of any subrogation or indemnification upon
payment by Guarantor of amounts due from Lessee to Lessor), to the prior right
of Lessor to receive or require payment in full of the Obligations, until such
time as the Obligations are fully paid (and including accrued interest after
any petition under the Bankruptcy Code which post-petition interest Guarantor
agrees shall remain a claim that is prior and superior to any claim of
Guarantor notwithstanding any contrary practice, custom or ruling in
proceedings under the Bankruptcy Code generally) and such payments are final
and not subject to refund or rescission under bankruptcy or other applicable
law. Furthermore, upon the occurrence of an Event of Default under the Lease,
Guarantor agrees not to accept any payment or satisfaction of any kind of
indebtedness of Lessee to the Guarantor or any security for such indebtedness.
If Guarantor should receive any such payment, satisfaction or security for any
indebtedness of Lessee to the Guarantor, the Guarantor agrees to deliver the
same promptly to Lessor in the form received, endorsed, or assigned as may be
appropriate for application on account of, or as security for, the Obligations
and until so delivered, agrees to hold the same in trust for Lessor.
7. Successors and Assigns. This Guaranty shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, legal
representatives, successors, and assigns.
8. Severability. In the event that any provision hereof is deemed to
be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court, this Guaranty shall be construed as
not containing such provisions and the invalidity of such provisions shall not
affect other provisions hereof which are otherwise lawful and valid and which
shall remain in full force and effect.
9. Notices. Any notice or other communication required or permitted to
be given pursuant to this Guaranty or by applicable law shall be in writing and
shall be deemed received (a) on the date delivered, if delivered in person or
department specified below, (b) three (3) days after depositing the same in the
U.S. Mail, certified or registered, with return receipt requested, or (c) one
(1) day following the date deposited with Federal Express or other national
overnight carrier, and in each case addressed as follows:
If to Guarantor:
Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Robin Barber, Esq.
7
<PAGE> 8
With a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attention: John C. Rodney, Esq.
If to the Lessor to:
Capstone Capital Corporation
1000 Urban Center Parkway
Birmingham, Alabama 35242
Attention: Daryl D. McCombs
With a copy to:
Haskins W. Jones, Esq.
Johnston, Barton, Proctor & Powell
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203-2618
Any party may change its address to another single address by notice
given as herein provided, except that any change of address must be actually
received in order to be effective.
10. Waivers. The failure by the Lessor at any time or times hereafter
to require strict performance by the Guarantor of any of the provisions,
warranties, terms, and conditions contained herein or in any other agreement,
document, or instrument now or hereafter executed by Guarantor and delivered to
the Lessor shall not waive, affect, or diminish any right of the Lessor
hereafter to demand strict compliance or performance therewith and with respect
to any other provisions, warranties, terms, and conditions contained in such
agreements, documents, and instruments, and any waiver of any default shall not
waive or affect any other default, whether prior or subsequent thereto and
whether of the same or a different type. None of the warranties, conditions,
provisions, and terms contained in this Guaranty or in any agreement, document,
or instrument now or hereafter executed by Guarantor and delivered to the
Lessor shall be deemed to have been waived by any act or knowledge of the
Lessor, its agents, officers, or employees, but only by an instrument in
writing, signed by an officer of the Lessor, and directed to the Guarantor
specifying such waiver.
11. Expenses. If, at any time or times hereafter, the Lessor employs
counsel to advise or provide other representation with respect to this Guaranty
or any other agreement,
8
<PAGE> 9
document, or instrument heretofore, now, or hereafter executed by Guarantor and
delivered to the Lessor with respect to the Lessee or the Obligations, or to
commence, defend, or intervene, file a petition, complaint, answer, motion, or
any other pleading or take any other action in or with respect to any suit or
proceeding relating to this Guaranty or any other agreement, instrument, or
document heretofore, now, or hereafter executed by Guarantor and delivered to
the Lessor with respect to the Lessee or the Obligations, or to represent the
Lessor in any litigation with respect to the affairs of Guarantor or to enforce
any rights of the Lessor or obligations of Guarantor or any other person, firm,
or corporation that may be obligated to the Lessor by virtue of this Guaranty,
or any other agreement, document, or instrument heretofore or hereafter
delivered to the Lessor by or for the benefit of Guarantor with respect to the
Lessee or the Obligations, then in any such event, all of the reasonable
attorneys' fees actually incurred arising from such services, including fees in
any appellate or bankruptcy proceedings, and any other reasonable expenses,
costs,and charges relating to his Guaranty, the Lessee or the Obligations,
shall constitute additional obligation of the Guarantor payable on demand.
12. Singular and Plural. Singular terms shall include the plural
forms, and vice versa.
13. Entire Agreement; Counterparts. This Guaranty constitutes the
entire agreement and supersedes all prior agreements and understandings both
oral and written, between the parties with respect to the subject matter
hereof. This Agreement may be executed in counterparts which together shall
constitute one instrument. It shall not be necessary for all parties to sign
the same counterpart.
14. Applicable Law; Jurisdiction. THE VALIDITY, INTERPRETATION,
ENFORCEMENT, AND EFFECT OF THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF ALABAMA. THE LESSOR'S PRINCIPAL PLACE OF
BUSINESS IS LOCATED IN JEFFERSON COUNTY IN THE STATE OF ALABAMA, AND GUARANTOR
AGREES THAT THIS GUARANTY SHALL BE HELD BY LESSOR AT SUCH PRINCIPAL PLACE OF
BUSINESS, AND THE HOLDING OF THIS GUARANTY BY LESSOR THEREAT SHALL CONSTITUTE
SUFFICIENT MINIMUM CONTACTS OF GUARANTOR WITH JEFFERSON COUNTY AND THE STATE OF
ALABAMA FOR THE PURPOSE OF CONFERRING JURISDICTION UPON THE FEDERAL AND STATE
COURTS PRESIDING IN SUCH COUNTY AND STATE. THE GUARANTOR CONSENTS THAT ANY
LEGAL ACTION OR PROCEEDING ARISING HEREUNDER MAY BE BROUGHT IN THE CIRCUIT
COURT OF THE STATE OF ALABAMA, IN JEFFERSON COUNTY, ALABAMA OR THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA AND ASSENT AND
SUBMIT TO THE PERSONAL JURISDICTION OF ANY SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING. NOTHING HEREIN SHALL LIMIT THE JURISDICTION OF ANY OTHER COURT.
9
<PAGE> 10
15. Jury Trial Waiver. GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING OUT OF OR IN ANY WAY RELATED TO THIS GUARANTY OR THE LEASE, OR (B) IN
ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY
DEALINGS OF LESSOR AND/OR LESSEE AND GUARANTOR WITH RESPECT TO THE LEASE OR IN
CONNECTION WITH THIS GUARANTY OR THE EXERCISE OF ANY PARTY'S RIGHTS AND
REMEDIES UNDER THIS GUARANTY OR OTHERWISE, OR THE CONDUCT OR THE RELATIONSHIP
OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE,
GUARANTOR AGREES THAT LESSOR MAY FILE A COPY OF THIS GUARANTY WITH ANY COURT AS
WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF
GUARANTOR IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF
LESSOR TO MAKE THE LEASE, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN
GUARANTOR AND LESSOR SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
day and year first above written.
BALANCED CARE CORPORATION
By:
-----------------------------------
Its:
-----------------------------------
10
<PAGE> 11
SCHEDULE TO EXHIBIT 10.26 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
GUARANTY OF PAYMENT AND PERFORMANCE
-----------------------------------
<TABLE>
<CAPTION>
PROJECT LESSEE FACILITY DATE
- ------- ------ -------- ----
<S> <C> <C> <C>
Bloomsburg, PA BCC at Bloomsburg, Inc. Bloomsburg Manor Personal Care and Retirement 1/31/97
Center
Blakely, PA BCC at Blakely, Inc. Blakely-Pine Health Care Center 1/31/97
Kingston I, PA BCC at Kingston I, Inc. Kingston Manor Personal Care and Retirement 1/31/97
Center
Kingston II, PA BCC at Kingston II, Inc. Kingston Health Care Center 1/31/97
Mid-Valley, PA BCC at Mid-Valley, Inc. Mid-Valley Manor Personal Care and Retirement 1/31/97
Center
Old Forge, PA BCC at Old Forge, Inc. Old Forge Manor Personal Care and Retirement 1/31/97
Center
West View, PA BCC at West View, Inc. West Side Manor Personal Care and Retirement 1/31/97
Center
Harrisburg, PA BCC at Harrisburg, Inc. Outlook Pointe at Harrisburg 3/28/97
Greensboro, NC BCC at Greensboro, Inc Outlook Pointe at Greensboro 3/28/97
Ravenna, OH BCC at Ravenna, Inc. Outlook Pointe at Ravenna 3/28/97
Nevada, MO (2 BCC at Missouri, Inc. Joe Clark Residential Care Home 5/15/97
Leases) 1501 E. Ashland Street
Nevada, MO
Butler, MO BCC at Missouri, Inc. Joe Clark Residential Care Home 5/15/97
300 S. Delaware Street
Butler, MO
Lamar, MO BCC at Lamar, Inc. Joe Clark Residential Care Home 8/18/97
3 Southwest First Lane
Lamar, MO
</TABLE>
<PAGE> 12
SCHEDULE TO EXHIBIT 10.26 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
GUARANTY OF PAYMENT AND PERFORMANCE
-----------------------------------
<TABLE>
<CAPTION>
PROJECT BORROWER/ PARTIES FACILITY LOAN AMOUNT DATE
- ------- LESSEE ------- -------- ----------- ----
------
<S> <C> <C> <C> <C> <C>
Darlington, PA BCC at Darlington, Capstone Capital of Feltrop Personal $5,875,000.00 9/30/97
Inc. (Borrower) Pennsylvania, Inc. Care Facility
(Lender) and Balanced Care
Corporation (Guarantor)
Hampden ALCO VI, L.L.C. Capstone Capital of Outlook Pointe N/A 9/30/97
Township, PA (Lessee) Pennsylvania, Inc. at Creekview
(Lessor) and Charles E.
Trefzger, John K. Earl, W.
Lee Young III, William C.
Thompson and James R.
Hodges (Guarantors)
Butler, PA Balanced Care at Capstone Capital of Silver Haven $246,000.00 10/31/97
Butler, Inc. Pennsylvania, Inc.
(Borrower) (Lender) and Balanced Care
Corporation (Guarantor)
Sarver, PA Balanced Care at Capstone Capital of Sterling Care of $286,000.00 10/31/97
Sarver, Inc. Pennsylvania, Inc. Sarver
(Borrower) (Lender) and Balanced Care
Corporation (Guarantor)
Saxonburg,PA Balanced Care at Capstone Capital of Sterling Care of $8,618,000.00 10/31/97
Saxonburg, Inc. Pennsylvania, Inc. Saxonburg
(Borrower) (Lender) and Balanced Care
Corporation (Guarantor)
</TABLE>
NOTE TO DARLINGTON, PA GUARANTY:
Guarantor covenants to maintain, throughout the term of the loan, a ratio of
consolidated current assets to current liabilities equal to or greater than
1.0; a consolidated cash flow coverage greater than or equal to 1.0; and a
tangible net worth greater than or equal to $5,000,000.00.
Guarantor covenants that it shall not, without the Lender's approval, enter
into a merger or a sale of substantially all of its assets or transfer a
controlling share of its stock so long as any loan obligations are outstanding.
<PAGE> 1
EXHIBIT 10.28
FORM OF INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this "Agreement") made as of _____________
__________, by and among ("BCC"), and (" ").
RECITALS:
BCC and Guarantor have requested that purchase and lease to
BCC certain real property and improvements pursuant to a Lease Agreement
between BCC and of even date herewith (referred to herein, as the same
may hereafter be amended, as the "Lease Agreement"; capitalized terms not
otherwise defined herein shall have the meanings given in the Lease Agreement).
requires that, as a condition to entering into the Lease Agreement, BCC and
Guarantor jointly and severally indemnify against all violations of any
applicable Environmental Laws (as herein defined), relating to the property
which is the subject of the Lease, which property consists of the land more
particularly described in Exhibit A attached hereto and made a part hereof and
all buildings and improvements now or hereafter situated on such land
(collectively, the"Property"). BCC and Guarantor have therefore agreed to
execute this Agreement in order to induce to enter into the Lease
Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals,
and as an inducement to to enter into the Lease Agreement, BCC and
Guarantor do hereby jointly and severally agree with as follows:
1. As used herein, the term "Applicable Environmental Laws" shall mean
any applicable laws, rules or regulations pertaining to health or the
environment, or petroleum products, or radon radiation, or oil or hazardous
substances, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA") and the
Federal Emergency Planning and Community Right-To-Know Act of 1986.
2. BCC and Guarantor will jointly and severally indemnify and hold
harmless from and against, and reimburse for, any fines,
charges, liabilities, reasonable expenses, reasonable fees of environmental
professionals, and reasonable attorney's fees incurred by , in the
event any of the Property is hereafter determined to be in violation of any
Applicable Environmental Law (whether or not due to any fault of BCC or
Guarantor). Without limiting the foregoing, upon any written notice that such a
violation may exist, BCC and Guarantor shall upon 's request: (a)
cause to be conducted such reasonable investigations, tests or analyses of the
Property (such as, at a minimum, a Phase I environmental report and any
additional testing or remediation set forth
<PAGE> 2
in such report or by any Applicable Environmental Laws) by environmental
professionals mutually approved by and BCC and provide the
written results of such investigations, tests or analyses, and (b) prompt remedy
in accordance with Applicable Environmental Law, any violation that may exist,
and (c) report any reasonably alleged violation, to the extent required by law,
to any federal, state or local agency having jurisdiction over such matters. If
BCC and Guarantor fail to promptly comply with 's request, may, at its
option, do any of the foregoing, and BCC and Guarantor will promptly reimburse
for all reasonable costs and expenses incurred by . and
its agents shall have access to the Property for the purposes of conducting any
such investigations, tests or analyses.
3. This Agreement shall survive any termination of the Lease Agreement;
provided, however, BCC and Guarantor shall not indemnify with respect to any
violation which (a) are caused by 's misconduct or gross negligence or
(b) occur after BCC's vacation of the Property.
4. BCC and Guarantor jointly and severally agree to pay to
all charges, expenses, reasonable attorney's fees and costs incurred by in
connection with the 's enforcement of this Agreement, including
charges, expenses, reasonable attorney's fees and costs upon any appeal and in
any bankruptcy proceedings.
5. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, legal representatives,
successors and assigns.
6. In the event that any provision hereof is deemed to be invalid by
reason of the operation of any law or by reason of the interpretation placed
thereon by any court, this Agreement shall be construed as not containing such
provision and the invalidity of such provision shall not affect other
provisions which are otherwise lawful and valid and shall remain in full force
and effect.
7. This Agreement may be executed in counterparts which together shall
constitute one instrument. It shall not be necessary for all parties to sign the
same counterpart.
8. THE VALIDITY, INTERPRETATION, ENFORCEMENT AND EFFECT OF THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF ALABAMA. THE 'S PRINCIPAL PLACE OF BUSINESS IS LOCATED IN
JEFFERSON COUNTY IN THE STATE OF ALABAMA, AND BCC AND GUARANTOR AGREE THAT THIS
AGREEMENT SHALL BE DELIVERED TO AND HELD BY AT SUCH PRINCIPAL PLACE
OF BUSINESS, AND THE HOLDING OF THIS AGREEMENT BY THEREAT SHALL
CONSTITUTE SUFFICIENT MINIMUM CONTACTS OF BCC AND GUARANTOR WITH JEFFERSON
COUNTY AND THE STATE OF ALABAMA FOR THE PURPOSE OF
2
<PAGE> 3
CONFERRING JURISDICTION UPON THE FEDERAL AND STATE COURTS PRESIDING IN SUCH
COUNTY AND STATE. BCC AND GUARANTOR CONSENT THAT ANY LEGAL ACTION OR PROCEEDING
ARISING HEREUNDER MAY BE BROUGHT IN THE CIRCUIT COURT OF THE STATE OF ALABAMA,
JEFFERSON COUNTY, OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OF ALABAMA AND ASSENT AND SUBMIT TO THE PERSONAL JURISDICTION OF ANY SUCH COURT
IN ANY ACTION OR PROCEEDING INVOLVING THIS AGREEMENT. NOTHING HEREIN SHALL
LIMIT THE JURISDICTION OF ANY OTHER COURT.
10. BCC AND GUARANTOR HEREBY WAIVE ANY RIGHT THAT THEY MAY HAVE TO A
TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LEASE,
OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO
ANY DEALINGS OF AND/OR BCC AND GUARANTOR WITH RESPECT TO THE LEASE
DOCUMENTS OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF EITHER PARTY'S
RIGHTS AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE, OR THE CONDUCT OR THE
RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE. BCC AND GUARANTOR AGREE THAT MAY FILE A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND
BARGAINED AGREEMENT OF BCC AND GUARANTOR IRREVOCABLY TO WAIVE THEIR RIGHTS TO
TRIAL BY JURY AS AN INDUCEMENT OF TO MAKE THE LEASE, AND THAT, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER
(WHETHER OR NOT MODIFIED HEREIN) BETWEEN BCC AND/OR GUARANTOR WITH SHALL INSTEAD
BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
[SIGNATURES ON FOLLOWING PAGE]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed or caused this
Agreement to be executed as of the day and year first above written.
GUARANTOR:
BALANCED CARE CORPORATION
BY:
-----------------------------------
BRIAN L. BARTH, VICE PRESIDENT
BORROWER:
---------------------------------------
BY:
-----------------------------------
-----------------------------------
BY:
-----------------------------------
4
<PAGE> 5
SCHEDULE TO EXHIBIT 10.28 FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF
REGULATION S-K
INDEMNITY AGREEMENT
-------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY DATE
------- ------- -------- ----
<S> <C> <C> <C>
Harrisburg, PA Capstone Capital Corporation of Outlook Pointe at Harrisburg 3/28/97
Pennsylvania, Inc. and BCC at
Harrisburg, Inc.
Greensboro, NC Capstone Capital Corporation and Outlook Pointe at Greensboro 3/28/97
BCC at Greensboro, Inc.
Ravenna, OH Capstone Capital Corporation and Outlook Pointe at Ravenna 3/28/97
BCC at Ravenna, Inc.
Nevada, MO (2 Capstone Capital Corporation and Joe Clark Residential Care Home 5/15/97
Agreements) BCC at Missouri, Inc. 1501 E. Ashland Street
Nevada, MO
Butler, MO Capstone Capital Corporation and Joe Clark Residential Care Home 5/15/97
BCC at Missouri, Inc. 300 S. Delaware Street
Butler, MO
Lamar, MO Capstone Capital Corporation and Joe Clark Residential Care Home 8/18/97
BCC at Lamar, Inc. 3 Southwest First Lane
Lamar, MO
Roanoke, VA ALCO II, L.L.C. and BCC at Outlook Pointe at Roanoke 6/30/97
Roanoke, Inc.
Harrisonburg, VA ALCO I, L.L.C. and BCC at Outlook Pointe at Harrisonburg 6/30/97
Harrisonburg, Inc.
Danville, VA ALCO III, L.L.C. and BCC at Outlook Pointe at Danville 9/3/97
Danville, Inc.
</TABLE>
<PAGE> 6
SCHEDULE TO EXHIBIT 10.28 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
ENVIRONMENTAL INDEMNITY AGREEMENT
---------------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY LOAN DATE
- ------- ------- -------- AMOUNT ----
------
<S> <C> <C> <C> <C>
Darlington, PA Balanced Care Corporation (Guarantor), BCC at Feltrop $5,875,000.00 9/30/97
Darlington, Inc. (Borrower), and Capstone Personal Care
Capital of Pennsylvania, Inc. (Lender) Home
Hampden Township, Charles E. Trefzger, John K. Earl, W. Lee Young Outlook Pointe N/A 9/30/97
PA III, William, C. Thompson, James R. Hodges at Creekview
(collectively, Guarantors), ALCO VI, L.L.C.
(Lessee), and Capstone Capital of Pennsylvania,
Inc. (Lessor)
Butler, PA Balanced Care Corporation (Guarantor), Balanced Silver Haven $246,000.00 10/31/97
Care at Butler (Borrower), and Capstone Capital
of Pennsylvania, Inc. (Lender)
Sarver, PA Balanced Care Corporation (Guarantor), Sterling Care $286,000.00 10/31/97
Balanced Care at Sarver (Borrower), and Capstone of Sarver
Capital of Pennsylvania, Inc. (Lender)
Saxonburg, PA Balanced Care Corporation (Guarantor), Balanced Sterling Care $8,618,000.00 10/31/97
Care at Saxonburg (Borrower), and Capstone of Saxonburg
Capital of Pennsylvania, Inc. (Lender)
</TABLE>
<PAGE> 1
EXHIBIT 10.31
FORM OF LOAN AGREEMENT
THIS AGREEMENT dated as of the , by and
among , a Delaware corporation ("Borrower") and CAPSTONE
CAPITAL OF PENNSYLVANIA, INC., a Pennsylvania corporation ("Lender").
Borrower has requested that the Lender make a loan to the Borrower in
the principal sum of up to $ and Lender has agreed to make such loan
upon the terms and conditions hereinafter set forth.
NOW THEREFORE, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS, ACCOUNTING, PRINCIPALS, UCC TERMS
1.1 As used in this Agreement, the following terms shall have the
meanings unless the context hereof shall otherwise indicate:
"Accounts" means all accounts including accounts receivable
arising from the operation of the Facility, including but not limited to,
rights to payment for goods sold or leased or for services rendered, not
evidenced by an Instrument, and specifically including rights to payment from
Reimbursement Contracts.
"Applicable Environmental Laws" means any applicable federal,
state or local laws, rules or regulations pertaining to the environment, or
petroleum products, or radon radiation, or oil or hazardous substances,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and the Federal
Emergency Planning and Community Right-To-Know Act of 1986, as amended. The
terms "hazardous substance" and "release" shall have the meanings specified in
CERCLA, and the terms "solid waste", "disposal", "dispose", and "disposed"
shall have the meanings specified in RCRA, except that if such acts are amended
to broaden the meanings thereof, the broader meaning shall apply herein
prospectively from and after the date of such amendment; notwithstanding the
foregoing, provided, to the extent that the laws of the State of Pennsylvania
establish a meaning for "hazardous substance" or "release" which is broader
than that specified in CERCLA, as CERCLA may be amended from time to time, or a
meaning for "solid waste", "disposal", and "disposed" which is broader than
specified in RCRA, as RCRA may be amended from time to time, such broader
meanings under said state law shall apply in all matters relating to the laws
of such State.
"Applicable Rate" shall have the meaning set forth in the
Note.
<PAGE> 2
"Assignment of Rents" shall mean that certain Assignment of
Rents and Leases of even date herewith from Borrower in favor of Lender.
"Audited Financial Statement" means an audited financial
statement prepared by a nationally recognized accounting firm or independent
certified public accounting firm acceptable to Lender, prepared in accordance
with GAAP, certified with an unqualified opinion and including a balance sheet,
a statement of income and expenses, a statement of changes in financial
position, cash flow, and a break down of source and application of all funds
for the year ended.
"Business Day" means a day, other than Saturday or Sunday and
legal holiday, when Lender is open for business.
"Closing Date" shall mean the date on which all or any part
of the Loan is disbursed by Lender to Borrower or for the benefit of Borrower.
"Collateral" means, collectively, the Property, Improvements,
Equipment, Rents, Accounts, General Intangibles, Instruments, Inventory, Money,
and (to the full extent assignable) Permits, and all Proceeds, all whether now
owned or hereafter acquired, and including replacements, additions, accessions,
substitutions, and products, and all other property which is or hereafter may
become subject to a Lien in favor of Lender as security for any of the Loan
Obligations.
"Cross-Collateralization Agreement" shall mean that certain
Cross-Collateralization and Cross-Default Agreement to be entered into from
Borrower and an affiliate of Borrower to Lender.
"Default" means the occurrence or existence of any event
which, but for the giving of notice or expiration of time or both, would
constitute an Event of Default.
"Default Rate" means a per annum rate equal to two percentage
points (2%) in excess of the Applicable Rate then accruing on the outstanding
principal balance of the Loan.
"Equipment" means all fixtures and equipment located on,
attached to or used or useful in connection with the Facility, including, but
not limited to, beds, linen, televisions, carpeting, telephones, cash
registers, computers, lamps, glassware, rehabilitation equipment, restaurant
and kitchen equipment; provided, however, that with respect to any items which
are leased and not owned, the Equipment shall include the leasehold interest
only together with any options to purchase any of said items and any additional
or greater rights with respect to such items hereafter acquired (but nothing
herein shall permit the leasing of any Equipment except as otherwise expressly
permitted in Section 5.2(g) or otherwise herein unless Lender's written consent
is first obtained).
"Event of Default" means any "Event of Default" as
hereinafter defined.
- 2 -
<PAGE> 3
"Exhibit" means an Exhibit to this Agreement, unless the
context refers to another document, and each such Exhibit shall be deemed a
part of this Agreement to the same extent as if it were set forth in its
entirety wherever reference is made thereto.
"Facility" means the personal care facility presently known
as and sometimes referred to herein as
.
"GAAP" means, as in effect from time to time, generally
accepted accounting principles consistently applied as promulgated by the
American Institute of Certified Public Accountants.
"General Intangibles" means all general intangibles and other
intangible personal property arising out of or connected with the Property or
Facility (other than Accounts, Rents, Instruments, Inventory, Money and
Permits), including, without limitation, things in action, contract rights and
other rights to payment" of money.
"Guarantor" means Balanced Care Corporation, a Delaware
corporation.
"Guaranty" means, that certain Guaranty of Payment and
Performance of even date herewith by Guarantor in favor of Lender.
"Improvements" means the existing personal care facility and
improvements at the Property.
"Indebtedness" means any (i) obligations for borrowed money,
(ii) obligations representing the deferred purchase price of property other
than accounts payable arising in connection with the purchase of inventory
customary in the trade, (iii) obligations, whether or not assumed, secured by
Liens or payable out of the proceeds or production from property now or
hereafter owned or acquired, and (iv) the amount of any other obligation
(including obligations under financing leases) which would be shown as a
liability on a balance sheet prepared in accordance with GAAP.
"Indemnity Agreement" means that certain Indemnity Agreement
of even date herewith from the Borrower and the Guarantor in favor of Lender.
"Instruments" means all instruments, chattel paper, documents
or other writings obtained from or in connection with the operation of the
Property or Facility (including, without limitation, all ledger sheets,
computer records and printouts, data bases, programs, books of account and
files relating thereto).
"Inventory" means all inventory from time to time used at the
Facility, including, but not limited to, food, beverages, other comestibles,
soap, paper supplies, medical supplies, drugs
- 3 -
<PAGE> 4
and all other such goods, wares and merchandise held for sale to or for
consumption or use by guests, residents or patients of the Facility, including
all such goods that are returned or repossessed.
"Lien" means any voluntary or involuntary mortgage, security
deed, deed of trust, deed to secure debt, lien, pledge, assignment, security
interest, title retention agreement, financing lease, levy execution, seizure,
judgement, attachment, garnishment, charge, lien or other encumbrance of any
kind, including those contemplated by or permitted in this Agreement and the
other Loan Documents.
"Loan" means the loan in the principal sum of $5,875,000
to be made by Lender to the Borrower pursuant to this Agreement.
"Loan Documents" means, collectively, this Agreement, the
Note, the Assignment of Rents, the Mortgage, the Indemnity Agreement, the
Subordination Agreement, the Cross-Collateralization Agreement and the
Guaranty, together with any and all other documents executed by Borrower or
others, evidencing, securing, or otherwise relating to the Loan.
"Loan Obligations" means the aggregate of all principal and
interest owing from time to time under the Note and all expenses, charges and
other amounts from time to time owing under the Note, this Agreement, or the
other Loan Documents and all covenants, agreements and other obligations from
time to time owing to, or for the benefit of, Lender pursuant to the Loan
Documents.
"Loan Term" means the period from the date hereof until the
Maturity Date.
"Management Agreement" means any that certain Management
Agreement dated as of ____________________ between Borrower and Manager pursuant
to which Manager will manage the Facility for Borrower, and any replacement or
other management agreement for the Facility hereafter approved in writing by
Lender.
"Manager" means BCC Development and Management Co., a
Delaware corporation, which will manage the Facility for Borrower pursuant to
the Management Agreement (or any replacement or other manager of the Facility
hereafter approved in writing by the Lender).
"Maturity Date" means December 30, 1997; provided, however,
that so long as no Default or Event of Default exists under the Loan Documents
on December 30, 1997, and Borrower pays Lender all accrued interest on the Loan
on December 30, 1997, Borrower may, upon fifteen (15) days written notice to
Lender, extend the Maturity Date until March 30, 1998.
"Note" means the Promissory Note of even date herewith in the
principal amount of the Loan payable by Borrower to the order of Lender.
- 4 -
<PAGE> 5
"Person" means any person, firm, corporation, partnership,
limited liability company, trust or other entity.
"Permits" means all licenses, permits, certificates,
approvals, authorizations and registrations obtained from any governmental or
quasi-governmental authority and used or useful in connection with the
ownership, operation, use or occupancy of the Property or the Facility,
including, without limitation, business licenses, state health department
licenses, food service licenses, licenses to conduct business, certificates of
need and all such other permits, licenses and rights.
"Proceeds" means all proceeds (whether cash or non-cash,
moveable or immovable, tangible or intangible), including proceeds of
insurance and condemnation, from the sale, exchange, transfer, collection,
loss, damage, disposition, substitution or replacement of any of the
Collateral.
"Property" means the real estate in ,
, as more particularly described in Exhibit A, hereto, upon which
the Facility is located.
"Reimbursement Contracts" means all contracts and rights
pursuant to reimbursement or third party payor programs and contracts for the
Facility which are now or hereafter in effect with respect to residents or
patients qualifying for coverage under the same, including but not limited to,
Medicaid, Medicare, any successor program or other similar reimbursement
program (whether operated by a governmental or quasi-governmental agency or by
a private Person) and private insurance agreements.
"Rents" shall mean all rent and other payments of whatever
nature from time to time payable pursuant to any lease of the Property or
Facility or any part thereof, including, but not limited to, leases of retail
space or other space at the Property for retail businesses such as newsstands,
barbershops, beauty shops, physicians' offices, pharmacies and specialty shops.
"Subordination Agreement" means that certain Consent and
Subordination Agreement of even date herewith among Borrower, Manager and
Lender.
1.2 Singular terms shall include the plural forms and vice
versa, as applicable, of the terms defined.
1.3 Terms contained in this Agreement shall, unless otherwise
defined herein or unless the context otherwise indicates, have the meanings, if
any, assigned to them by Uniform Commercial Code in effect in the state in
which Collateral for the Loan Obligations is located.
1.4 All accounting terms used in this Agreement shall be
construed in accordance with GAAP, except as otherwise defined.
- 5 -
<PAGE> 6
1.5 All references to other documents or instruments shall be
deemed to refer to such documents or instruments as they may hereafter be
extended, renewed, modified, or amended and all replacements and substitutions
thereof.
ARTICLE II
TERMS OF THE LOAN
2.1 THE LOAN. Borrower has agreed to borrow from Lender, and Lender
has agreed to make the Loan to Borrower, subject to Borrower's compliance with
and observance of the terms, conditions, covenants, and provisions of this
Agreement and the other Loan Documents, and the Borrower has made the
covenants, representations, and warranties herein and therein as a material
inducement to Lender to make the Loan.
2.2 SECURITY FOR THE LOAN. The Loan will be evidenced, secured and
guaranteed by the Loan Documents.
2.3 INTEREST RATE.
(a) The outstanding principal balance of the Loan will bear
interest at the Applicable Rate.
(b) All interest on the outstanding principal balance of the
Loan shall be calculated on the basis of a 360-day year by multiplying the
outstanding principal amount by the applicable per annum rate, multiplying the
product thereof by the actual number of days elapsed, and dividing the product
so obtained by 360.
2.4 REPAYMENT OF LOAN. Each payment of the Loan Obligations shall be
paid directly to the Lender in lawful money of the United States of America at
the following address:
Capstone Capital of Pennsylvania, Inc.
1000 Urban Center Drive
Suite 630
Birmingham, Alabama 35242
or such other place as the Lender shall designate in writing to the Borrower.
Each payment shall be paid in immediately available funds by 2:00 p.m.
Birmingham, Alabama time on the date such payment is due, except if such date
is not a Business Day such payment shall then be due on the first Business Day
after such date, but interest shall continue to accrue until the date payment
is received. Any payment received after 2:00 p.m. Birmingham, Alabama time
shall be deemed to
- 6 -
<PAGE> 7
have been received on the immediately following Business Day for all purposes,
including, without limitation, the accrual of interest on principal.
2.5 LATE CHARGES ON OVERDUE INSTALLMENTS; DEFAULT RATE; COLLECTION
COSTS; PREPAYMENT.
(a) If any scheduled payment of principal, interest, or any
other agreed charge, is not made on or before the fifth (5th) day after the
same became due, Borrower agrees to pay Lender a late charge equal to five
percent (5%) of the amount of the payment or charge which is in default (except
that with respect to any final balloon payment of principal such charge shall
be based upon the immediately preceding monthly payment amount).
(b) Upon the occurrence of any Event of Default unless waived
by Lender in Lender's sole discretion, Borrower agrees to pay interest to
Lender at the Default Rate on the aggregate outstanding Loan Obligations
(including accrued interest) until such Loan Obligations are paid in full.
(c) Borrower will also pay to Lender, in addition to the
amount due, all reasonable costs of collecting, securing, or attempting to
collect or secure the Note actually incurred by Lender, including, without
limitation, court costs and reasonable attorneys' fees, including, without
limitation, reasonable attorneys' fees for preparation of litigation and in any
appellate and bankruptcy proceedings.
(d) The Loan will be prepayable at any time without any
prepayment premium.
2.6 USURY PROVISIONS. In no event shall the amount of interest due or
payable hereunder exceed the maximum rate of interest allowed by applicable
law, and in the event any such payment is inadvertently paid by Borrower or
inadvertently received by Lender, then such excess sum shall be credited as a
payment of principal, unless Lender elects to have such excess sum refunded to
Borrower forthwith, which refund Borrower hereby agrees to accept. It is the
express intent hereof that Borrower not pay and Lender not receive, directly or
indirectly, interest in excess of that which may be legally paid by Borrower
under applicable law.
2.7 MISCELLANEOUS.
(a) With respect to the amounts due under the Note, Borrower
waives the following to the fullest extent permitted by law:
(1) All rights of exemption of property from levy or
sale under execution or other process for the
collection of debts under the Constitution or laws
of the United States or any state thereof; and
- 7 -
<PAGE> 8
(2) Demand, presentment, protest, notice of
dishonor, notice of nonpayment, diligence in
collection, and all other requirements necessary to
enforce the Note; and
(3) Any further receipt by Lender or acknowledgment
by Lender of any Collateral now or hereafter
deposited with Lender as security for the Loan.
2.8 ORIGINATION FEE; ANNUAL DUE DILIGENCE FEE. Borrower will pay to
Lender an origination fee of $ and a Facility due diligence and
underwriting fee of $ , which fees are due and deemed earned as of the date
hereof.
ARTICLE III
BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan
to the Borrower, the Borrower represents and warrants to Lender as follows:
3.1 EXISTENCE, POWER AND QUALIFICATION. Borrower is a corporation duly
organized, validly existing in good standing under the laws of the state of its
formation as set forth in the heading of this Agreement, has the power to own
its properties and to carry on its business as is now being conducted, and is
duly qualified to do business and is in good standing in every jurisdiction in
which the character of the properties owned by it or in which the transaction
of its business makes its qualification necessary.
3.2 POWER OF AUTHORITY. Borrower has full power and authority to
borrow hereunder and to incur the obligations provided for herein and in each
of the other Loan Documents to which Borrower is a party, all of which have
been authorized by all proper and necessary action of its members.
3.3 DUE EXECUTION AND ENFORCEMENT. Each of the Loan Documents to which
Borrower is a party constitutes a valid and legally binding obligation of the
Borrower, enforceable in accordance with its respective terms and does not
violate, conflict with, or constitute any default under any law, government
regulation, decree, judgment, the Borrower's articles of organization or any
other agreement or instrument binding upon the Borrower.
3.4 PENDING MATTERS. No action or investigation is pending or
threatened before or by any state or federal court or administrative agency
which might result in any material adverse change in the financial condition,
operations or prospects of the Borrower or any lower
- 8 -
<PAGE> 9
reimbursement rate under the Reimbursement Contracts. Borrower is not in
violation of any agreement, the violation of which might reasonably be expected
to have a materially adverse effect on its business or assets, and Borrower is
not in violation of any order, judgment, or decree of any state or federal
court, or any statute or governmental regulation to which it is subject.
3.5 FINANCIAL STATEMENTS ACCURATE. All financial statements heretofore
or hereafter provided by the Borrower are and will be true and complete in all
material respects as of their respective dates and fairly and will fairly
present the financial condition of the Borrower, and there are no liabilities,
direct or indirect, fixed or contingent, as of the respective dates of such
statements which are not reflected therein or in the notes thereto or in a
written certificate delivered with such statements. The respective financial
statements of the Borrower and each Guarantor have been prepared in accordance
with GAAP. There has been no material adverse change in the financial
condition, operations, or prospects of the Borrower since the dates of such
statements except as fully disclosed in writing with the delivery of such
statements.
3.6 COMPLIANCE WITH LAWS. The Facility is duly licensed as a personal
care facility under the laws of the State of Pennsylvania. The licensed
capacity of the Facility is set forth in Exhibit B hereto. To the best of
Borrower's knowledge, the Facility is in compliance in all material respects
with the applicable provisions of personal care facility laws, rules,
regulations and published interpretations to which the Facility is subject. No
waivers of any laws, rules, regulations or requirements (including, but not
limited to, minimum square footage requirements per bed) are required for the
Facility to operate at the foregoing licensed capacity. All Reimbursement
Contracts are in full force and effect with respect to the Facility, and
Borrower and Manager are in good standing with the respective governmental,
quasi-governmental and other third party payors and regulatory agencies under
such applicable personal care facility licenses and Reimbursement Contracts.
Borrower is current in payment of all so-called provider specific taxes or
other assessments with respect to such Reimbursement Contracts. The Facility is
currently operated at the bed capacity set forth in Exhibit B.
3.7 TRANSFER OF LICENSE OR BED CAPACITY. Neither the Borrower nor
Manager has granted to any third party the right to reduce the number of
licensed beds or available units in the Facility or to apply for approval to
move the right to any or all of the personal care facility beds or units to any
other location. In the event the Management Agreement is terminated or Lender
acquires the Facility through foreclosure or otherwise, Borrower shall fully
cooperate with Lender, a subsequent lessee, subsequent manager, or subsequent
purchaser in obtaining a certificate of need or any other necessary
governmental approvals from the applicable state health care regulatory agency
and in applying for and receiving a license to operate the Facility and
certification to receive payments pursuant to Reimbursement Contracts for
patients or residents qualifying for coverage thereunder.
3.8 PAYMENT OF TAXES. The Borrower has filed all federal, state and
local tax returns which are required to be filed and has paid, or made adequate
provisions for the payment of, all
- 9 -
<PAGE> 10
taxes which have or may become due pursuant to such returns or to assessments
received by Borrower, including, without limitation, provider taxes.
3.9 TITLE TO COLLATERAL. The Borrower has good and marketable title to
all of the Collateral, subject to no Lien except those Liens specifically
permitted by this Agreement. If any other Lien is hereafter determined to
exist, Borrower shall within thirty (30) days following written notice from
Lender remove any such Lien.
3.10 PRIORITY OF MORTGAGE. To the best of Borrower's knowledge, the
Mortgage constitutes a first lien upon and security interest in the real and
personal property described therein, prior to all other Liens, including those
which may hereafter accrue, excepting only those Liens specifically permitted
by this Agreement or those "Permitted Encumbrances" specifically set forth in
the Mortgage. If any other Lien is hereafter determined to exist, Borrower
shall within thirty (30) days following written notice from Lender remove any
such Lien.
3.11 LOCATION OF THE CHIEF EXECUTIVE OFFICES. The Borrower's principal
place of business and chief place of business are set forth in Exhibit C
hereto.
3.12 DISCLOSURE. All information furnished or to be furnished by
Borrower to the Lender in connection with the Loan or any of the Loan
Documents, is, or will be at the time the same is furnished, accurate and
correct in all material respects and complete insofar as completeness may be
necessary to provide the Lender a true and accurate knowledge of the subject
matter.
3.13 TRADE NAMES. Neither Borrower nor, to the best of Borrower's
knowledge, the Facility has changed its name or been known by any other name
within the last five (5) years.
3.14 ERISA. The Borrower is in compliance with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
3.15 OWNERSHIP. The ownership of the Borrower is correctly and
accurately set forth in Exhibit D hereto.
3.16 PROCEEDING PENDING. There are no proceedings pending or, to the
best of Borrower's knowledge, threatened to acquire any power of condemnation
or eminent domain with respect to any part of the Property, or to enjoin or
similarly prevent or restrict the use of the Property or the operation of the
Facility in any manner.
3.17 COMPLIANCE WITH OTHER APPLICABLE LAWS. The Improvements and the
Property comply with all covenants and restrictions of record and applicable
laws, ordinances, rules and regulation, including, without limitation, all
laws, ordinances, rules and regulations relating to zoning (or is a valid
non-conforming use, lot or structure), set back requirements and applicable
building codes, and to the best of Borrower's knowledge, there are no waivers
of any building codes
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<PAGE> 11
in respect of the Facility. Borrower has not received any notice from applicable
authorities of noncompliance with the Americans with Disabilities Act and
regulations thereunder. Borrower agrees to indemnify and hold Lender harmless
from any fines or penalties assessed or any corrective costs incurred by Lender
if the Improvements or the Property, or any part thereof, is hereafter
determined to be in violation of any covenants or restrictions of record or any
applicable laws, ordinances, rules or regulations, and such indemnity shall
survive any foreclosure or deed in lieu of foreclosure.
3.18 ENVIRONMENTAL MATTERS. Neither the Property nor Borrower's use or
operation of the Property is in violation of or subject to any existing,
pending, or to the best of Borrower's and Guarantor's knowledge, threatened
investigation or inquiry by any governmental authority or any remedial
obligations under any Applicable Environmental Law, and there are no facts,
conditions or circumstances known to it that require reporting or disclosure to
any applicable governmental authority; Borrower has not obtained and to the
best of its knowledge is not required to obtain any permits, licenses, or
similar authorizations to construct, occupy, operate or use any buildings,
improvements, fixtures or equipment in connection with the Property by reason
of any environmental laws, rules or regulations, except as disclosed in writing
to Lender; to the best of Borrower's knowledge no oil or petroleum products or
derivatives, toxic or hazardous substances or solid wastes have been disposed
of or released on the Property by Borrower unless done in accordance with
Applicable Environmental Law, and Borrower agrees that it shall not in its use
of the Property dispose of or release oil or petroleum products or derivatives,
toxic or hazardous substances or solid wastes on the Property unless done in
accordance with Applicable Environmental Law. Notwithstanding anything to the
contrary herein, Borrower shall indemnify and hold Lender harmless from and
against any fines, charges, expenses, fees, reasonable attorneys' fees and
costs incurred by Lender because the Property, or the Borrower's use or
operation of the Real Property, including any improvements thereon (whether or
not due to any fault of Borrower but not due to any fault of the Lender while
Lender is in actual possession of the Property) is hereafter determined to be
in violation of any Applicable Environmental Law, rules or regulations due to
causes occurring during Borrower's possession and/or ownership of the Property,
and this indemnity shall survive the payment of the Obligations (as that term
is defined in the Mortgage), the expiration of the lien under the Mortgage, the
release or any foreclosure of the Mortgage or the transfer of the Property in
lieu of foreclosure. In the event the Property is determined by any
governmental agency or otherwise to be in violation of any Applicable
Environmental Laws, rules or regulations relating to the environment
(including, without limitation, any determination that oil or petroleum
products or derivatives, toxic or hazardous substances have been released or
disposed of on the Property such that the presence of such oil or petroleum
products or derivatives, toxic or hazardous substances is in violation of any
federal, state or local laws, rules or regulations, whether or not the same
were placed thereon by Borrower), Borrower shall within the time period
permitted by any applicable governmental agency having jurisdiction thereof and
in any event within sixty (60) days of written notice from Lender, whichever is
sooner, commence such action as may be necessary and approved by the applicable
governmental agencies having jurisdiction thereof to bring the Property into
compliance with the Applicable Environmental Law, rules and regulations
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and continue such action with all due diligence until the Property is in
compliance, and upon Borrower's failing to do so, the same shall constitute an
Event of Default.
Borrower represents and warrants to Lender that the Property
(i) contains no facilities that are subject to reporting (by either Borrower or
Manager thereon or other person or entity in possession or occupancy of any
portion thereon) under Section 312 of the Federal Emergency Planning and
Community Right-To-Know Act of 1986 (42 U.S.C. Section 11022); is not the site
of any underground storage tanks for which notification is required under 42
U.S.C. Section 6991a and applicable state or local law; and (ii) is not listed
on the Comprehensive Environmental Response, Compensation, and Liability
Information System in accordance with Section 116 of CERCLA (42 U.S.C. Section
9616).
3.19 SOLVENCY. Borrower represents and warrants that it is solvent
within the meaning of 11 U.S.C. Section 548 and GAAP, and the borrowing of the
Loan will not render the Borrower insolvent within the meaning of 11 U.S.C.
Section 548 and GAAP.
3.20 ROADS AND UTILITIES. All public utility and sanitary sewage
disposal systems necessary for the use of the Facility are available and proper
connections are in place at the Facility, and dedicated and publicly maintained
roads necessary for the full use of the Facility for its intended purpose have
been completed and are contiguous with the boundary of the Property at each
entrance and exit presently utilized by the Property.
ARTICLE IV
AFFIRMATIVE COVENANTS OF BORROWER AND GUARANTOR
Borrower agrees with and covenants unto the Lender that until the Loan
Obligations have been paid in full, the Borrower shall:
4.1 PAYMENT OF LOAN/PERFORMANCE OF LOAN OBLIGATIONS. Duly and
punctually pay or cause to be paid the principal and interest of the Note in
accordance with its terms and duly and punctually pay and perform or cause to
be paid or performed all Loan Obligations hereunder and under the other Loan
Documents.
4.2 MAINTENANCE OF EXISTENCE. Maintain its existence, and, in each
jurisdiction in which the character of the property owned by it or in which the
transaction of its business makes qualification necessary, maintain
qualification and good standing.
4.3 ACCRUAL AND PAYMENT OF TAXES. During each fiscal year, accrue all
current tax liabilities of all kinds (including, without limitation, federal
and state income taxes, franchise taxes, payroll taxes, and so-called provider
specific taxes (to the extent necessary to participate in and receive maximum
funding pursuant to Reimbursement Contracts)), all required withholding of
income taxes of employees, all required old age and unemployment contributions,
and all required
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payments to employee benefit plans, and pay the same when they become due,
provided Borrower may contest certain taxes in the manner and to the extent
permitted in the Mortgage provided the requirements of the Mortgage are
satisfied.
4.4 INSURANCE. At all times while Borrower is indebted to Lender,
maintain (or cause to be maintained) and require each Manager to maintain the
following insurance:
(a) Liability insurance (including professional liability) in
an amount equal to at least $1,000,000 per occurrence, $3,000,000 aggregate,
with a $5,000,000 umbrella policy. All such liability insurance shall be
written on an occurrence basis and name the Lender as an additional insured;
(b) "All-risk" broad form coverage on the Improvements,
Equipment and Inventory in an amount not less than the replacement cost
thereof, with endorsements insuring against such potential causes of loss as
shall be reasonably required by Lender, including, but not limited to, loss or
damage from (i) earthquake and subsidence (if reasonably requested by Lender),
and (ii) flood, unless evidence satisfactory to Lender is provided that all of
the Property is located in an area which is designated as not being in a flood
hazard area;
(c) Business income insurance (including rental value if any
Property or Improvements is leased in whole or part) equal to not less than
twelve (12) months estimated gross revenues less expenses not ordinarily
incurred during the period of business interruption (but not less than twelve
(12) months anticipated rents if the Property or Improvements is leased in
whole or part); and
(d) Workers' compensation insurance as required by the laws
of the State of Pennsylvania.
Each of the policies described in 4.4(b) and 4.4(c) shall name Lender
as mortgagee and loss payee under a standard non-contributory mortgagee and
lender loss payable clause, and shall provide that Lender shall receive not
less than thirty (30) days written notice prior to cancellation (except in the
case of non-payment of premium, in which event the Lender shall receive not
less than ten (10) days written notice prior to cancellation). The proceeds of
either of the policies described in 4.4(b) and 4.4(c) shall be payable by check
payable to Lender or jointly payable to Borrower and to Lender, and shall be
delivered to Lender, and such proceeds (after deducting Lender's costs and
expenses of obtaining such proceeds) shall be applied by Lender, at Lender's
sole option, either (i) to the full or partial payment or prepayment of the
Loan Obligations (without prepayment premium), or (ii) to the repair and/or
restoration of the Improvements, Equipment and Inventory damaged or taken, or
Lender may release the net proceeds to the Borrower.
Notwithstanding the foregoing, Lender agrees that Lender shall make
the net proceeds of insurance (after payment of Lender's costs and expenses)
available to Borrower for Borrower's
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<PAGE> 14
repair, restoration and replacement of the Improvements, Equipment and Inventory
damaged or taken on the following terms and subject to Borrower's satisfaction
of the following conditions:
(a) At the time of such loss or damage and at all times
thereafter while Lender is holding any portion of such proceeds, there
shall exist no Default or Event of Default;
(b) The Improvements, Equipment and Inventory for which loss
or damage has resulted shall be capable of being restored to its
pre-existing condition and utility in all material respects with a
value equal to or greater than prior to such loss or damage and shall
be capable of being completed prior to the Maturity Date;
(c) Within thirty (30) days from the date of such loss or
damage Borrower shall have given Lender a written notice electing to
have the proceeds applied for such purpose;
(d) Within ninety (90) days following the date of notice
under the preceding subparagraph (c) and prior to any proceeds being
disbursed to Borrower, Borrower shall have provided to Lender all of
the following:
(i) complete plans and specifications for restoration,
repair and replacement of the Improvements, Equipment and
Inventory damaged to the condition, utility and value required
by (b) above,
(ii) if loss or damage exceeds $50,000, fixed-price or
guaranteed maximum cost bonded construction contracts for
completion of the repair and restoration work in accordance
with such plans and specifications,
(iii) builder's risk insurance for the full cost of
construction with Lender named under a standard mortgagee
loss-payable clause,
(iv) such additional funds as in Lender's opinion are
necessary to complete the repair, restoration and replacement,
and
(v) copies of all permits and licenses necessary to
complete the work in accordance with the plans and
specifications.
(e) Lender may, at Borrower's expense, retain an independent
inspector to review and approve plans and specifications and completed
construction and to
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approve all requests for disbursement, which approvals shall be
conditions precedent to release of proceeds as work progresses;
(f) No portion of such proceeds shall be made available by
Lender for architectural reviews or for any other purposes which are
not directly attributable to the cost of repairing, restoring or
replacing the Improvements, Equipment and Inventory for which a loss
or damage has occurred unless the same are covered by such insurance;
(g) Borrower shall commence such work within one hundred
twenty (120) days of such loss or damage and shall diligently pursue
such work to completion;
(h) Each disbursement by Lender of such proceeds and deposits
shall be funded subject to conditions and in accordance with
disbursement procedures which a commercial construction lender would
typically establish in the exercise of sound banking practices and
shall be made only upon receipt of disbursement requests on an AIA
G702/703 form (or similar form approved by Lender) signed and
certified by the Borrower and its architect and general contractor
with appropriate invoices and lien waivers as required by Lender;
(i) Lender shall have a first lien and security interest in
all building materials and completed repair and restoration work and
in all fixtures and equipment acquired with such proceeds, and
Borrower shall execute and deliver such mortgages, deeds of trust,
security agreements, financing statements and other instruments as
Lender shall request to create, evidence, or perfect such lien and
security interest; and
(j) In the event and to the extent such proceeds are not
required or used for the repair, restoration and replacement of the
Improvements, Equipment and Inventory for which a loss or damage has
occurred, or in the event Borrower fails to timely make such election
or having made such election fails to timely comply with the terms and
conditions set forth herein, Lender shall be entitled without notice
to or consent from Borrower to apply such proceeds, or the balance
thereof, at Lender's option either (i) to the full or partial payment
or prepayment of the Loan Obligations (without prepayment premium) in
the manner aforesaid, or (ii) to the repair, restoration and/or
replacement of all or any part of such Improvements, Equipment and
Inventory for which a loss or damage has occurred, or Lender may
release the balance of such proceeds to the Borrower.
Notwithstanding the above, Borrower shall have additional time to comply with
paragraphs (d) and (g) provided that it is in good faith attempting to comply
with such paragraphs; provided, however, that in no event shall such additional
time exceed sixty (60) days beyond the time period provided
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<PAGE> 16
in paragraphs (d) and (g) respectively, unless waived by Lender and such waiver
shall not be unreasonably withheld.
Borrower appoints Lender as Borrower's attorney-in-fact to cause the
issuance of or an endorsement of any policy to bring Borrower into compliance
herewith and, as limited above, at Lender's sole option, to make any claim for,
receive payment for, and execute and endorse any documents, checks or other
instruments in payment for loss, theft, or damage covered under any such
insurance policy; however, in no event will Lender be liable for failure to
collect any amounts payable under any insurance policy.
4.5 FINANCIAL AND OTHER INFORMATION. Provide Lender the following
financial statements and information on a continuing basis:
(a) Within one hundred twenty (120) days after the end of
each fiscal year of Borrower, Guarantor and Manager: (i) Audited financial
statements of Guarantor prepared by a nationally recognized accounting firm or
an independent certified public accounting firm acceptable to the Lender,
prepared in accordance with GAAP, including a balance sheet, a statement of
income and expenses, a statement of changes in financial position, cash flow
and a breakdown or source and application of all funds, for the year then
ended; (ii) unaudited financial statements of the Borrower and Manager prepared
by a nationally recognized accounting firm or an independent certified public
accounting firm acceptable to the Lender, prepared in accordance with GAAP,
including a balance sheet, a statement of income and expenses, a statement of
changes in financial position, cash flow and a breakdown of source and
application of all funds, for the year then ended; (iii) separate financial
statements on the operations of the Facility certified by Borrower or Manager,
as the case may be, to be true and correct, and prepared from the books and
records of Borrower or Manager, as the case may be, in accordance with sound
accounting principles applied on a consistent basis from year to year, in form
and detail satisfactory to Lender, including a balance sheet and income
statement; (iv) separate financial statements of any lessee of the Facility.
(b) Within forty-five (45) days after the end of each fiscal
quarter, unaudited financial statements of the Borrower, Manager and Guarantor
for the quarter then ended, prepared in accordance with GAAP, and certified by
the Borrower, Manager, and Guarantor, respectively, to be true and correct.
(c) Within forty-five (45) days after the end of each fiscal
quarter, a current year-to-date operating statement for the Facility as of the
end of such quarter and the quarterly financial statement and census status for
the Facility in the form and detail set forth in Exhibit G hereto, properly
completed and certified by the Borrower to be true and correct.
(d) Upon fifteen (15) days of the Lender's written request,
an aged accounts receivable report of the Facility in sufficient detail to show
amounts due from each class of patient by the account age classifications of 30
days, 60 days, 90 days, 120 days, and over 120 days, and
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monthly census information of the Facility in sufficient detail to show
patient-mix on a daily average basis for such month, certified by the Borrower
to be true and correct.
(e) Upon five (5) days of the receipt by the Borrower or
Facility, any and all notices (regardless of form) from any licensing and/or
certifying agency.
(f) Within ten (10) business days of the actual filing of
cost reports of the Facility with the Medicaid agency, if applicable, furnish
to Lender a complete and accurate copy of the annual Medicaid cost report for
the facility, and promptly furnish Lender any amendments filed with respect to
such reports and all responses or inquiries with respect to such reports.
(g) Such financial statements of Guarantor and other Persons
as and when required in any of the Loan Documents.
(h) Upon Lender's request, evidence of payment by Borrower of
any applicable provider bed taxes or similar taxes, which Borrower agrees to
pay.
The Lender reserves the right to require such other financial
information (including tax returns, detailed cash flow information and
contingent liability information) of Borrower and Guarantor, all at such time
as Lender shall deem necessary, and Borrower agrees promptly to provide such
information to Lender. All financial statements must be in the form and detail
as the Lender shall from time to time request.
Lender may sell participation interests in the Loan, may sell or
transfer the Loan, or place the Loan in a pooling of Loans for syndication and
sale of interests therein to investors. In such event Borrower consents to the
Lender's disclosure and distribution of financial and other information of
Borrower that has been provided by Borrower to Lender pursuant to this
Agreement to prospective participation, purchasers, investors, rating agencies
and others involved in any participation , sale, pooling or syndication.
4.6 COMPLIANCE CERTIFICATE. At the time of furnishing the quarterly
financial statements and census data for the Facility required under the
foregoing Section, furnish to Lender a compliance certificate in the form
attached hereto as Exhibit E with all information completed and certified by
the chief financial officer of the Borrower as true and correct.
4.7. BOOKS AND RECORDS. Upon reasonable notice from Lender, permit,
and require Manager to permit, Persons designated by Lender to inspect the
Property and Improvements and books and records of the Borrower, Manager and
the Facility with officers of Borrower or of Manager as designated by Lender,
all at such times as Lender shall request.
4.8 PAYMENT OF INDEBTEDNESS. Duly and punctually pay or cause to be
paid all other Indebtedness now owing or hereafter incurred by the Borrower in
accordance with the terms of such Indebtedness, except such Indebtedness owing
to those other than Lender which is being
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contested in good faith and with respect to which any execution against
properties of the Borrower has been effectively stayed and for which reserves
adequate for payment have been established.
4.9 RECORDS OF ACCOUNTS. Maintain all records, including records
pertaining to the Accounts of the Facility, at the chief executive office of
Borrower as set forth in this Agreement or at the Facility.
4.10 NOTICE OF LOSS. Immediately notify the Lender of any event
causing a loss or depreciation in value of the Borrower's assets in excess of
$50,000 and the amount of such loss or depreciation, except Borrower shall not
be required to notify Lender of depreciation in Equipment resulting from
ordinary use thereof.
4.11 CONDUCT OF BUSINESS. Cause the operation of the Facility to be
conducted at all times in accordance with prudent operating standards and
procedures. Without limiting the foregoing, Borrower shall:
(i) maintain the standard of care for the patients or
residents of the Facility at all times at a level necessary to ensure a quality
care for the patients or residents of the Facility;
(ii) operate the Facility in a prudent manner in material
compliance with applicable laws and regulations relating thereto and cause all
licenses, permits, certificates of need, Reimbursement Contracts, and any other
agreements necessary for the use and operation of the Facility or as may be
necessary for participation in the Medicaid, Medicare, or other applicable
reimbursement programs to remain in effect without reduction in the number of
licensed beds or beds authorized for use in Medicaid, Medicare, or other
applicable reimbursement program;
(iii) maintain sufficient Inventory and Equipment of types
and quantities at the Facility to enable Borrower and Manager adequately to
perform operations of the Facility;
(iv) keep all improvements and equipment located on or used
or useful in connection with the Facility in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needed and proper repairs, renewals, replacements, additions, and improvements
thereto to keep the same in good operating condition.
4.12 PERIODIC SURVEYS. Furnish (or cause Manager to furnish) to Lender
within ten (10) days of receipt a copy of any Medicare, Medicaid, licensing
agency or reimbursement agency survey or report and any statement of
deficiencies, and within the time period required by the particular agency for
furnishing a plan of correction also furnish or cause to be furnished to Lender
a copy of the plan of correction generated from such survey or report for the
Facility, and correct or cause to be corrected any deficiency, the curing of
which is a condition of continued licensure or for full participation in
Medicaid, Medicare or other reimbursement program pursuant to any Reimbursement
Contract for existing patients or residents or for new patients or residents to
be
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admitted with Medicaid, Medicare or Reimbursement Contract coverage, by the date
required for cure by such agency (plus extensions granted by such agency).
4.13 MANAGEMENT AGREEMENT. Maintain the Management Agreement in full
force and effect and timely perform all of its obligations thereunder and
enforce performance of all obligations of the Manager thereunder, and not
permit the termination or amendment of the Management Agreement unless the
prior written consent of Lender is first obtained. Borrower will enter into and
cause Manager to enter into the Subordination Agreement, subordinating
Manager's interest in the Property and Facility and all fees and other rights
of Manager pursuant to the Management Agreement to the rights of Lender
pursuant to the Loan Documents.
4.14 UPDATED APPRAISALS. For so long as the Loan remains outstanding,
if any Event of Default shall occur hereunder, or if any external regulatory
authority having jurisdiction over Lender shall so require, or if, in Lender's
reasonable judgment, a material depreciation in the value of the Property shall
have occurred, then in any such event Lender may cause the Property to be
appraised by an appraiser selected by Lender, and in accordance with Lender's
appraisal guidelines and procedures then in effect, and Borrower agrees to
cooperate in all respects with such appraisals and furnish to the appraisers
all requested information regarding the Property, the Improvements and the
Facility and pay all reasonable costs incurred by Lender in connection with
such reappraisals for the Facility.
4.15 COMPLY WITH COVENANTS AND LAWS. Comply in all material respects
with all applicable covenants and restrictions of record and all laws,
ordinances, rules and regulations and keep the Facility, the Improvements, and
the Property in compliance in all material respects with all applicable laws,
ordinances, rules and regulations, including, without limitation, laws,
ordinances, rules and regulations relating to zoning, health, building codes,
setback requirements, Medicaid, Medicare and Applicable Environmental Laws.
4.16 TAXES AND OTHER CHARGES. Pay all taxes, assessments, charges,
claims for labor, supplies, rent, and other obligations which either (a)
contribute provider bed taxes or similar taxes necessary to achieve full
available funding under any then applicable Reimbursement Contract or (b) might
give rise to a Lien against property of Borrower, if unpaid, except Liens to
the extent permitted by this Agreement.
4.17 REPAIR BOND. Maintain in effect a termite and wood boring pest
repair bond for the Facility satisfactory to Lender.
4.18 CERTIFICATE. Upon Lender's written request, furnish Lender with a
certificate stating that Borrower has complied with and is in compliance with
all terms, covenants and conditions of the Loan Documents to which Borrower is
a party and that there exists no Default or Event of Default or, if such is not
the case, that one or more specified events have occurred, and that the
representations and warranties contained herein are true with the same effect
as though made on the date of such certificate.
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<PAGE> 20
4.19 REPORT AND NOTICES Furnish promptly to Lender such information as
Lender may reasonably require regarding the Project; notify Lender promptly of
any material deficiencies asserted or liens filed by the Internal Revenue
Service against Borrower or Guarantor; notify Lender promptly of any
condemnation or similar proceedings with respect to any of the Property or
Improvements, any proceeding seeking to enjoin the Project or intended use of
any of the Improvements (including the Project), and of all material changes in
governmental requirements pertaining to the Property or Project, utility
availability, anticipated costs of completion of the Project, and any other
maters which could reasonably be expected to adversely affect Borrower's
ability to perform its obligations under this Agreement to the extent Borrower
becomes aware of the same.
4.20 LIST OF CONTRACTORS, SUBCONTRACTORS AND MATERIALMEN. Upon
Lender's written request, notify Lender promptly of the names and addresses of
all contractors, subcontractors and materialmen who are employed in connection
with the construction of the Project.
4.21 OWNERSHIP OF PROPERTY. Furnish to Lender, if Lender so requests,
the contracts, bills of sale, receipted vouchers, and agreements, or any of
them, under which Borrower claims title to the materials, articles, fixtures
and other personal property used or to be used in the construction or equipping
of the Project.
ARTICLE V
NEGATIVE COVENANTS OF THE BORROWER
Until the Loan Obligations have been paid in full, Borrower shall not:
5.1 ASSIGNMENT OF LICENSES AND PERMITS. Assign or transfer, or permit
the assignment or transfer of, any interest in any Permits or, to the extent
hereafter in effect, any Reimbursement Contracts (including rights to payment
thereunder), or assign, transfer, or remove or permit any other person to
assign, transfer, or remove any records pertaining to the Facility, including,
without limitation, residents' records, medical and clinical records (except
for removal of such residents' records as directed by the residents owning such
records), without Lender's prior written consent, which consent may be granted
or refused in Lender's reasonable discretion.
5.2 NO LIENS; EXCEPTIONS. Create, incur, assume or suffer to exist any
Lien upon or with respect to any of the Collateral, whether now owned or
hereafter acquired, other than the following permitted Liens:
(a) Liens at any time existing in favor of the Lender;
(b) Liens which are listed in Exhibit F attached hereto;
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<PAGE> 21
(c) Inchoate Liens arising by operation of law for the
purchase of labor, services, materials, equipment or supplies, provided payment
shall not be delinquent and, if such Lien is a lien upon the Property or
Improvements, which Lien is fully subordinate to the Mortgage, and is disclosed
to Lender and bonded off and removed from the Property and Improvements in a
manner satisfactory to Lender;
(d) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of statutory
obligations (provided Borrower complies with all obligations with respect to
such insurance, benefits and statutory obligations);
(e) Liens for current year's taxes, assessments or
governmental charges or levies provided payment thereof shall not be
delinquent; and
(f) "Permitted Encumbrances" upon the Property, as defined in
the Mortgage; and
(g) Personal property leases or purchase money liens for
acquisition of office machines, copiers, computer equipment and other
equipment, hereafter leased or acquired, which is not necessary for the
continued operation of the Facility or the normal daily activities of or care
of residents, provided further that if any such equipment is leased such lease
must have been submitted to Lender, must be limited to equipment utilized at
the Property only and must be maintained free from default by Borrower.
5.3 MERGER, CONSOLIDATION, ETC. Without the prior written consent of
Lender, which consent shall not be unreasonably withheld or delayed, enter into
any merger, consolidation or similar transaction, or sell, assign, lease
(whether in one transaction or in a series of transactions), all or
substantially all of its assets (whether now or hereafter acquired).
5.4 DISPOSITION OF A MATERIAL PORTION OF ITS ASSETS. Sell, lease,
transfer or otherwise dispose of any material portion of its assets, unless any
such disposition is of property other than the Collateral and is in the
ordinary course of business for a full and fair consideration, which in no
event shall include a transfer for full or partial satisfaction of a
preexisting debt.
5.5 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Except as hereinafter
provided or as otherwise consented to by Lender in writing, declare or pay any
dividends, or purchase, redeem, retire, or otherwise acquire for value, any of
its membership interests now or hereafter outstanding, return any membership
interests to its members as such, or make any distribution of assets to its
members; provided Borrower may make cash distributions not in excess of current
net income after payment of any capital improvements to the Facility required
by this Agreement.
5.6 CHANGE IN BUSINESS. Make any material change in the nature of its
business or the business of the Facility as it is being conducted as of the
date hereof.
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5.7 CHANGES IN ACCOUNTING. Change its methods of accounting, unless
such change is permitted by GAAP, and provided such change does not have the
effect of curing or preventing what would otherwise be an Event of Default or
Default had such change not taken place.
5.8 ERISA FUNDING AND TERMINATION. Permit (a) the funding requirements
of ERISA with respect to any employee plan to be less than the minimum required
by ERISA at any time, (b) any employee plan to be subject to involuntary
termination proceedings at any time.
5.9 TRANSFER OF STOCK INTERESTS. Permit the transfer of more than
twenty-five percent (25%) of any of the stock of Borrower without the prior
written consent of Lender, which consent may be granted or required by Lender
in its sole discretion, unless such transfer is in connection with a registered
public offering.
5.10 CHANGE OF USE. Alter or change the use of the Facility or enter
into any management agreement or lease of the Facility other than the
Management Agreement unless Borrower first notifies Lender and provides Lender
a copy of the proposed management agreement or lease, obtains Lender's written
consent thereto and obtains and provides Lender with a subordination agreement
in form satisfactory to Lender from such manager or lessee subordinating to all
rights of Lender and a Security Agreement satisfactory to Lender from any
lessee conforming to the requirements of Section 5.2 hereof.
5.11 PLACE OF BUSINESS. Change its chief executive office or its
principal place of business without first giving Lender at least thirty (30)
days prior written notice thereof and promptly providing Lender such
information as Lender may request in connection therewith.
ARTICLE VI
EVENTS OF DEFAULT
6.1 The occurrence of any of the events listed in this Article shall
constitute in "Event of Default" hereunder:
(a) The failure by Borrower to pay any installment of
principal, interest, or other charges required under the Note, as and when the
same come due; or
(b) The Borrower's violation of any covenant set forth in
Article V; or
(c) The failure of Borrower properly and timely to perform or
observe any covenant or condition set forth in this Agreement (other than those
specified in (a) and (b) of this Section) or any other Loan Documents which is
not cured within any applicable cure period as set forth herein or, if no cure
period is specified therefor, is not cured within thirty (30) days of Lender's
notice to Borrower of such Default; or
- 22 -
<PAGE> 23
(d) The occurrence of any Event of Default (other than those
specified in (a), (b) or (c) of this Section) under any other Loan Documents;
or
(e) The filing by the Borrower or Guarantor of a voluntary
petition in bankruptcy or the adjudication of any of the aforesaid Persons as a
bankrupt or insolvent, or the filing by any of the aforesaid Persons of any
petition or answer seeking or acquiescing in any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief for
itself under any present or future federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief for debtors, or
if any of the aforesaid Persons should seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator for itself or of all or any
substantial part its property or of any or all of the rents, revenues, issues,
earnings, profits or income thereof, or the making of any general assignment
for the benefit of creditors or the admission in writing by any of the
aforesaid Persons of its inability to pay its debts generally as they become
due; or
(f) The entry by a court of competent jurisdiction of an
order, judgment, or decree approving a petition filed against the Borrower or
Guarantor, which such petition seeks any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future federal, state or other state law or regulation relating to
bankruptcy, insolvency, or other relief for debtors, which order, judgment or
decree remains unvacated and unstayed for an aggregate of ninety (90) days
(whether or not consecutive) from the date of entry thereof, or the appointment
of any trustee, receiver or liquidator of any of the aforesaid Persons or of
all or any substantial part of its properties or of any or all of the rents,
revenues, issues, earnings, profits or income thereof which appointment shall
remain unvacated and unstayed for an aggregate of ninety (90) days (whether or
not consecutive); or
(g) Except as otherwise permitted in this Agreement, the sale
or other transfer by Manager of any of its capital stock, unless the written
consent of the Lender is first obtained, which consent may be granted or
refused by the Lender in its reasonable discretion; or
(h) Any certificate, statement, representation, warranty or
audit heretofore or hereafter furnished by on behalf of the Borrower, Manager
or Guarantor pursuant to or in connection with this Agreement or otherwise
(including, without limitation, representations and warranties contained herein
or in any Loan Documents) or as an inducement to Lender to extend any credit to
or to enter into this or any other agreement with Borrower or Guarantor in
connection with this Loan or other loans now existing or hereafter created,
proved to have been false in any material respect at the time when the facts
therein set forth were stated or certified, or proves to have omitted any
substantial contingent or unliquidated liability or claim against Borrower or
Guarantor, or on the date of execution of this Agreement there shall have been
any materially adverse change in any of the facts previously disclosed by any
such certificate, statement, representation, warranty or audit, which change
shall not have been disclosed to Lender in writing at or prior to the time of
such execution; or
- 23 -
<PAGE> 24
(i) The failure of Borrower to timely cure any deficiency
required to be corrected pursuant to Section 4.12 of this Agreement; or
(j) The Facility, Manager or the Borrower should be assessed
fines or penalties in excess of $50,000 in the aggregate in any calendar year
by any state or any Medicare, Medicaid, health reimbursement or licensing
agency having jurisdiction over Borrower, Manager or Facility; or
(k) A final judgment shall be rendered by a court of law or
equity against Borrower or Guarantor and the same shall remain undischarged for
a period of ninety (90) days, unless such judgment (i) is fully covered by
collectible insurance and such insurer has within such period acknowledged such
coverage in writing, (ii) although not fully covered by insurance, enforcement
of such judgment has been effectively stayed, such judgment is being contested
or appealed by appropriate proceedings and Borrower, or Guarantor, as the case
may be, has established reserves adequate for payment in the event Borrower or
Guarantor is ultimately unsuccessful in such contest or appeal and evidence
thereof is provided to Lender, or (iii) does not have a material adverse effect
on Borrower or Guarantor; or
(l) The occurrence of any materially adverse change in the
financial condition or prospects of Borrower, Guarantor, or Manager, or the
existence of any other condition which, in Lender's reasonable determination,
constitutes an impairment of Borrower's or Guarantor's ability to perform its
obligations under the Loan Documents or Manager's ability to perform its
obligations under the Management Agreement, which change in condition or
prospects is not remedied within thirty (30) days of written notice from Lender
to Borrower.
Notwithstanding anything in this Section, all requirements of
notice shall be deemed eliminated if Lender is prevented from giving such
notice by bankruptcy or other applicable law. The cure period, if any, shall
then run from the occurrence of the event or condition of Default rather than
from the date of notice.
6.2 REMEDIES. Upon the occurrence of any one or more of the foregoing
Events of Default, the Lender may, at its option:
(a) Declare the entire unpaid principal of the Loan
Obligations to be, and the same shall thereupon become, immediately due and
payable, without presentment, protest or further demand or notice of any kind,
all of which are hereby expressly waived.
(b) Proceed to protect and enforce its rights by action at
law (including, without limitation, bringing suit to reduce any claim to
judgment), suit in equity and other appropriate proceedings including, without
limitation, for specific performance of any covenant or condition contained in
this Agreement.
- 24 -
<PAGE> 25
(c) Exercise any and all rights and remedies afforded by the
laws of the United States, the state in which the Property or other Collateral
is located or any other appropriate jurisdiction as may be available for the
collection of debts and enforcement of covenants and conditions such as those
contained in this Agreement and the Loan Documents.
(d) Exercise the rights and remedies of setoff and/or
banker's lien against the interest of the Borrower in and to every account and
other property of the Borrower which is in the possession of the Lender or any
Person who then owns a participating interest in the Loan, to the extent of the
full amount of the Loan.
(e) Exercise its rights and remedies pursuant to any other
Loan Documents.
(f) All rights and remedies of Lender under the terms of this
Agreement, the Note, any of the other Loan Documents, and any applicable
statutes or rules of law shall be cumulative and may be exercised successively
or concurrently.
ARTICLE VII
MISCELLANEOUS
7.1 WAIVER. No remedy conferred upon, or reserved to, the Lender in
this Agreement or any of the other Loan Documents is intended to be exclusive
of any other remedy or remedies, and each and every remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing in law or in equity. Exercise or omission to exercise any
right of the Lender shall not affect any subsequent right of Lender to exercise
the same. No course of dealing between Borrower and Lender or any delay on the
Lender's part in exercising any rights shall operate as a waiver of any of the
Lender's rights. No waiver of any Event of Default under this Agreement or any
of the other Loan Documents shall extend to or shall affect any subsequent or
other then existing Event of Default or shall impair any rights, remedies or
powers of Lender.
7.2 COSTS AND EXPENSES. Borrower will bear all taxes, fees and
expenses (including fees and expenses of counsel for Lender) in connection with
the Loan, the Note, the preparation of this Agreement and the other Loan
Documents (including any amendments hereafter made), and in connection with any
modifications thereto and the recording of any of the Loan Documents. If, at
any time, an Event of Default occurs or Lender becomes a party to any suit or
proceeding in order to protect its interests or priority in any Collateral for
any of the Loan Obligation or its rights under this Agreement or any of the
Loan Documents, or if Lender is made a party to any suit or proceeding by
virtue of the Loan, this Agreement or any Collateral for any Loan Obligations
and as a result of any of the foregoing, the Lender employs counsel to advise
or provide other representation with respect to this Agreement, or to collect
the balance of the Loan Obligations, or to take any action in or with respect
to any suit or proceeding relating to this Agreement, any of the
- 25 -
<PAGE> 26
other Loan Documents, any Collateral for any of the Loan Obligations, the
Borrower, or Guarantor, or to protect, collect, or liquidate any of the
Collateral for the Loan Obligations, the Borrower, or Guarantor, or to protect,
collect, or liquidate any of the Collateral for the Loan Obligations, or attempt
to enforce any security interest or lien granted to the Lender by any of the
Loan Documents, then in any such events, all of the attorney's fees arising from
such services, including fees on appeal and in any bankruptcy proceedings, and
any expenses, costs and charges relating thereto shall constitute additional
obligations of Borrower to the Lender. Without limiting the foregoing, Borrower
has undertaken the obligation for payment of and shall pay, all recording and
filing fees, revenue or documentary stamps or taxes, intangibles taxes, transfer
taxes, recording taxes and other taxes, expenses and charges payable in
connection with this Agreement, any of the Loan Documents, the Loan Obligations,
or the filing of any financing statements or other instruments required to
effectuate the purposes of this Agreement, and should Borrower fail to do so,
Borrower agrees to reimburse Lender for the amounts paid by Lender, together
with penalties or interest, if any, incurred by Lender as a result of
underpayment or nonpayment. This Section shall survive repayment of the
remaining Loan Obligations.
7.3 PERFORMANCE OF LENDER. At its option, upon Borrower's failure to
do so, the Lender may make any payment or do any act on the Borrower's behalf
that the Borrower or others are required to do to remain in compliance with
this Agreement or any of the other Loan Documents, and Borrower agrees to
reimburse the Lender, on demand, for any payment made or expense incurred by
Lender pursuant to the foregoing authorization, including, without limitation,
reasonable attorneys' fees, and until so repaid any sums advanced by Lender
shall bear interest at the Default Rate from the date advanced until repaid.
7.4 HEADINGS. The headings of Sections of this Agreement are for
convenience of reference only, are not to be considered a part hereof, and
shall not limit or otherwise affect any of the terms hereof.
7.5 SURVIVAL OF COVENANTS. All covenants, agreements, representations
and warranties made herein and in certificates or reports delivered pursuant
hereto shall be deemed to have been material and relied on by Lender,
notwithstanding any investigation made by or on behalf of Lender, and shall
survive the execution and delivery to Lender of the Note and this Agreement.
7.6 NOTICES, ETC. Any notice or other communication required or
permitted to be given by this Agreement or the other Loan Documents or by
applicable law shall be in writing and shall be deemed received (a) on the date
delivered, if sent by hand delivery (to the person or department if one is
specified below), (b) three (3) days following the date deposited in U.S. mail,
certified or registered, with return receipt requested, or (c) one (1) day
following the date deposited with Federal Express or other national overnight
carrier, and in each case addressed as follows:
- 26 -
<PAGE> 27
If to Borrower:
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attn: Mr. Brian L. Barth
With a copy to:
Karen N. Connelly, Esq.
Director of Legal Affairs
Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
If to the Lender to:
Capstone Capital of Pennsylvania, Inc
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Attention: Mr. Daryl D. McCombs
With a copy to:
Haskins W. Jones, Esq.
Johnston, Barton, Proctor & Powell
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203-2618
In addition, the Lender shall use its best efforts to notify the other
parties by facsimile in the event of a default hereunder; provided, however,
that its failure to do so will not render notice, as provided above,
ineffective.
Any party may change its address to another single address by notice
given as herein provided, except that any change of address must be actually
received in order to be effective.
7.7 BENEFITS. All of the terms and provisions of this Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns. No Person other than Borrower or Lender shall be
entitled to rely upon this Agreement or be entitled to the benefits of this
Agreement.
7.8 PARTICIPATION. Borrower acknowledges that Lender may, at its
option, sell participation interests in, or assign all of its interest in, the
Loan. Borrower agrees with each present and future participant or owner of the
Loan that if an Event of Default should occur, each
- 27 -
<PAGE> 28
present and future participant or owner shall have all of the rights and
remedies of Lender with respect to any deposit due from the Borrower. The
execution by a participant of a participation agreement with Lender, and the
execution by the Borrower of this Agreement, regardless of the order of
execution, shall evidence an agreement between Borrower and said participant in
accordance with the terms of this Section.
7.9 SUPERSEDES PRIOR AGREEMENTS; COUNTERPARTS. This Agreement and the
Loan Documents referred to herein supersede and incorporate all
representations, promises, and statements, oral and written, made by Lender in
connection with the Loan. This Agreement may not be varied, altered, or amended
except by a written instrument executed by Borrower and an authorized officer
of the Lender. This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be an original, but such
counterparts shall together constitute one and the same instrument.
7.10 CONTROLLING LAW. THE VALIDITY, INTERPRETATION, ENFORCEMENT AND
EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ALABAMA. THE LENDER'S PRINCIPAL PLACE OF
BUSINESS IS LOCATED IN JEFFERSON COUNTY IN THE STATE OF ALABAMA, AND THE
BORROWER AGREES THAT THIS AGREEMENT SHALL BE HELD BY LENDER AT SUCH PRINCIPAL
PLACE OF BUSINESS, AND THE HOLDING OF THIS AGREEMENT BY LENDER THEREAT SHALL
CONSTITUTE SUFFICIENT MINIMUM CONTACTS OF BORROWER WITH JEFFERSON COUNTY AND
THE STATE OF ALABAMA FOR THE PURPOSE OF CONFERRING JURISDICTION UPON THE
FEDERAL AND STATE COURTS PRESIDING IN SUCH COUNTY AND STATE. BORROWER CONSENTS
THAT ANY LEGAL ACTION OR PROCEEDING ARISING HEREUNDER MAY BE BROUGHT IN THE
CIRCUIT COURT OF THE STATE OF ALABAMA, JEFFERSON COUNTY ALABAMA OR THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA AND ASSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY SUCH COURT IN ANY ACTION OR
PROCEEDING INVOLVING THIS AGREEMENT. NOTHING HEREIN SHALL LIMIT THE
JURISDICTION OF ANY OTHER COURT.
7.11 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER AND GUARANTOR HEREBY WAIVE ANY RESPECTIVE RIGHT THAT THEY MAY
HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SET OFF, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR
THE LOAN, OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR
INCIDENTAL TO ANY DEALINGS OF LENDER AND/OR BORROWER AND GUARANTOR WITH RESPECT
TO THE LOAN DOCUMENTS OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF
ANY PARTY'S RIGHTS AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE, OR THE
CONDUCT OR
- 28 -
<PAGE> 29
THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER
NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, BORROWER AND GUARANTOR AGREE THAT LENDER MAY FILE A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND
BARGAINED AGREEMENT OF BORROWER AND GUARANTOR IRREVOCABLY TO WAIVE THEIR
RESPECTIVE RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF LENDER TO MAKE THE LOAN,
AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY
WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN BORROWER AND GUARANTOR WITH
LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
[SIGNATURES ON FOLLOWING PAGE]
- 29 -
<PAGE> 30
BORROWER:
a Delaware corporation
By: /s/ BRIAN L. BARTH
------------------------------
BRIAN L. BARTH, VICE PRESIDENT
LENDER:
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.
a Pennsylvania corporation
By: /s/ DARYL D. MCCOMBS
------------------------------------------
DARYL D. MCCOMBS, ASSISTANT VICE PRESIDENT
- 30 -
<PAGE> 31
SCHEDULE TO EXHIBIT 10.31 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
LOAN AGREEMENT
--------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY LOAN AMOUNT ORIGINATION FEE/FACILITY DATE
- ------- ------- -------- ----------- DUE DILIGENCE AND ----
UNDERWRITING FEE
----------------
<S> <C> <C> <C> <C> <C>
Darlington, PA BCC at Darlington, Feltrop $5,875,000.00 $58,750.00/$3,000.00 9/30/97
Inc. (Borrower), and Personal
Capstone Capital of Care Home
Pennsylvania, Inc.
(Lender)
Butler, PA Balanced Care at Silver Haven $246,000.00 $91,500.00/$3,000.00 10/31/97
Butler, Inc.
(Borrower) and
Capstone Capital of
Pennsylvania, Inc.
(Lender)
Sarver, PA Balanced Care at Sterling $286,000.00 N/A 10/31/97
Sarver, Inc. Care of
(Borrower) and Sarver
Capstone Capital of
Pennsylvania, Inc.
(Lender)
Saxonburg, PA Balanced Care at Sterling $8,618,000.00 N/A 10/31/97
Saxonburg, Inc. Care of
(Borrower) and Saxonburg
Capstone Capital of
Pennsylvania, Inc.
(Lender)
</TABLE>
<PAGE> 1
EXHIBIT 10.32
FORM OF PROMISSORY NOTE
$
FOR VALUE RECEIVED, the undersigned , a
Delaware corporation (the "Maker"), promises to pay to the order of CAPSTONE
CAPITAL OF PENNSYLVANIA, INC., a Pennsylvania corporation, its successors and
assigns (hereinafter, together with any subsequent holder of this Note, the
"Holder"), at its main office in the City of Birmingham, Alabama, or at such
other address as the Holder may from time to time designate in writing, the
principal sum of
("Principal Amount") advanced to Borrower pursuant to that
certain Loan Agreement of even date herewith (the "Loan Agreement"), together
with interest thereon accruing at the Applicable Rate. Principal and interest
are to be payable as follows:
On December 30, 1997, Maker shall pay to Holder the outstanding
principal balance together with all accrued and unpaid interest; provided,
however that so long as no Default or Event of Default exists under the Loan
Documents on December 30, 1997, and Borrower pays Lender all accrued interest
on the Loan on December 30, 1997, Borrower may, upon fifteen (15) days prior
written notice to Lender, extend the Loan Term for an additional ninety (90)
day period. If the Borrower elects to extend the Loan Term for such ninety (90)
day period, the Loan and all accrued interest thereon, shall be due and payable
on March 30, 1998.
"Applicable Rate" means a rate equal to a margin of two hundred (200)
basis points in excess of the prime rate of interest as published in the Wall
Street Journal, as such rate may change from time to time. Interest shall be
calculated on the daily outstanding balance for the previous period using a
360-day base.
Reference to the Loan Agreement is hereby made for a statement of the
rights of Holder and the duties and obligations of Maker, including the
conditions under which the outstanding principal balance may be prepaid and the
amount of any premium associated with such prepayment, but neither this
reference to the Loan Agreement nor any provisions thereof shall affect or
impair the absolute and unconditional obligation of Maker to pay the principal
and interest of this Note when due. Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Loan
Agreement. The principal hereof and interest herein are payable as provided in
the Loan Agreement.
All payments shall be applied first to interest then due and payable,
and any balance shall be applied in reduction of principal. The principal and
interest shall be payable in lawful money of the United States which shall be
legal tender for public and private debts at the time of payment.
This Note is secured and guaranteed by the Loan Documents.
<PAGE> 2
The principal sum evidenced by this Note, together with accrued
interest, shall become immediately due and payable at the option of the Holder
upon the occurrence of any Event of Default under the terms of the Loan
Agreement, which such "Events of Default" are incorporated herein by reference
as if set forth in full herein.
If any scheduled payment of principal or interest is not made on or
before the fifth (5th) day after the same became due, Maker agrees to pay
Holder a late charge equal to five percent (5%) of the amount of the payment
which is in default (except that with respect to any final balloon payment of
principal such charge shall be based upon the immediately preceding monthly
payment amount).
Upon the occurrence of any of the Events of Default (unless waived by
Lender in Lender's sole discretion), Maker agrees to pay interest to Holder at
the Default Rate on the aggregate indebtedness represented hereby, including
accrued interest, until such aggregate indebtedness is paid in full. Maker will
also pay to Holder, in addition to the amount due, all reasonable costs of
collecting, securing, or attempting to collect or secure this Note, including
without limitation, court costs and reasonable attorneys' fees, including
reasonable attorneys' fees on any appeal by either Maker or Holder and in any
bankruptcy proceedings.
With respect to the amounts due under this Note, the Borrower waives
the following to the fullest extent permitted by applicable law:
(1) All rights of exemption of property from levy or sale under
execution or other process for the collection of debts of the
Constitution or laws of the United States or any state thereof;
(2) Demand, presentment, protest, notice of dishonor, notice of
nonpayment, suit against any party, diligence in collection of this
Note, requirements necessary to enforce this Note; and
(3) Any further receipt for or acknowledgment of any collateral
now or hereafter deposited as security for the Loan.
In no event shall the amount of interest due or payable hereunder
(including interest calculated at the Default Rate) exceed the maximum rate of
interest designated by applicable law, and in the event such payment is
inadvertently paid by Maker or inadvertently received by Holder then such
excess sum shall be credited as a payment of principal, unless Maker elects to
have such excess sums refunded to Maker herewith. It is the express intent
hereof that Maker not pay and Holder not receive, directly or indirectly,
interest in excess of that which may be legally paid by Maker under applicable
law.
Holder shall not by any act, delay, omission, or otherwise be deemed
to have waived any of its rights or remedies, and no waiver of any kind shall
be valid unless in writing and signed by Holder. All rights and remedies of
Holder under the terms of this Note and applicable statues or rules of law
shall be cumulative, and may be exercised successively or concurrently. Maker
agrees
- 2 -
<PAGE> 3
that as of the date hereof there are no defenses, equities, or setoffs
may exist, the same are hereby expressly released, forgiven, waived and forever
discharged. The obligations of Maker hereunder shall be binding upon and
enforceable against Maker and its successors and assigns.
Any provisions of this Note which may be unenforceable or invalid
under any law shall be ineffective to the extent of such unenforceability or
invalidity without affecting the enforceability or validity of any other
provision hereof.
Holder may, at its option, release any Collateral given to secure the
indebtedness evidenced hereby, and no such release shall impair the obligations
of Maker to Holder.
THE VALIDITY, INTERPRETATION, ENFORCEMENT AND EFFECT OF THIS NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF ALABAMA. THE HOLDER'S PRINCIPAL PLACE OF BUSINESS IS LOCATED IN JEFFERSON
COUNTY IN THE STATE OF ALABAMA, AND THE MAKER AGREES THAT THIS NOTE SHALL BE
DELIVERED TO AND HELD BY HOLDER AT SUCH PRINCIPAL PLACE OF BUSINESS, AND THE
HOLDING OF THIS NOTE BY HOLDER THEREAT SHALL CONSTITUTE SUFFICIENT MINIMUM
CONTACTS OF MAKER WITH JEFFERSON COUNTY AND THE STATE OF ALABAMA FOR THE
PURPOSE OF CONFERRING JURISDICTION UPON THE FEDERAL AND STATE COURTS PRESIDING
IN SUCH COUNTY AND STATE. MAKER CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
ARISING HEREUNDER MAY BE BROUGHT IN THE CIRCUIT COURT OF THE STATE OF ALABAMA,
JEFFERSON COUNTY, ALABAMA OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ALABAMA AND ASSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY
SUCH COURT IN ANY ACTION OR PROCEEDING INVOLVING THIS NOTE. NOTHING HEREIN
SHALL LIMIT THE JURISDICTION OF ANY OTHER COURT.
MAKER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO TRIAL BY JURY ON ANY
CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING OUT
OF OR IN ANY WAY PERTAINING TO OR RELATING TO THIS NOTE OR ANY OF THE LOAN
DOCUMENTS, OR (II) IN ANY WAY CONNECTED WITH OR PERTAINING TO OR RELATED TO OR
INCIDENTAL TO ANY DEALING OF THE PARTIES HERETO WITH RESPECT TO THIS NOTE OR
THE LOAN DOCUMENTS, OR IN CONNECTION WITH THE TRANSACTIONS RELATED THERETO OR
CONTEMPLATED THEREBY OR THE EXERCISE OF EITHER PARTY'S RIGHTS AND REMEDIES
THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. MAKER AGREES THAT
HOLDER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF THE
KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF MAKER IRREVOCABLY TO WAIVE ITS
RIGHT TO TRIAL BY JURY, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN MAKER AND HOLDER
- 3 -
<PAGE> 4
SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING
WITHOUT A JURY.
[SIGNATURES ON FOLLOWING PAGE]
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, Maker has caused this instrument to be executed
and delivered as of the day and year first above written.
By: /s/ BRIAN L. BARTH
------------------------------
BRIAN L. BARTH, VICE PRESIDENT
- 5 -
<PAGE> 6
SCHEDULE TO EXHIBIT 10.32 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
PROMISSORY NOTE
---------------
<TABLE>
<CAPTION>
PROJECT PARTIES AMOUNT OF NOTE DATE
- ------- ------- -------------- ----
<S> <C> <C> <C>
Darlington, PA BCC at Darlington, Inc. (Maker), and Capstone Capital of $5,875,000.00 9/30/97
Pennsylvania, Inc. (Holder)
Butler, PA Balanced Care at Butler, Inc. (Maker) and Capstone $246,000.00 10/31/97
Capital of Pennsylvania, Inc. (Holder)
Sarver, PA Balanced Care at Sarver, Inc. (Maker) and Capstone $286,000.00 10/31/97
Capital of Pennsylvania, Inc. (Holder)
Saxonburg, PA Balanced Care at Saxonburg, Inc. (Maker) and Capstone $8,618,000.00 10/31/97
Capital of Pennsylvania, Inc. (Holder)
</TABLE>
<PAGE> 1
EXHIBIT 10.33
RECORDED AT THE REQUEST OF AND AFTER RECORDING RETURN TO:
HASKINS W. JONES
JOHNSTON, BARTON, PROCTOR & POWELL
1901 SIXTH AVENUE NORTH
2900 AMSOUTH/HARBERT PLAZA
BIRMINGHAM, ALABAMA 35203
(205) 458-9400
FORM OF MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING
THIS MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING (this
"Mortgage"), made as of the , between
, a Delaware corporation, (the "Borrower"), whose address is
5021 Louise Drive, Suite 200, Mechanicsburg, Pennsylvania 17055, and CAPSTONE
CAPITAL OF PENNSYLVANIA, INC., a Pennsylvania corporation (the "Lender"), whose
address is 1000 Urban Center Drive, Suite 630, Birmingham, Alabama, 35242.
R E C I T A L S:
A. Pursuant to that Loan Agreement of even date herewith between the
Borrower and the Lender, as the same may hereafter be amended (as so amended,
the "Loan Agreement"), Lender has agreed to make a loan to Borrower in the
aggregate principal sum of
(the "Loan"), to be evidenced by a Promissory Note of even
date herewith from the Borrower in such principal amount (said Promissory Note,
as the same may hereafter be renewed, extended or modified, being herein called
the "Note").
B. As a condition precedent to making the Loan, the Lender has
required that the Borrower execute this Mortgage as security for the Loan and
the other Loan Obligations (as hereinafter defined).
NOW THEREFORE, the undersigned, in consideration of the Loan, and to
secure the prompt payment and performance of the Loan Obligations (including
future advances), including the principal and interest under the Note which, if
not sooner paid, is due and payable in full on the Maturity Date, does hereby
mortgage, grant and convey unto the Lender, its successors and assigns, and
does hereby grant a security interest to Lender, its successors and assigns, in
the following described land, estates, buildings, improvements, personal
property, fixtures, equipment, furniture, furnishings, appliances and
appurtenances, including replacements and additions thereto, whether now owned
or hereafter acquired (which together with any additional such property
hereafter acquired by the Borrower and subject to the lien of this Mortgage, or
intended to be so, as the same may be from time to time constituted is
hereinafter sometimes referred to as the "Collateral") to wit:
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(A) All the tract(s) or parcel(s) of land located in and more
particularly described in Exhibit A attached hereto and made a part hereof (the
"Property"), the addresses for such Property being set forth on Exhibit A; and
(B) All Improvements and Equipment;
(C) All Appurtenant Rights;
(D) All Rents;
(E) All Accounts, General Intangibles, Instruments,
Inventory, Money, and (to the full extent assignable) Permits; and
(F) All Proceeds.
TO HAVE AND TO HOLD the Collateral and all parts thereof unto the
Lender, its successors and assigns forever, subject however to the terms and
conditions herein.
PROVIDED, HOWEVER, that these presents are upon the condition that, if
the Borrower shall pay to the Lender the Loan Obligations, at the times and in
the manner stipulated herein, in the Note and in the other Loan Documents, all
without any deduction or credit for taxes or other similar charges paid by the
Borrower, and shall cause all other obligated parties to keep, perform, and
observe all and singular the covenants and promises herein, in the Note and in
each of the other Loan Documents expressed to be kept, performed, and observed,
all without fraud or delay, then this Mortgage, and all the properties,
interests, and rights hereby granted, bargained, and sold shall cease,
determine, and be void, but shall otherwise remain in full force and effect.
ARTICLE I
DEFINED TERMS
1.01 Defined Terms. As used herein, defined terms shall have the
meanings ascribed to them, and, in addition, the following terms will have the
following meanings:
"ACCOUNTS" shall mean all accounts, (including accounts receivable)
arising from the operation of the Facility, including but not limited to,
rights to payment for goods sold or leased or for services rendered, not
evidenced by an instrument, and specifically including rights to payment from
reimbursement contracts.
"APPURTENANT RIGHTS" means all easements, rights-of-way, strips and
gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters,
water courses, water rights and powers, minerals, flowers, shrubs, crops,
trees, timber and other emblements now or hereafter appurtenant to, or used or
useful in connection with or located, under or above the
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Property, or any part or parcel thereof, and all ground leases, estates, rights,
titles, interests, privileges, liberties, tenements, hereditaments and
appurtenances, reversions, and remainders whatsoever, in any way belonging,
relating or pertaining to the Property or any other Collateral, or any part
thereof.
"COLLATERAL" has the meaning set forth in the Recitals to this
Agreement.
"FACILITY" means the personal care facility presently known as and
sometimes referred to herein as located on the
Property.
"GENERAL INTANGIBLES" mean all general intangibles and other
intangible personal property arising out of or connected with the Property or
the Facility (other than accounts, rents, instruments, inventory, money and
permits), including, without limitation things in action contract rights and
other rights to payment of money.
"IMPROVEMENTS" shall mean the personal care facility, related
equipment and improvements situated on the Property.
"INSTRUMENTS" means all instruments, chattel paper, documents or other
writings obtained by Borrower from or in connection with the operation of the
Property or the Facility (including, without limitation all ledger sheets,
computer records and printouts, data bases, programs, books of account and
files relating thereto).
"INVENTORY" shall mean all goods, merchandise and other personal
property of a Person that are held for sale or lease or furnished or to be
furnished under a contract for services or raw materials and materials used or
consumed or to be used or consumed in a Person's business, and in addition
includes all property included in the definition of "inventory" as used in the
Code.
"LOAN" has the meaning set forth in the Recitals to this Mortgage.
"LOAN AGREEMENT" has the meaning set forth in the Recitals to this
Mortgage.
"LOAN DOCUMENTS" means, collectively, the Note, the Loan Agreement,
this Mortgage, the Assignment, the Assignment of Rents, the Guaranty, the
Indemnity Agreement, the Cross-Collateralization Agreement, the Subordination
Agreement, and any and all other documents executed by the Borrower or others
evidencing, securing or otherwise relating to the Loan.
"LOAN OBLIGATIONS" means the aggregate of all principal and interest
owing from time to time under the Note and all expenses, charges and other
amounts from time to time owing under the Note, the Loan Agreement, this
Mortgage or any other Loan Documents, including future advances pursuant to the
Loan Documents, and all covenants, agreements and other obligations from time
to time owing to, or for the benefit of, Lender pursuant to the Loan Documents.
"MATURITY DATE" has the meaning set forth in the Loan Agreement.
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"MONEY" means all monies, cash, rights to deposit or savings accounts
or other items of legal tender obtained from or for use in connection with the
operation of the Facility.
"NOTE" has the meaning set forth in the Recitals to this Mortgage.
"PERMITS" means all licenses, permits and certificates used or useful
in connection with the ownership, operation, use or occupancy of the Property
or the Facility, including, without limitation, business licenses, state health
department licenses, food service licenses, licenses to conduct business,
certificates of need and all such other permits, licenses and rights, obtained
from any governmental, quasi-governmental or private person or entity
whatsoever concerning ownership, operation, use or occupancy.
"PERMITTED ENCUMBRANCES" means all matters set forth in Exhibit B
attached hereto and made a part hereof, provided that to the extent any of the
same are listed as subordinate, such matters are permitted only so long as they
are in fact subordinate to this Mortgage.
"PROCEEDS" means all proceeds (including proceeds of insurance and
condemnation) from the sale, exchange, transfer, collection, loss, damage,
disposition, substitution or replacement of any of the Collateral.
"PROPERTY" has the meaning set forth in the Recitals to this Mortgage.
"REIMBURSEMENT CONTRACTS" shall mean all contracts and rights pursuant
to reimbursement or third party payor programs and contracts for the Facility
which are now or hereafter in effect with respect to patients qualifying for
coverage under the same, including Medicare, Medicaid and private insurance
agreements, and any successor program or other similar reimbursement program
and private insurance agreements.
"RENTS" means all rent and other payments of whatever nature from time
to time payable pursuant to leases of the Property or the Facility, or any part
thereof, including but not limited to, leases of retail space or other space at
the Property for retail businesses such as newsstands, barbershops, beauty
shops, physicians' offices, pharmacies and specialty shops.
1.02 Singular and Plural. Singular terms shall include the plural
forms and vice versa, as applicable of the terms defined.
1.03 References. All references to other documents or instruments
shall be deemed to refer to such documents or instruments as they may hereafter
be extended, renewed, modified or amended, and all replacements and
substitutions therefor.
1.04 Loan Agreement. All other capitalized terms not otherwise defined
in this Mortgage shall have the meanings set forth in the Loan Agreement.
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ARTICLE II
COVENANTS, AGREEMENTS, AND REPRESENTATIONS OF BORROWER
2.01 Performance of Loan Documents. The Borrower will perform,
observe, and comply with all provisions hereof and of each of the other Loan
Documents and duly and punctually will pay to the Lender the sum of money
expressed in the Note with interest thereon and all other sums required to be
paid by the Borrower pursuant to the provisions of this Mortgage, all without
any deductions or credit for taxes or other similar charges paid by the
Borrower. The Note provides for interest at a fluctuating rate, and such
provisions of the Note are incorporated herein by reference.
2.02 Warranty of Title. The Borrower is lawfully seized of an
indefeasible estate in fee simple in the Property, Improvements, Rents and
Appurtenant Rights hereby mortgaged and has good and absolute title to all
other Collateral in which a security interest is herein granted and has good
right, full power and lawful authority to sell, convey, mortgage, and grant a
security interest in the same in the manner and form aforesaid; that, except
for Permitted Encumbrances the same are free and clear of all liens, charges,
and encumbrances whatsoever, including, as to the Equipment, conditional sales
contracts, chattel mortgages, security agreements, financing statements, and
anything of a similar nature, and that Borrower shall and will warrant and
forever defend the title thereto unto the Lender, its successors and assigns,
against the lawful claims of all persons whomsoever.
2.03 Taxes, Liens and Other Charges.
(a) Borrower shall pay, on or before the delinquency date
thereof, all taxes, levies, license fees, permit fees and all other charges (in
each case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen) of every character whatsoever (including all penalties and interest
thereon) now or hereafter levied, assessed, confirmed or imposed on, or in
respect of, or which may be alien upon the Collateral, or any part thereof, or
any estate, right or interest therein, or upon the rents, issues, income or
profits thereof, and shall submit to Lender upon Lender's reasonable request
such evidence of the due and punctual payment of all such taxes, assessments
and other fees and charges as may be required by law. Borrower shall have the
right before they become delinquent to contest or object to the amount or
validity of any such tax, assessment, fee or charge by appropriate legal
proceedings, but this shall not be deemed or construed in any way as relieving,
modifying or extending Borrower's covenant to pay any such tax, assessment, fee
or charge at the time and in the manner provided herein, unless Borrower has
given prior written notice to Lender of Borrower's intent to so contest or
object, and unless (i) Borrower shall demonstrate to Lender's satisfaction that
the legal proceedings shall conclusively operate to prevent the sale of the
Collateral, or any part thereof, to satisfy such tax, assessment, fee or charge
prior to final determination of such proceedings and shall not have a material
adverse effect on the operation of the Facility during the pendency of such
contest; and (ii) if required by Lender, Borrower shall furnish a good and
sufficient bond or surety as requested by and satisfactory to Lender in an
amount sufficient to fully pay the contested amount, with penalties, interest
and other charges if Borrower should be unsuccessful in such contest; and (iii)
Borrower shall diligently pursue such contest.
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(b) Borrower shall pay, on or before the due date thereof,
all taxes, assessments, charges, expenses, costs and fees, if any, which may
now or hereafter be levied upon, or assessed or charged against the Note, this
Mortgage or any other Loan Documents.
(c) Borrower shall pay, on or before the due date thereof,
all premiums on policies of insurance covering, affecting or relating to the
Collateral, as required by the Loan Agreement; and all utility charges which
are incurred by Borrower for the benefit of the Collateral, or which may become
a charge or lien against the Collateral for gas, electricity, water and sewer
services and the like furnished to the Collateral, and all other public or
private assessments or charges of a similar nature affecting the Collateral or
any portion thereof, whether or not the nonpayment of same may result in a lien
thereon. Borrower shall submit to Lender such evidence of the due and punctual
payment of all such premiums, rentals, and other sums as Lender may reasonably
require.
(d) Borrower shall not suffer any mechanic's, materialmen's
laborer's, statutory or other lien (except as expressly permitted by the Loan
Agreement) to be created or remain outstanding against the Collateral;
provided, however, that Borrower may contest any such lien in good faith by
appropriate legal proceedings provided the lien is bonded off and removed as an
encumbrance upon the Collateral. Lender has not consented and will not consent
to the performance of any work or the furnishing of any materials which might
be deemed to create a lien or liens superior to the lien thereof.
(e) In the event of the passage of any state, federal,
municipal or other governmental law, order, rule or regulation, subsequent to
the date hereof, in any manner changing or modifying the laws now in force
governing the taxation of mortgages or security agreements or debts secured
thereby or the manner of collecting such taxes so as to adversely affect
Lender, Borrower will pay any such tax on or before the due date thereof. If
Borrower fails to make such prompt payment or if, in the opinion of Lender, any
such state, federal, municipal, or other governmental law, order, rule or
regulation prohibits Borrower from making such payment or would penalize Lender
if Borrower makes such payment or if, in the reasonable opinion of Lender, the
making of such payment might result in the imposition of interest beyond the
maximum amount permitted by applicable law, then the entire balance of the Loan
Obligations shall, at the option of Lender, become immediately due and payable.
(f) The Borrower hereby indemnifies and holds Lender harmless
from any sales or use tax that may be imposed on the Lender by virtue of
Lender's Loan to Borrower.
2.04 Monthly Deposits. Borrower shall, upon request of Lender, deposit
with Lender, on the due date of each installment under the Note, an amount
equal to one-twelfth (1/12) of the yearly taxes and assessments and insurance
premiums as reasonably estimated by the Lender to pay such charges; said
deposits to be held and to be used by Lender to pay current taxes and
assessments, insurance premiums and other charges on the Collateral as the same
accrue and are payable. Payment from said sums for said purposes shall be made
by Lender at its discretion and may be made even though such payments will
benefit subsequent owners of the Collateral. Said deposits shall not be, nor be
deemed to be, trust funds, but
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may be, to the extent permitted by applicable law, commingled with the general
funds of Lender. If said deposits are insufficient to pay the taxes and
assessments, insurance premiums and other charges in full as the same become
payable, Borrower will deposit with Lender such additional sum or sums as may be
required in order for Lender to pay such taxes and assessments, insurance
premiums and other charges in full. Upon any Event of Default, Lender may, at
its option, apply any money in the fund relating from said deposits to the
payment of the Loan Obligations in such manner as it may elect.
2.05 Condemnation.
If all or part of the Collateral shall be damaged or taken through
condemnation (which term when used in this Mortgage shall include any damage or
taking by any governmental authority, and any transfer by private sale in lieu
thereof), either temporarily or permanently, other than a taking of a part of
the Collateral which does not in Lender's opinion materially adversely affect
access to or use of the Collateral, the value of the Collateral or the
operation of either Facility, the entire Loan Obligations secured hereby shall
at the option of the Lender become immediately due and payable (without any
prepayment penalty).
Borrower, immediately upon obtaining knowledge of any institution, or
any proposed, contemplated or threatened institution of any action or
proceedings for the taking through condemnation of the Collateral or any part
thereof, will notify Lender, and Lender is hereby authorized, at its option, to
commence, appear in and prosecute, through counsel selected by Lender, in its
own or in Borrower's name, any action or proceeding relating to any
condemnation Borrower may compromise or settle any claim for compensation so
long as no Event of Default exists and any compromise or settlement results in
a payment to Lender not less than the entire Loan Obligations. All such
compensations, awards, damages, claims, rights of action and proceeds and the
right thereto are hereby assigned by Borrower to Lender, and Lender is
authorized, at its option, to collect and receive all such compensation, awards
or damages and to give proper receipts and acquittance therefor without any
obligation to question the amount of any such compensation, awards or damages.
After deducting from said condemnation proceeds all of its reasonable
expenses incurred in the collection and administration of such sums, including
reasonable attorney's fees, Lender may release any moneys so received by it for
the repair or restoration of the Collateral taken, or may apply the same in
such manner as the Lender shall determine to reduce the Loan Obligations in
such order as Lender may elect, whether or not then due, and without affecting
this Mortgage as security for any remaining Loan Obligations, and any balance
of such moneys shall be paid to the Borrower.
2.06 Care of Collateral.
(a) Borrower will keep the Improvements in good condition and
repair, will not commit or suffer any waste and will not do or suffer to be
done anything which would or could increase the risk of fire or other hazard to
the Collateral or any other part thereof or which would or could result in the
cancellation of any insurance policy carried with respect to the Collateral.
(b) Borrower will not remove, demolish or alter the
structural character of any Improvements without the written consent of Lender,
which such consent shall not be
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unreasonably withheld, nor make or permit use of the Collateral for any purpose
other than that for which the same are now used.
(c) If the Collateral or any part thereof is damaged by fire
or any other cause to the extent that it affects the normal continuing
operating of the Facility at its occupancy immediately prior to such damage or
otherwise materially affects the value of the Collateral, Borrower will give
immediate written notice thereof to Lender.
(d) Lender or its representative is hereby authorized to
enter upon and inspect the Collateral during normal business hours. Lender
shall make reasonable efforts to provide notice to Borrower of such
inspections.
(e) Borrower will promptly comply with all present and future
laws, ordinances, rules and regulations of any governmental authority affecting
the Collateral or any part thereof.
(f) If all or any part of the Collateral shall be damaged by
fire or other casualty, Borrower will promptly restore the Collateral to the
equivalent of its original condition; and if a part of the Collateral shall be
taken or damaged through condemnation, Borrower will promptly restore, repair
or alter the remaining portions of the Collateral in a manner satisfactory to
Lender.
2.07 Further Assurances: After-Acquired Property. At any time, and
from time to time, upon request by Lender, Borrower will make, execute and
deliver or cause to be made, executed and delivered to Lender and, where
appropriate, cause to be recorded and/or filed and from time to time thereafter
to be recorded and/or refiled at such time and in such offices and places as
shall be deemed desirable by Lender (i) to perfect and protect the security
interest created or purported to be created hereby; (ii) to enable the Lender
to exercise and enforce its rights and remedies hereunder in respect of the
Collateral; or (iii) to effect otherwise the purposes of this Mortgage,
including, without limitation: (A) executing and filing such financing or
continuation statements, or amendments thereto, as may be necessary or
desirable or that the Lender may request in order to perfect and preserve the
security interest created by this Mortgage as a first and prior security
interest upon and security title in and to all of the Collateral, whether now
owned or hereafter acquired by Borrower; (B) if certificates of title are now
or hereafter issued or outstanding with respect to any of the Collateral, by
immediately causing the interest of Lender to be properly noted thereon at
Borrower's expense; and (C) furnishing to the Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Lender may
reasonably request, all in reasonable detail. Upon any failure by Borrower so
to do, Lender may make, execute, record, file, re-record and/or refile any and
all such financing statements, continuation statements, or amendments thereto,
certificates, and documents for and in the name of Borrower, and Borrower
hereby irrevocably appoints Lender the agent and attorney-in-fact of Borrower
so to do. The lien of this Mortgage will automatically attach, without further
act, to all after-acquired property attached to and/or used in the operation of
the Collateral or any part thereof.
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2.08 Indemnity: Expenses. Borrower will pay or reimburse Lender for
all reasonable attorney's fees, costs and expenses incurred by Lender in any
suit, action, legal proceeding or dispute of any kind in which Lender is made a
party or appears as party plaintiff or defendant, affecting the Loan
Obligations, this Mortgage or the interest created herein, or the Collateral,
or any appeal thereof, including, but not limited to, any foreclosure action,
any condemnation action involving the Collateral or any action to protect the
security hereof, any bankruptcy or other insolvency proceeding commenced by or
against the Borrower, any lessee of the Collateral (or any party thereof), or
any Guarantor of any other Loan Obligations, and any such amount paid by Lender
shall be added to the Loan Obligations and shall be secured by this Mortgage.
Borrower will indemnify and hold Lender harmless from and against all claims,
damages, and expenses, including reasonable attorney's fees and court costs,
resulting from any action by a third party against Lender relating to this
Mortgage or the interest created herein, or the Collateral, including, but not
limited to, any action or proceeding claiming loss, damage or injury to person
or property, or any action or proceeding claiming a violation of any national,
state or local law, rule or regulation, including those Applicable
Environmental Laws, provided Borrower shall not be required to indemnify Lender
for matters directly and solely caused by Lender's misconduct or negligence.
Borrower acknowledges that it has undertaken the obligation to pay all
intangibles taxes and documentary taxes and similar taxes now or hereafter due
in connection with the Loan Obligations and the Loan Documents, and Borrower
agrees to indemnify and hold Lender harmless from any such taxes, and any
interest or penalties if assessed due to Borrower's failure to timely pay the
same, which the Lender may hereafter be required to pay in connection with the
Loan Obligations or Loan Documents. The agreements of this Section shall
expressly survive satisfaction of this Mortgage and repayment of the Loan
Obligations.
2.09 Estoppel Affidavits. Borrower, upon ten (10) days prior written
notice, shall furnish the Lender a written statement, duly acknowledged, based
upon its records, setting forth, the unpaid principal of, and interest on, the
Loan Obligations, stating whether or not to its knowledge any off-sets or
defenses exist against the Loan Obligations, or any portion thereof, and, if
such off-sets or defenses exist, stating in detail the specific facts relating
to each such off-set or defense.
2.10 Limit of Validity. If from any circumstances whatsoever,
fulfillment of any provision of this Mortgage, the Note or any other Loan
Documents, at the time performance of such provision shall be due, shall
involve transcending the limit of validity presently prescribed by any
applicable usury statute or any other applicable law, with regard to
obligations of like character and amount, then, ipso facto, the obligation to
be fulfilled shall be reduced to the limit of such validity, so that in no
event shall any exaction be possible under this Mortgage, the Note, or any
other Loan Document that is in excess of the current limit of such validity,
but such obligation shall be fulfilled to the limit of such validity. The
provisions of this Section shall control every other provision of this
Mortgage, the Note and any other Loan Document.
2.11 Assignment of Rents. This Mortgage constitutes a present
assignment to Lender of all Rents; provided, however, unless a Default or an
Event of Default exists Borrower shall have a revocable license to collect
Rents, if any. Upon the occurrence of a
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Default or an Event of Default the license of Borrower to collect Rents shall be
automatically revoked and terminated and each lessee or sublessee is authorized
and directed by Borrower to pay all Rents thereafter accruing directly to
Lender. Rents so received by Lender, unless released to Borrower at Lender's
sole option, shall be applied to the Loan Obligations in such order as Lender
may elect, whether or not then due. Lender shall not be liable to any lessee or
sublessee by virtue of its collection of Rents and shall not be liable to
Borrower for its failure to collect Rents or failure to exercise diligence in
attempting to collect Rents, but shall be accountable only for Rents actually
received. Notwithstanding anything to the contrary herein, any lease or sublease
is and shall be at all times expressly subject and subordinate to Lender's first
mortgage upon the Collateral granted herein. Upon any foreclosure or acceptance
of a deed in lieu of foreclosure, Lender may elect, at its sole option, to
foreclose or accept such deed subject to any lease or sublease, in which event
any such lessees or sublessees will, upon notice from Lender, be required to
attorn to Lender.
2.12 Legal Actions. In the event that Lender is made a party, either
voluntarily or involuntarily, in any action or proceeding affecting the
Collateral, the Note, the Loan Obligations or the validity or priority of this
Mortgage, Borrower shall immediately, upon demand, reimburse Lender for all
costs, expenses and liabilities incurred by Lender by reason of any such action
or proceeding, including reasonable attorney's fees, and any such amounts paid
by Lender shall be added to the Loan Obligations and shall be secured by this
Mortgage.
2.13 Fixture Filing. This Mortgage is to be filed for record in the
real estate records of Beaver County, Pennsylvania so as to serve as a fixture
filing pursuant to the Pennsylvania Uniform Commercial Code or the law
applicable to the creation of liens on personal property.
2.14 Lease/Management Agreements. Except as otherwise permitted in the
Loan Agreement, Borrower shall not, without the prior written consent and
approval of Lender, enter into any operating lease or permit any tenancy
(except for admissions of Facility patients) or enter into or permit any
management agreement, of or affecting the Collateral without the prior written
consent of the Lender.
ARTICLE III
EVENTS OF DEFAULT; REMEDIES
3.01 Events of Default. The terms "Event of Default" or "Events of
Default," wherever used in this Mortgage, shall mean any one or more of the
following events:
(a) The failure of the Borrower properly and timely to
perform or observe any covenant or condition set forth in this Mortgage or any
other Loan Document which is not cured within applicable cure periods as set
forth herein or therein or, if no such cure period is specified, within thirty
(30) days of Lender's notice to Borrower of such default; or
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(b) The occurrence of any Event of Default (as therein
defined) under any other Loan Documents.
(c) The sale, transfer, lease, assignment, or other
disposition, voluntarily or involuntarily, of the Collateral, or any part
thereof or any interest therein, including a sale or transfer in lieu of
condemnation, or, except for Permitted Encumbrances, any further encumbrance of
the Collateral except for any sale, transfer, lease, assignment, disposition or
encumbrance which is permitted by the Loan Agreement or, unless the prior
written consent of Lender is obtained (which consent may be withheld with or
without cause in Lender's discretion).
3.02 Acceleration of Maturity. If an Event of Default shall have
occurred, then the entire Loan Obligations shall, at the option of Lender,
become due and payable without notice or demand, time being of the essence; and
any omission on the part of Lender to exercise such option when entitled to do
so shall not be considered as a waiver of such right.
3.03 Right of Lender to Enter and Take Possession.
(a) If an Event of Default shall have occurred, the Borrower,
upon demand of the Lender, with or without judicial process, shall forthwith
surrender to the Lender the actual possession, and the Lender may enter and
take possession, of all the Mortgage Property, and may exclude the Borrower and
its agents and employees wholly therefrom.
(b) If Borrower shall for any reason fail to surrender or
deliver the Mortgage Property or any part thereof after such demand by Lender,
Lender may obtain a judgment or decree conferring upon Lender the right to
immediate possession or requiring Borrower to deliver immediate possession of
the Mortgage Property to Lender. Borrower will pay to Lender, upon demand, all
reasonable expenses of obtaining such judgment or decree, including
compensation to Lender, its attorneys and agents, and all such reasonable
expenses and compensation shall, until paid, become part of the Loan
Obligations secured by this Mortgage.
(c) Upon every such entering upon or taking of possession,
the Lender may first without applying to a court or obtaining the appointment
of receivership hold, store, use, operate, manage, lease, and control the
Mortgage Property and conduct the business thereof, and, from time to time (i)
make all necessary and proper maintenance, repairs, renewals, and replacements
thereto and thereon (including additions, betterments and improvements
reasonably necessary for the use or sale of the Mortgage Property in reasonable
amounts) and purchase or otherwise acquire additional fixtures, personalty, and
other property in connection therewith; (ii) insure or keep the Mortgage
Property insured; (iii) manage and operate the Mortgage Property and exercise
all the rights and powers of the Borrower in its name or otherwise (to the
extent permitted by applicable law), with respect to the same; (iv) enter into
any and all agreements with respect to the exercise by others of any of the
powers herein granted the Lender, all as the Lender from time to time may
determine to be to its best advantage and for the good of the Mortgage
Property; and the Lender may collect and receive all the income, revenues,
rents, issues and profits of the same including those past due as well as those
accruing thereafter, and, after deducting (A) all reasonable expenses of
taking, holding, managing, and operating the Mortgage Property (including
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<PAGE> 12
compensation for the services of all persons employed for such purposes); (B)
the cost of all such maintenance, repairs, renewals, replacements, additions,
betterments, improvements, purchases, and acquisitions; (C) the cost of such
insurance; (D) such taxes, assessments, and other charges prior to the lien of
this Mortgage as the Lender may determine to pay; (E) other proper charges upon
the Mortgage Property or any part thereof; and (F) the compensation, expenses,
and disbursements of the attorneys and agents of the Lender; Lender shall apply
the remainder of the moneys so received by the Lender to the payment of accrued
interest, to the payment of tax and insurance, and to the payment of overdue
installments of principal, all in such order and priority as the Lender may
determine.
(d) If an Event of Default shall exist, Lender may require
that Borrower cause all of its Accounts to be paid to one or more deposit
accounts with a financial institution approved by Lender. Borrower assigns and
grants to Lender a security interest in, pledge of and right to set off against
all monies from time to time held in such deposit accounts. Borrower agrees to
promptly notify all of its account debtors, including, without limit, the
Medicare and Medicaid agencies to the extent permitted under applicable law, to
make payments to one or more such deposit accounts upon Lender's request and as
designated by Lender, and Borrower agrees to provide any necessary endorsements
to checks, drafts and other forms of payment so that such payments will be
properly deposited in such accounts. Lender may require that the deposit
accounts be established so as to comply with Medicare, Medicaid and other
requirements applicable to payments of any accounts receivable. Lender may
cause monies to be withdrawn from such deposit accounts and applied to the Loan
Obligations in such order as Lender may elect, whether or not then due.
Borrower appoints Lender as Borrower's attorney-in-fact, which appointment is
coupled with an interest and is irrevocable, to provide any notice, endorse any
check, draft or other payment for deposit, or take any other action which
Borrower agrees to take in this Section.
(e) Whenever all such Events of Default have been cured and
satisfied, the Lender may, at its option, surrender possession of the Mortgage
Property to the Borrower, its successors or assigns. The same right of taking
possession, however, shall exist if any subsequent Event of Default shall
occur.
3.04 Performance by Lender. Upon the occurrence of an Event of Default
in the payment, performance or observance of any term, covenant or condition of
this Mortgage or any of the other Loan Documents, Lender may, at its option,
pay, perform or observe the same, and all payments made or costs or expenses
incurred by Lender in connection therewith, with interest thereon at the
Default Rate set forth in Loan Agreement or at the maximum rate from time to
time allowed by applicable law, whichever is less, shall be secured hereby and
shall be, without demand, immediately repaid by Borrower to Lender. Lender
shall be the sole judge of the necessity for any such actions and of the
amounts to be paid. Lender is hereby empowered to enter and to authorize others
to enter upon the Collateral or any part thereof for the purpose of performing
or observing any such defaulted term, covenant or condition without thereby
becoming liable to Borrower or any person in possession holding under Borrower.
Notwithstanding anything to the contrary herein, Lender shall have no
obligation, explicit or implied to pay, perform, or observe any term, covenant,
or condition.
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<PAGE> 13
3.05 Receiver.
(a) If any Event of Default shall have occurred and be continuing,
Lender shall be entitled, as a matter of absolute right and without regard to
the value of any security for the Loan Obligations or the solvency of any
person liable therefor, to the appointment of a receiver for the Collateral
upon ex parte application to any court of competent jurisdiction. Except for
notices, if any, expressly required under Pennsylvania law, Borrower waives any
right to any hearing or notice of hearing prior to the appointment of a
receiver. Such receiver and his agents shall be empowered (a) to take
possession of the Collateral and any businesses conducted by Borrower or any
other person thereon and any business assets used in connection therewith, (b)
to exclude Borrower and Borrower's agents, servants, and employees from the
Collateral, (c) to collect the rents, issues, profits, and income therefrom,
(d) to complete any construction which may be in progress, (e) to do such
maintenance and make such repairs and alterations as the receiver deems
necessary, (f) to use all stores of materials, supplies, and maintenance
equipment on the and replace such items at the expense of the receivership
estate, (g) to pay all taxes and assessments against the Collateral and the
chattels, all premiums for insurance thereon, all utility and other operating
expenses, and all sums due under any prior or subsequent encumbrance, and (h)
generally to do anything which Borrower could legally do if Borrower were in
possession of the Collateral. All expenses incurred by the receiver or his
agents shall constitute a part of the Loan Obligations. Any revenues collected
by the receiver shall be applied first to the expenses of the receivership,
including attorneys' fees incurred by the receiver and by Borrower, together
with interest thereon at the Default Rate from the date incurred until repaid,
and the balance shall be applied toward the Loan Obligations or in such other
manner as the court may direct. Unless sooner terminated with the express
consent of Borrower, any such receivership will continue until the Loan
Obligations has been discharged in full, or until title to the Collateral has
passed after foreclosure sale and all applicable periods of redemption have
expired.
3.06 Lender's Power of Enforcement.
(a) If an Event of Default shall have occurred and be continuing, the
Lender may, either with or without entry or taking possession as hereinabove
provided or otherwise, proceed by suit or suits at law or in equity or any
other appropriate proceeding or remedy (i) to enforce payment of the Note or
the performance of any term thereof or any other right, (ii) to foreclose this
Mortgage and to sell, as an entirety or in separate lots or parcels, the
Collateral, as provided by applicable Pennsylvania law, and (iii) to pursue any
other remedy available to it, all as the Lender shall deem most effectual for
such purposes. The Lender shall take action either by such proceedings or by
the exercise of its powers with respect to entry or taking possession, as the
Lender may determine.
(b) If an Event of Default shall exist, Lender may elect to terminate
the Management Agreement and all management rights and other rights of Manager
in and to any Collateral.
3.07 Foreclosure. At the foreclosure sale the Collateral may be
offered for sale and sold as a whole without first offering it in any other
manner or may be offered for sale and sold in any other manner Lender may
elect.
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<PAGE> 14
3.08 Purchase by Lender. Upon any foreclosure sale or sale of all or
any portion of the Collateral under the power herein granted, Lender may bid
for and purchase the Collateral, or any part thereof if the highest bidder
therefor, and shall be entitled to apply all or any part, of the Loan
Obligations as a credit to the purchase price.
3.09 Application of Foreclosure Proceeds; Deficiency. The proceeds
of any foreclosure sale shall be applied as follows:
(a) First, to the expenses of making the sale, including reasonable
attorney's fees for such services as may be necessary in collection of said
indebtedness or the foreclosure of this Mortgage;
(b) Second, to the repayment of any money, with interest thereon at a
rate equal to the Default Rate as set forth in the Loan Agreement, which Lender
may have paid, or become liable to pay, or which it may then be necessary to
pay for taxes, insurance, assessments or other charges, liens, or debts as
hereinabove provided;
(c) Third, to the payment and satisfaction of all other Loan
Obligations hereby secured, including principal and interest on the Note (which
shall include interest to date of sale);
(d) Fourth, the balance, if any, shall be paid to the party or parties
appearing of record to be the owner of the Collateral at the time of the sale
after deducting any expense of ascertaining who is such owner.
Borrower shall remain liable for any deficiency from a foreclosure.
3.10 Waiver of Exemption, Etc. Borrower waives all rights of exemption
pertaining to real or personal property as to any indebtedness secured by or
that may be secured by this Mortgage; Borrower waives the benefit of any
statute regulating the obtaining of a deficiency judgment or requiring that the
value of the Collateral be set off against any part of the indebtedness secured
hereby; and Borrower waives and releases all errors in any proceedings for
enforcement of this Deed of Trust or other Loan Documents, waives stay of
execution, the right of inquisition and extension of time for payment, and
Borrower agrees to condemnation of any property levied on by virtue of
execution pursuant to this Mortgage. Borrower waives and relinquishes any and
all rights it may have, whether at law or equity, to require Lender to proceed
to enforce or exercise any rights, powers and remedies it may have under the
Loan Documents in any particular manner, in any particular order, or in any
particular state or other jurisdiction, it being acknowledged that the
Collateral may constitute only a part of the Collateral and Borrower
acknowledges Lender may proceed against the Collateral prior to, subsequent to
or simultaneously with pursuing any action against or with respect to other
Collateral or against the Borrower or any guarantor. To the fullest extent that
Borrower may do so, Borrower agrees that Borrower will not at any time insist
upon, plead, claim, or take the benefit or advantage of any law now or
hereafter in force providing for any valuation, appraisement, stay of execution
or extension, and Borrower, for Borrower, its successors and assigns, and for
any and all persons ever claiming any interest in the Collateral, to the extent
permitted by law, hereby waives and releases all rights of valuation,
appraisement, marshaling, stay of execution, and
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<PAGE> 15
extension. Borrower further agrees that if any law referred to in this paragraph
and now in force of which Borrower, its successors and assigns or other person
might take advantage despite this paragraph, shall hereafter be repealed or
cease to be in force, such law shall not thereafter be deemed to preclude the
application of this paragraph. Borrower expressly waives and relinquishes any
and all rights and remedies that Borrower may have or be able to assert by
reason of the laws of the state of jurisdiction pertaining to the rights and
remedies of sureties, other than receipt of any notice of default required to be
given under any of the Loan Documents.
3.11 Suits to Protect the Collateral. The Lender shall have power (a)
to institute and maintain such suits and proceedings as it may deem expedient
to prevent any impairment of the Collateral by any acts which may be unlawful
or any violation of this Mortgage; (b) to preserve or protect its interest in
the Collateral and in the income, revenues, rents, profits arising therefrom;
and (c) to restrain the enforcement of or compliance with any legislation or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid, if the enforcement of or compliance with such enactment,
rule or order would impair the security hereunder or be prejudicial to the
interest of the Lender.
3.12 Borrower to Pay the Note on Any Event of Default; Application of
Moneys by Lender. If an Event of Default (as defined in the Loan Agreement)
shall exist, then, upon demand of the Lender, the Borrower will pay to the
Lender the whole amount due and payable under the Note; and in case the
Borrower shall fail to pay the same forthwith upon such demand, the Lender
shall be entitled to sue for and to recover judgment for the whole amount so
due and unpaid together with costs, which shall include the reasonable
compensation, expenses, and disbursements of the Lender's agents and attorneys.
3.13 Delay or Omission No Waiver. No delay or omission of the Lender
or of any holder of the Note to exercise any right, power, or remedy accruing
upon any default shall exhaust or impair any such right, power, or remedy or
shall be construed to be a waiver of any such default, or acquiescence therein;
and every right, power, and remedy given by this Mortgage to the Lender may be
exercised from time to time and as often as may be deemed expedient by the
Lender.
3.14 No Waiver of One Default to Affect Another, etc. No waiver of any
default hereunder shall extend to or shall affect any subsequent or any other
then existing default or shall impair any rights, powers, or remedies
consequent thereon.
If the Lender (a) grants forbearance or an extension of time for the
payment of any sums secured hereby; (b) takes other or additional security for
the payment thereof; (c) waives or does not exercise any right granted herein
or in the Note; (d) releases any part of the Collateral from the lien of this
Mortgage or otherwise changes any of the terms of the Note or this Mortgage;
(e) consents to the filing of any map, plat, or replat thereof; (f) consents to
the granting of any easement thereon; or (g) makes or consents to any agreement
subordinating the lien or change hereof, any such act or omission shall not
release, discharge, modify, change, or affect the original liability under the
Note, this Mortgage or otherwise of the Borrower or any subsequent purchaser of
the Collateral or any part thereof, or any maker, co-signer, endorser, surety,
or guarantor; nor shall any such act or omission preclude the Lender from
exercising any right, power, or privilege herein granted or
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<PAGE> 16
intended to be granted in the event of any other default then made or of any
subsequent default, nor, except as otherwise expressly provided in an instrument
or instruments executed by the Lender, shall the lien of this Mortgage be
altered thereby. In the event of the sale or transfer by operation of law or
otherwise of all or any part of the Collateral, the Lender, at its option,
without notice to any person or corporation hereby is authorized and empowered
to deal with any such vendee or transferee with reference to the Collateral or
the indebtedness secured hereby, or with reference to any of the terms or
conditions hereof, as fully and to the same extent as it might deal with the
original parties hereto and without in any way releasing or discharging any of
the liabilities or undertakings hereunder.
3.15 Continuance of Proceedings - Position of Parties, Restored. In
case Lender shall have proceeded to enforce any right or remedy under this
Mortgage by foreclosure, entry or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to Lender, then and in every such case, Borrower and Lender shall be
restored to their former positions and rights hereunder, and all rights, powers
and remedies of Lender shall continue as if no such proceedings had occurred.
3.16 Remedies Cumulative. No right, power, or remedy conferred upon or
reserved to the Lender by this Mortgage is intended to be exclusive of any
right, power, or remedy, but each and every such right, power, and remedy shall
be cumulative and concurrent and shall be in addition to any other right,
power, and remedy given hereunder or now or hereafter existing at law or in
equity or by statute.
ARTICLE IV
SECURITY AGREEMENT: MISCELLANEOUS
4.01 Security Agreement. This Mortgage creates a lien on and a
security interest in that part of the Collateral which constitutes personal
property under any applicable Uniform Commercial Code, and shall constitute a
security agreement under the applicable Uniform Commercial Code or other law
applicable to the creation of liens on personal property. This Mortgage shall
constitute a financing statement under the applicable Uniform Commercial Code
with Borrower as the "debtor" and Lender as the "secured party." If an Event of
Default occurs, the Lender shall have all rights and remedies of a security
party under the applicable Uniform Commercial Code.
4.02 Assembly of Collateral. Upon the occurrence of an Event of
Default, the Borrower shall assemble, if requested by the Lender, at its
expense, all of the personal property Collateral and the documents evidencing
such personal property Collateral and the books and records applicable thereto
and make them available to the Lender at a place to be designated by the
Lender.
4.03 Successors and Assigns. This Mortgage shall inure to the benefit
of and be binding upon Borrower and Lender and their respective heirs,
executors, legal representatives, successors, successors-in-title, and assigns.
Whenever a reference is made in this Mortgage to "Borrower" or "Lender," such
reference shall be deemed to include a reference to the heirs, executors, legal
representatives, successors, successors-in-title and
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<PAGE> 17
assigns of Borrower or Lender, as the case may be, but shall not imply any
permission to make or permit any transfer which is otherwise prohibited.
4.04 Terminology. All personal pronouns used in this Mortgage, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural, and vice versa. Titles and
Articles are for convenience only and neither limit nor amplify the provisions
of this Mortgage, and all references herein to Articles, Sections or
subparagraphs shall refer to the corresponding Articles, Sections or
subparagraphs of this Mortgage unless specific reference is made to Articles,
Sections or subparagraphs of another document or instrument.
4.05 Severability; Complete Agreement. If any provisions of this
Mortgage or the application thereof to any person or circumstance shall be
invalid or unenforceable to any extent, the remainder of this Mortgage and the
application of such provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
This Mortgage, the Note and the other Loan Documents constitute the full and
complete agreement of the parties and supersede all prior negotiations,
correspondence, and memoranda relating to the subject matter hereof, and this
Mortgage may not be amended except by a writing signed by the parties hereto.
4.06 Applicable Law. This Mortgage shall be governed by the laws of
the State of Pennsylvania. If, for any reason or to any extent any word, term,
provision, or clause of this Mortgage or any of the other Loan Documents, or
its application to any person or situation, shall be found by a court or other
adjudicating authority to be invalid or unenforceable, the remaining words,
terms, provisions or clauses shall be enforced, and the affected work, term,
clause or provision shall be applied, to the fullest extent permitted by law.
4.07 Limitation of Interest. It is the intent of Borrower and Lender
in the execution of this Mortgage and all other Loan Documents to contract in
strict compliance with the usury laws governing the Loan. In furtherance
thereof, Lender and Borrower stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to create a
contract for the use, forbearance, or detention of money requiring payment of
interest at a rate in excess of the maximum interest rate permitted to be
charged by the laws governing the Loan. Borrower or any guarantor, endorser or
other party now or hereafter becoming liable for the payment of the Note shall
never be liable for unearned interest on the Note and shall never be required
to pay interest on the Note at a rate in excess of the maximum interest that
may be lawfully charged under the laws governing the Loan evidenced by the
Note, and the provisions of this paragraph shall control over all other
provisions of the Note and any other instrument executed in connection herewith
which may be in apparent conflict herewith. In the event any holder of the Note
shall collect monies that are deemed to constitute interest and that would
otherwise increase the effective interest rate on the Note to a rate in excess
of that permitted to be charged by the laws governing the Loan evidenced by the
Note, all such sums deemed to constitute interest in excess of the legal rate
shall be applied to the unpaid principal balance of the Note and if in excess
of such balance, shall be immediately returned to the Borrower upon such
determination.
4.08 Notices, etc. Any notice and other communication required or
permitted to be given by this Mortgage or the other Loan Documents or by
applicable law shall be in writing
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<PAGE> 18
and provided for hereunder shall be deemed given and received in accordance with
the provisions of the Loan Agreement.
4.09 Replacement of Note. Upon receipt of evidence reasonably
satisfactory to Borrower of the loss, theft, destruction or mutilation of the
Note, and in the case of any such loss, theft or destruction, upon delivery of
an indemnity agreement reasonably satisfactory to Borrower or, in the case of
any such mutilation, upon surrender and cancellation of the Note, Borrower at
Lender's expense will execute and deliver, in lieu thereof, a replacement note,
identical in form and substance to such Note and dated as of the date of such
Note, and upon such execution and delivery all references in this Mortgage to
the Note shall be deemed to refer to such replacement note.
4.10 Assignment. This Mortgage is assignable by Lender and any
assignment hereof by Lender shall operate to vest in the assignee all rights
and powers herein conferred upon and granted to Lender.
4.11 Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrower under this Mortgage,
the Note and all other Loan Documents.
4.12 Release. Provided that no Event of Default then exists, Lender
agrees to release this Mortgage upon payment and performance in full of all
Loan Obligations.
4.13 Counterparts. This Mortgage may be executed in any number of
counterparts, each of which, when executed and delivered, shall be an original,
but such counterparts shall together constitute one and the same instrument.
4.14 Waiver of Jury Trial. BORROWER, BY ACCEPTANCE OF THIS AGREEMENT,
HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM,
COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR
IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOAN, OR (B) IN ANY WAY CONNECTED
WITH OR PERTAINING OR RELATING TO OR INCIDENTAL TO ANY DEALINGS OF LENDER
AND/OR BORROWER WITH RESPECT TO THE LOAN DOCUMENTS, OR IN CONNECTION WITH THIS
DEED OR TRUST, OR THE EXERCISE OF EITHER PARTY'S RIGHTS AND REMEDIES UNDER THIS
AGREEMENT, OR OTHERWISE, OR THE CONDUCT OF THE RELATIONSHIP OF THE PARTIES
HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AGREES THAT
LENDER MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF THE BORROWER IRREVOCABLY TO
WAIVE ANY RIGHTS TO A TRIAL BY JURY AS AN INDUCEMENT OF LENDER TO MAKE THE
LOAN, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR
CONTROVERSY WHATSOEVER BETWEEN BORROWER AND LENDER INSTEAD BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
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<PAGE> 19
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE> 20
IN WITNESS WHEREOF, the Borrower has caused this Mortgage to be
executed and delivered as of the day and year first above written.
BY: /s/ BRIAN L. BARTH
--------------------------
BRIAN L. BARTH, VICE PRESIDENT
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<PAGE> 21
SCHEDULE TO EXHIBIT 10.33 FILED PURSUANT TO INSTRUCTION 2 OF ITEM 601(a) OF
REGULATION S-K
MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING
-----------------------------------------------
<TABLE>
<CAPTION>
PROJECT PARTIES FACILITY LOAN AMOUNT DATE
- ------- ------- -------- ----------- ----
<S> <C> <C> <C> <C>
Darlington, PA BCC at Darlington, Inc. (Borrower), Feltrop Personal Care $5,875,000.00 9/30/97
and Capstone Capital of Pennsylvania, Home
Inc. (Lender)
Butler, PA Balanced Care at Butler, Inc. Silver Haven $246,000.00 10/31/97
(Borrower) and Capstone Capital of
Pennsylvania, Inc. (Lender)
Sarver, PA Balanced Care at Sarver, Inc. Sterling Care of Sarver $286,000.00 10/31/97
(Borrower) and Capstone Capital of
Pennsylvania, Inc. (Lender)
Saxonburg, PA Balanced Care at Saxonburg, Inc. Sterling Care of $8,618,000.00 10/31/97
(Borrower) and Capstone Capital of Saxonburg
Pennsylvania, Inc. (Lender)
</TABLE>
<PAGE> 1
EXHIBIT 10.36
GUARANTY OF OBLIGATIONS
(Acquisition Agreement and Lease)
The undersigned, BALANCED CARE CORPORATION, a Delaware
corporation ("Guarantor"), as a material and necessary inducement to HCPI
TRUST, a Maryland real estate investment trust ("HCPI"), to (i) acquire certain
property (the "Property") pursuant to a Contract of Acquisition, dated as of
March 21,1996, with BCC At Mt. Pines, Inc., a Delaware corporation and a
wholly-owned subsidiary of Guarantor ("BCC"), as seller (as the same may be
amended, supplemented or otherwise modified from time to time, the "Acquisition
Agreement") and (ii) enter into a Lease, of even date herewith, with BCC
covering the Property (as the same may be amended, supplemented or otherwise
modified from time to time, the "Lease"), hereby agrees as follows:
1. Guarantor hereby, jointly and severally, unconditionally
and irrevocably guarantees to HCPI:
(a) the payment when due of all costs, expenses, fees,
and other sums payable by BCC under each of the Acquisition Agreement and the
Lease (collectively, the "Documents") and the full, faithful and prompt
performance when due of each and every one of the terms, conditions and
covenants to be kept and performed by BCC under the Documents, including,
without limitation, any and all indemnification and insurance obligations and
all obligations to operate, repurchase, rebuild, restore or replace the
Property or any facilities or improvements now or hereafter constituting a
portion of the Property; and
(b) the payment, on demand, of any fees, costs and
charges of enforcement of the Documents and the preservation and protection of
Property and collateral from BCC, if any, which would be owing by BCC under
clause (a) above, but for the effect of the federal Bankruptcy Code or any
other applicable insolvency laws or laws of similar effect.
The foregoing obligations are hereafter collectively referred to as the
"Guaranteed Obligations." The Guaranteed Obligations shall not be reduced by
any payments or performance made by any other guarantor or surety, the
retention or receipt of any collateral, letter of credit or bond securing or
otherwise supporting the Guaranteed Obligations, or the receipt of any proceeds
thereof. In the event of the failure of BCC to pay or perform any of the
Guaranteed Obligations when due, Guarantor shall forthwith pay or perform the
same, as applicable, and pay all damages that may result from the non-payment
or non-performance thereof to the full extent provided under the Documents.
Guarantor acknowledges that the Guaranteed Obligations may exceed the payment
or performance obligations of BCC under the Documents. Payment by Guarantor
shall be made to HCPI in inunediately available federal funds to an account
designated by HCPI.
<PAGE> 2
2. Guarantor represents and warrants that:
(a) this Guaranty constitutes the valid and binding
obligation of Guarantor, enforceable against Guarantor in
accordance with its terms;
(b) Guarantor is solvent, has timely and accurately filed
all tax returns required to be filed by it and is not in
default in the payment of any taxes levied or assessed
against it or any of its assets, or subject to any
judgment, audit, order, decree, rule or regulation of any
Governmental Authority (as defined in the Development
Agreement) which would, in each case or in the aggregate,
adversely affect Guarantor's condition, financial or
otherwise, or Guarantor's prospects, or the transactions
contemplated under the Documents;
(c) no consent, approval or other authorization of, or
registration, declaration or filing with, any
Governmental Authority is required for the due execution
and delivery by Guarantor of this Guaranty, or for the
performance by or the validity or enforceability hereof
against Guarantor;
(d) there are no actions, proceedings or investigations,
including eminent domain or condemnation proceedings,
pending or threatened, against or affecting Guarantor,
seeking to enjoin, challenge or collect damages in
connection with the transactions contemplated under the
Documents which could reasonably be expected to
materially and adversely affect the financial condition
or operations of Guarantor;
(e) Guarantor has delivered to HCPI copies of its audited
financial statements for the period(s) ending December
31, 1995. Such financial statements are true, correct and
complete in all material respects, have been prepared
from and in accordance with the books and records of
Guarantor and fairly present the financial position of
Guarantor at the date(s) and for the period(s);
(f) there has been no material adverse change in the
financial condition of Guarantor from that disclosed in
its financial statements described in Section 2(e) above;
and
(g) neither this Guaranty nor any certificate, statement
or other document furnished or to be furnished to HCPI by
or on behalf of Guarantor in connection with the
transactions contemplated under the Documents contains or
will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in
order to make the statements contained herein or therein
not misleading.
<PAGE> 3
3. Guarantor hereby unconditionally and irrevocably indemnifies, protects and
agrees to defend and hold harmless HCPI from and against any and all loss, cost
or expense, including costs and reasonable legal fees, arising from the breach
or violation of any representation or warranty of Guarantor hereunder.
2
<PAGE> 4
4. In such manner, upon such terms and at such times as HCPI in its sole
discretion deems necessary or expedient, and without notice to or consent by
Guarantor, which notice and consent are hereby expressly waived by Guarantor,
HCPI may alter, compromise, accelerate, extend or change the time or manner for
the payment or the performance of any Guaranteed Obligation; extend, amend or
terminate the Documents; release BCC or any other party to a Document by
consent to any assignment (or otherwise) as to all or any portion of the
Guaranteed Obligations; release, substitute or add any one or more guarantors
or lessees; accept additional or substituted security for any Guaranteed
Obligation; or release or subordinate any security for any Guaranteed
Obligation. No exercise or non-exercise by HCPI of any right hereby given HCPI,
no neglect or delay in connection with exercising any such right, no dealing by
HCPI with BCC, any other guarantor or any other person, and no change,
impairment, release or suspension of any right or remedy of HCPI against any
person, including BCC and any other guarantor or other person, shall in any way
affect any of the obligations of Guarantor hereunder or any security furnished
by Guarantor or give Guarantor any recourse or right of offset against HCPI. If
HCPI has exculpated BCC or any other party to a Document from liability in
whole or in part and/or agreed to look solely to the Property, any security for
the Guarantor's Obligations or any other asset for the satisfaction of the
Guaranteed Obligations, such exculpation and/or agreement shall not affect the
obligations of Guarantor hereunder, it being understood that Guarantor's
obligations hereunder are independent of the obligations of BCC, any other
guarantor and any other party to a BCC Document, and are to be construed as if
no such exculpation or agreement had been given to BCC, any other guarantor or
any other party to a BCC Document. It is further understood and agreed that if
any such exculpation or agreement has been or at any time hereafter is given to
BCC, any other guarantor or any other party to a BCC Document, HCPI has done or
will do so in reliance upon the agreement of Guarantor expressed herein.
5. In addition to and without derogation of or limitation on
any liens and rights of set-off given to HCPI by law against any property of
BCC, Guarantor and any other guarantor or other person, HCPI shall have a
general lien on and security interest in and a right of set-off against all
property of Guarantor now or hereafter in the possession of or under the
control of HCPI, whether held in a general or special account, on deposit, held
for safekeeping or otherwise in the possession of or under the control of HCPI.
Each such lien, security interest and right of set-off may be enforced or
exercised without demand upon or notice to Guarantor, shall continue in full
force unless specifically waived or released by HCPI in writing and shall not
be deemed waived by any conduct of HCPI, by any failure of HCPI to exercise any
such right of set-off or to enforce any such lien or security interest or by
any neglect or delay in so doing.
6. Guarantor hereby waives and relinquishes all rights and
remedies accorded by applicable law to sureties and/or guarantors or any other
accommodation parties, under any statutory provision, common law or any other
provision of law, custom or practice, and agrees not to assert or take
advantage of any such rights or remedies, including, without limitation, (a)
any right to require HCPI to proceed against BCC, any other guarantor or any
other person or to proceed against or exhaust any security held by HCPI at any
time or to pursue any other remedy in HCPI's power before proceeding against
3
<PAGE> 5
Guarantor; (1)) any defense that may arise by reason of the incapacity, lack of
authority, insolvency, bankruptcy, death or disability of any other guarantor
or other person or the failure of HCPI to file or enforce a claim against the
estate (in administration, bankruptcy or any other proceeding) of any other
guarantor or other person; (c) notice of the existence, creation or incurring
of any new or additional indebtedness or obligation or of any action or
non-action on the part of BCC or any other party to a BCC Document, or any
creditor thereof, or on the part of any other guarantor or other person under
any other instrument in connection with any obligation or evidence of
indebtedness held by HCPI or in connection with any Guaranteed Obligation; (d)
any defense based upon an election of remedies by HCPI which destroys or
otherwise impairs any subrogation rights of Guarantor or any right of Guarantor
to proceed against BCC or any other party to a Document for reimbursement, or
both; (e) any defense based upon any statute or rule of law which provides that
the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal; (f) any duty on the part
of HCPI to disclose to Guarantor any facts HCPI may now or hereafter know about
BCC or any other party to a BCC Document, regardless of whether HCPI has reason
to/believe that any such fact materially increases the risk beyond that which
Guarantor intends to assume or has reason to believe that any such fact is
unknown to Guarantor or has a reasonable opportunity to communicate such fact
to Guarantor, it being understood and agreed that Guarantor is fully
responsible for being and keeping informed of the financial condition of BCC
and all other parties to a Document and of all circumstances bearing on the
risk of non-payment or non-performance of any Guaranteed Obligation; (g) any
defense arising because of HCPI's election, in any proceeding instituted under
the federal Bankruptcy Code, of the application of Section 1111 (b)(2) of the
federal Bankruptcy Code; (h) any defense based upon the validity or
enforceability of, or change in, this Guaranty, or any of the Documents; (i)
any defense or rights arising under any appraisal, valuation, stay, extension,
marshalling of assets, redemption or similar law or requirement, which may
delay, prevent or otherwise affect the performance by Guarantor of any of the
Guaranteed Obligations; (j) diligence, presentment and demand; (k) any
requirement to mitigate any damages resulting from any default under any of the
Documents; and (l) any defense based on any borrowing or grant of a security
interest under Section 364 of the federal Bankruptcy Code. Without limiting the
generality of the foregoing or any other provision hereof, Guarantor hereby
expressly waives any and all benefits which might otherwise be available to
guarantors under the laws of the Commonwealth of Pennsylvania, in each instance
to the extent such laws, or any one of them, are applicable to this Guaranty,
the Documents or any of the Guaranteed Obligations.
7. Until all of the Guaranteed Obligations have been
satisfied and discharged in full, Guarantor shall not exercise its right of
subrogation and Guarantor hereby waives any right to enforce any remedy which
HCPI now has or may hereafter have against BCC, any other guarantor or any
other party to a Document and any benefit of, and any right to participate in,
any security or other assets now or hereafter held by HCPI with respect to any
of the Documents.
8. All existing and future indebtedness and other
obligations to Guarantor of BCC and each other party to a Document and the
right of Guarantor to withdraw any capital invested by Guarantor in BCC is
hereby subordinated to the Guaranteed Obligations.
4
<PAGE> 6
From and after the occurrence of any event of default under any BCC Document,
no portion of such subordinated indebtedness or capital shall be paid or
withdrawn, nor will Guarantor accept any payment of or on account of any such
indebtedness or as a withdrawal of capital, without the prior written consent
of HCPI. At HCPI's request, Guarantor shall cause BCC or such other party to
pay to HCPI all or any part of such subordinated indebtedness or capital which
Guarantor is entitled to withdraw for application by HCPI to the Guaranteed
Obligations. Any payment of such subordinated indebtedness and any capital
which Guarantor is entitled to withdraw which is received by Guarantor after
receipt of the above-referenced request shall be received by Guarantor in trust
for HCPI, and Guarantor shall cause the same to be paid immediately to HCPI on
account of the Guaranteed Obligations. No such payment shall reduce or affect
in any manner the liability of Guarantor under this Guaranty.
9. Guarantor shall file in any bankruptcy or other
proceeding in which the filing of claims is required by law all claims which
Guarantor may have against BCC or any other party to a Document or relating to
any indebtedness or obligations of BCC or any other party to a Document to
Guarantor and will assign to HCPI all rights of Guarantor thereunder. If
Guarantor does not file any such claim, HCPI, as attorney-in-fact for
Guarantor, is hereby authorized to do so in the name of Guarantor or, in HCPI's
discretion, to assign the claim to a nominee and to cause a proof of claim to
be filed in the name of HCPI's nominee. The foregoing power of attorney is
coupled with an interest and is irrevocable. HCPI or its nominee shall have the
sole right to accept or reject any plan proposed in any such proceeding and to
take any other action which a party filing a claim is entitled to do. In all
such cases, whether in administration, bankruptcy or otherwise, the person or
persons authorized to pay such claim shall pay to HCPI the amount payable on
such claim and, to the full extent necessary for that purpose, Guarantor hereby
assigns to HCPI all of Guarantor's rights to any such payments or distributions
to which Guarantor would otherwise be entitled; provided, however, that
Guarantor's obligations hereunder shall not be satisfied except to the extent
that HCPI receives cash in full or property acceptable to HCPI by reason of
such payment or distribution. If HCPI receives anything under this Guaranty
other than cash in full or property acceptable to HCPI, the same shall be held
as collateral for amounts due under this Guaranty.
10. With or without notice to Guarantor, HCPI, in HCPI's
sole discretion and at any time and from time to time and in such manner and
upon such terms as HCPI deems fit, may (a) apply any or all payments or
recoveries from BCC or from any other guarantor or party to a Document or
realized from any security, in such manner and order of priority as HCPI may
determine, to any indebtedness or obligation of BCC with respect to the
Documents, whether or not such indebtedness or obligation is a Guaranteed
Obligation or is otherwise secured or is due at the time of such application,
and (b) refund to BCC any payment received by HCPI under any of the Documents.
11. The amount of Guarantor's liability and all rights,
powers and remedies of HCPI hereunder and under any other agreement now or at
any time hereafter in force between HCPI and Guarantor, including, without
limitation, any other guaranty executed by Guarantor relating to any
indebtedness or other obligation of BCC to HCPI, shall be
5
<PAGE> 7
cumulative and not alternative, and such rights, powers and remedies shall be
in addition to all rights, powers and remedies given to HCPI by law. This
Guaranty is in addition to and exclusive of any other guaranty of the
Guaranteed Obligations, including, without limitation, any other guaranty.
12. The obligations of Guarantor hereunder are primary,
direct and independent of the obligations of BCC and any other party to a BCC
Document, including, without limitation, any other guarantor, and, in the event
of any default under any of the Documents following the expiration of any grace
period, a separate action or actions may be brought and prosecuted against
Guarantor, whether or not BCC or any other party to a BCC Document, including,
without limitation, any other guarantor, is joined therein or a separate action
or actions are brought against BCC or any other party to a BCC Document,
including, without limitation, any other guarantor. HCPI may maintain
successive actions for other defaults. HCPI's rights hereunder shall not be
exhausted by its exercise of any of its rights or remedies or by any such
action or by any number of successive actions until and unless all Guaranteed
Obligations have been paid in full in cash or performed in full.
13 Guarantor shall pay to HCPI reasonable attorneys' fees
and all costs and other expenses which HCPI expends or incurs in collecting or
compromising or enforcing payment or performance of the Guaranteed Obligations
or in enforcing this Guaranty, whether or not suit is filed, including, without
limitation, all reasonable attorneys' fees and all costs and other expenses
expended or incurred by HCPI in connection with any insolvency, bankruptcy,
reorganization, arrangement or other similar proceedings involving Guarantor
which in any way affects the exercise by HCPI of its rights and remedies
hereunder.
14. If any provision or portion of this Guaranty is declared
or found by a court of competent jurisdiction to be unenforceable or null and
void, such provision or portion hereof shall be deemed stricken and severed
from this Guaranty, and the remaining provisions and portions hereof shall
continue in full force and effect.
15. This Guaranty shall inure to the benefit of HCPI, its
successors and assigns, including, without limitation, the assignees of any of
the Guaranteed Obligations, and any subsequent owners or encumbrancers of the
Property, and shall bind the heirs, executors, administrators, personal
representatives, successors and assigns of Guarantor, whether by operation of
law or otherwise; provided, however, that Guarantor may not, without HCPI's
prior written consent, which such consent may be granted or withheld in HCPI's
sole discretion, assign or transfer any of its rights, powers, duties or
obligations hereunder. This Guaranty may be assigned by HCPI with respect to
all or any portion of the Guaranteed Obligations to any subsequent owners or
encumbrancers of the Property. When so assigned, Guarantor shall be liable to
the assignees under this Guaranty without in any manner affecting the liability
of Guarantor hereunder with respect to any of the Guaranteed Obligations
retained by HCPI.
6
<PAGE> 8
I
16. No provision of this Guaranty or right of HCPI hereunder
can be waived in whole or in part, nor can Guarantor be released from its
obligations hereunder, except by a writing duly executed by an authorized
officer of HCPI.
17. When the context and construction so require, all words
used in the singular herein shall be deemed to have been used in the plural and
the masculine shall include the feminine and neuter and vice versa. The word
"person" as used herein shall include any individual, company, firm,
association, partnership, corporation, trust or other legal entity of any kind
whatsoever. The term "BCC," as used herein, shall mean the party herein so named
and its successors and assigns, whether by operation of law or otherwise,
including, without limitation, a debtor in possession under Chapter 11 of the
federal Bankruptcy Code and any other person at any time assuming or succeeding
to all or substantially all of the Guaranteed Obligations.
18. Guarantor represents and warrants that the value of the
consideration received, and to be received, by Guarantor in connection with the
transactions contemplated under the Documents is worth at least as much as the
liabilities and obligations of Guarantor under this Guaranty, and that such
liabilities and obligations are expected to benefit Guarantor either directly
or indirectly.
19. EXCEPT WHERE FEDERAL LAW IS APPLICABLE AND UNLESS
OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
Guarantor hereby (a) irrevocably submits to the jurisdiction of the state and
federal courts of the Commonwealth of Pennsylvania and consent to service of
process in any legal proceeding arising out of, or in connection with, this
Guaranty, by any means authorized by Pennsylvania law; (b) irrevocably waives,
to the fullest extent permifled by law, any objection which Guarantor may now
or hereafter have to the laying of venue of any litigation arising out of, or
in connection with, this Guaranty, brought in the state courts of Allegheny
County, Commonwealth of Pennsylvania, or in the United States District Court
for the District in which such County is located; and (c) irrevocably waives
any claim that any litigation brought in any such court has been brought in an
inconvenient forum.
20. GUARANTOR ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF
COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE
CONSTITUTIONS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA.
GUARANTOR HEREBY EXPRESSLY WMVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTY OR (2) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF HCPI AND
GUARANTOR WITH RESPECT TO THIS GUARANTY OR ANY OTHER INSTRUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND GUARANTOR HEREBY
7
<PAGE> 9
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT HCPI MAY FILE A COPY
OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH
GUARANTOR TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
Guarantor's Initials: BB
---------
21. Except as provided in any other written agreement now or
at any time hereafter in force between UCPI and Guarantor, this Guaranty sh~
constitute the entire agreement of Guarantor with HCPI with respect to the
subject matter hereof, and no representation, understanding, promise or
condition concerning the subject matter hereof shall be binding upon HCPI or
Guarantor unless expressed herein.
22. This Guaranty shall remain in full force and effect and
continue to be effective in the event any petition is filed by or against BCC,
any other party to a Document or Guarantor for liquidation or reorganization,
in the event Guarantor becomes insolvent or makes an assignment for the benefit
of creditors or in the event a receiver or trustee is appointed for all or any
significant part of the assets of BCC, any other party to a Document or
Guarantor, and shall continue to be effective or be reinstated, as the case may
be, if at any time payment or performance of the Guaranteed Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount,
or must otherwise be restored or returned by HCPI, whether as a "voidable
preference," "fraudulent conveyance" or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Guaranteed
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
24. Guarantor will from time to time promptly execute and
deliver all further instruments and take all further action that may be
necessary or desirable, or that HCPI may reasonably request, in order to enable
HCPI to exercise and enforce its rights and remedies under this Guaranty or to
carry out the provisions and purposes hereof.
25. Any notice, demand and other communication hereunder
shall be given in accordance with the provisions therefor set forth in the
Lease, except that for purposes of this Guaranty the address for notice for
Guarantor is set forth below its signature hereto.
8
<PAGE> 10
EXECUTED as of this 21st day of March, 1996.
"Guarantor"
BALANCED CARE CORPORATION, a
Delaware corporation
By: /s/ Brian L. Barth
---------------------------
HS: Vice President
---------------------------
ADDRESS FOR NOTICES:
3507 Market Street, Suite 202
Camp Hill, Pennsylvania 17011
Fax: (717) 731-9179
Attn: Brad Hollinger, President
9
<PAGE> 1
EXHIBIT 10.43
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 24th day of Nov., 1997 by and between
Balanced Care Corporation, a Delaware corporation with a principal office at
5021 Louise Drive, Suite 200, Mechanicsburg, Pa., 17055 (the "Company") and
Stephen G. Marcus, an individual health care executive residing at 1017 S.
Waterford Way, Mechanicsburg, Pa. 17055 (the "Executive").
WITNESSETH;
WHEREAS, the Company desires to retain the services and employment of
Executive as Chief Operating Officer for the benefit of itself and each of its
subsidiaries throughout the term of this Agreement, and Executive is willing to
be employed by Company in the foregoing capacity for such period, upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
1. Employment. The Company hereby employs Executive and Executive hereby
accepts employment by the Company subject to all of the terms and
conditions hereafter set forth.
2. Capacity. Executive shall serve as Chief Operating Officer of the Company
("COO") and in such capacity shall report directly to the Chief Executive
Officer of the Company.
3. Duties. During the term of this Agreement and any extension thereof,
Executive shall and agrees to devote his business attention and best
efforts during normal business hours to the performance of the customary
duties of the office of COO of the Company, including supervisory
responsibility for all operating groups, including assisted living, skilled
nursing, marketing, human resources and ancillary services such as medical
rehabilitation, home health and outpatient services. Executive agrees to
perform such other or additional duties not inconsistent with the customary
position of COO, all as may be assigned from time to time by the Board of
Directors of the Company (the "Board")and the Chief Executive Officer of
the Company.
4. Active Duty Date, Term of Employment and Renewal. The duties of Executive
under this Agreement shall commence on January 5, 1998, which date shall
hereafter be referred to as the Active Duty Date. Unless earlier
terminated as hereafter provided, this Agreement shall expire three (3)
years after the Active Duty Date (the "Term"), provided however, that upon
expiration of such Term, this Agreement shall be extended for an additional
three year term and thereafter shall extend on each three year anniversary
date of this Agreement for an additional three year term (each, an
"Extension Term") without further action on the part of the parties
hereto, unless either party gives written notice of termination to the
other party at least one-hundred eighty(180) days prior to the expiration
of the then current Term or any Extension Term that it does not desire to
renew the Agreement. The date upon which the Term hereof, as extended from
time to time pursuant to an Extension Term, shall expire is hereinafter
referred to as the "Expiration Date".
5. Compensation.
(a) Cash Compensation. During the first year after the Active Duty Date,
as compensation for services to the Company, Company shall pay to
Executive a base salary in the amount of $170,000 per year (the "Base
Salary"), payable in equal installments in accordance with the
Company's payroll practices then applicable to Executive officers. On
the one year anniversary of Executive's Active Duty Date , the Base
Salary shall increase to $200,000 per year. Thereafter during the
term of this Agreement or any extension thereof the Base Salary shall
be adjusted annually on each anniversary date of the Active Duty Date
in an amount equal to 10% per year.
<PAGE> 2
Additionally, the Board of Directors of the Company may, in its sole discretion
from time to time, increase the Base Salary to be paid to Executive under this
paragraph, or provide additional compensation to Executive, including but not
limited to, the annual bonus provided in Section 5 (b) below, whether
permanently or for a limited period of time, based upon the performance of
Executive, the financial performance of the Company, compensation paid to
comparable officers by other companies in the industry and such other factors
as the Board may deem relevant.
(b) Annual Bonus. The Executive shall be eligible to
receive an annual bonus of up to 50% of his then current Base Salary
based upon (i.)Executive's performance as determined pursuant to
written annual performance objectives mutually agreed upon by
Executive and the CEO and approved by the Board, which approval will
not be unreasonably withheld and (2) the Company's achievement of its
annual pre-tax earnings (determined in accordance with generally
accepted accounting principles and after giving effect, to the extent
appropriate, to minority interests) level approved by the Board of
Directors in the annual operating budget for a particular year.
( c ) Signing Bonus. In further consideration of Executive
entering into this Agreement, Company shall pay Executive a signing
bonus of $20,000 payable on the first regularly scheduled pay period
following Executive's Active Duty Date with the Company as COO.
(d) Stock Options. The Executive will be eligible to participate
in the Company's 1996 Stock Incentive Plan, as such plan may be
amended from time to time (the "Plan"). Executive shall be granted an
option to purchase 150,000 shares of the Company's common stock at a
price equal to the fair market value (based on the lowest price of the
day) on the date of grant, which for purposes of this Agreement is
the Active Duty Date (the "Grant Date"). Such stock options shall
vest over four (4) years at the rate of 25% per year. Additionally, on
the first anniversary of the Active Duty Date and on each subsequent
one year anniversary thereafter during the term of this Agreement or
any extension thereof, Executive shall be granted an option to
purchase no less than 30,000 shares of the Company's common stock,
subject in each case to availability of such shares under the Plan,
the terms and conditions of the Plan and Board approval, which
approval will not be unreasonably withheld.
(e) Vacation. The Executive shall be entitled to a vacation of
four (4) weeks annually inaccordance with the policies of the Company
applicable to comparable executives of the Company. Any time spent
by the Executive at professional meetings and other similar meetings
so as to better enable the Executive to perform his professional
services on behalf of the Company shall not be considered vacation
time.
(f) Fringe Benefits. The Executive shall enjoy and benefit under
all fringe benefit plans, programs or arrangements sponsored
by the Company for employees generally or for executive
officers in accordance with the respective terms and
conditions thereof, as the same may be amended from time to
time.
Notwithstanding the foregoing, the Company may, without breaching the terms of
this Agreement, amend any employee benefit plan and/or fringe benefit plan in
which the Executive participates or any policy applicable to vacations or other
terms and conditions of employment generally applicable to executive officers
of the Company provided that such amendment is applicable to and
proportionately affects all executive employees of the Company in positions
comparable to the Executives'.
<PAGE> 3
6. Confidentiality.
Commencing immediately upon the signing of this Agreement and
during Executive's employment with the Company and for any subsequent period
with respect to which he is entitled to receive Severance Rights under this
Agreement, the Executive shall keep secret and confidential all matters of the
Company or relating to the Company, its operations and businesses which are
not, as of the time immediately preceding disclosure, in the public domain and
generally known by the public (the "Confidential Information"). Executive
shall not intentionally or through gross negligence disclose Confidential
Information to any third party without the express written consent of the
Company and may only utilize such information during the normal course of
performing his duties for the Company and solely for the Company's benefit.
Executive acknowledges and agrees that any breach of this Section 6
will cause the Company irreparable injury to which the Company shall have no
adequate remedy at law. Therefore, Executive agrees that the Company shall be
entitled, in addition to any remedies it may have under this Agreement or at
law, to injunctive and other equitable relief to prevent or curtail any breach
of the provisions of this Section 6 by Executive.
7. Termination of Employment.
This Agreement. The Term hereof, as extended by any Extension Term,
and the Executive's employment and right to receive salary and other benefits
set forth in Section 5 hereof (other than salary and other benefits accrued
through the date of termination) , collectively referred to hereafter as the
"Employment Rights",shall terminate on the earlier of the events described
below; provided, however, that upon a termination of Employment Rights, the
Plan shall remain in effect to the extent provided by its terms and shall
remain enforceable in accordance with its terms and further provided that, in
the event of certain termination, the Executive shall have the right to receive
payments and other benefits, if any, (the "Severance Rights"), as set forth
below in this Section 7:
(a) On the Expiration Date. The Executive's Employment Rights shall
terminate on the then Expiration Date of this Agreement ;
provided, however the Executive shall be entitled to receive
Severance Rights after the Expiration Date of this Agreement in
the event that the Expiration Date is as a result of the Company
giving notice pursuant to Section 4 hereof that it does not desire
to renew the Agreement.
(b) Death or Disability. The Executive's Employment Rights shall
terminate upon his death or Disability (as defined in subsection
(g) (III) below) and the Executive shall have the right to receive
a pro-rata portion of any Annual Bonus payment which may be
accrued for the year in which such death or Disability occurred.
Nothing contained herein shall be deemed to prevent the receipt by
the Executive or his spouse or estate, as the case may be, of any
benefit payable to or with respect to such death or Disability
under any plan, program or arrangement then sponsored by the
Company, if applicable.
(c) Voluntary Resignation by the Executive. The Executive's
Employment Rights shall terminate on the effective date of his
voluntary resignation and he shall not be entitled to receive any
Severance Rights unless such voluntary resignation is made after
and as a consequence of a Change in Control of the Company ( as
defined in subsection (g) (II) below.
(d) Cause. The Company may terminate the Executive's Employment
Rights for Cause (as defined in subsection (g) (I) below), in
which case the Executive shall not be entitled to receive any
Severance Rights.
<PAGE> 4
(e) Termination by the Company for Reasons Other Than Cause . If the
Company terminates Executive without Cause, all outstanding stock
options granted to Executive under the Plan shall immediately
become vested and shall be exerciseable in accordance with the
provisions of the Plan and, additionally,Executive shall be
entitled (1) to receive a lump sum cash payment, payable fifteen
(15) days following his termination of employment, equal to the
sum of (i.) the amount determined by multiplying by three (3) the
annual Base Salary at the rate then in effect on the date of
termination and (ii) the amount of the potential Annual Bonus
percentage payable under Section 5(b) hereof for the year in which
the termination took place. For example, if at the time of such
termination Executive's Base Salary was $170,000, and his Annual
Bonus percentage was 50%, i.e. $85,000, the lump sum payment would
be $595,000, i.e.$170,000 x3 plus $85,000, and (2) to participate,
for a period of one (1) year from the date of Executive's
termination, together with his beneficiaries and dependents, in
all insurance plans and accident and health plans maintained by
the Company prior to such termination and in which Executive was
entitled to participate prior to such termination, or, at the
Company's sole option and election, to receive the full cash value
of such benefits in a lump sum payable at the time of payment of
the sum specified above in subparagraph (1). The vesting of stock
options referred to in this paragraph, together with the payments
and/or benefits set forth in subsection (1) and (2) of this
paragraph, are hereafter collectively referred to as the
"Severance Rights". The Severance Rights payment will be made in
recognition of the Executive's performance prior to termination of
employment and the obligations of confidentiality and non-compete
as set forth in Sections 6 and 8 as applicable after termination
of employment.
(f) Termination Following a Change of Control. The Executive
shall be entitled to receive Severance Rights if, within three (3)
years following a Change in Control, there occurs any of the
following events:
(I) any termination of the Executive except for
Cause;
(II) any material reduction in the Executive's
responsibilities (including reporting
responsibilities) or authority, including as
such responsibilities or authority may be
increased from time to time;
(III) the assignment to the Executive of duties
inconsistent with the Executive's office on
the date of a Change in Control or as same
may be increased from time to time after a
Change in Control:
(IV) any reassignment of the Executive to a
location greater than fifty (50) miles from
the principal executive offices of the
Company before the Change in Control;
(V) any material reduction (including, after a
Change in Control, proportional reductions
affecting all employees or executive employees)
in the Executive's annual Base Salary in effect
on the date of a Change in Control or as same may
be increased from time to time after a Change in
Control;
(VI) any failure (including, after a Change in
Control, proportional failures affecting all
executive employees) to continue the
Executive's participation on substantially
similar terms in the Plan or any bonus plan
in which the Executive participated at the
time of the Change in Control or any change
or amendment to any substantive provisions of
any such plan which would materially decrease
the potential benefits to the Executive under
any of such plans;
(VII) any failure (including, after a Change in
Control, a proportional failure affecting all
executive employees) to provide the Executive
with benefits at least as favorable as those
enjoyed by the Executive under any of the
Company's pension, life insurance, medical,
health and accident or other
<PAGE> 5
employee plans in which the Executive participated at
the time of the Change in Control, unless such
reduction relates to a reduction in benefits
applicable to all employees generally; AND
(VIII) in the event of any of the events described
in (II) through (VII) above, the Executive
voluntarily terminates his employment under
this Agreement as a result of such event(s).
(IX) in the event of a dispute over whether the
Executive was justified in terminating his
employment on account of the events set forth
in paragraphs II through VIII, and is
therefore entitled to Severance Rights, which
dispute is resolved in favor of the
Executive, all reasonable legal fees and
costs incurred by Executive to enforce his
right to receive the Severance Rights shall
be reimbursed by Company to Executive, which
reimbursement shall be payable within fifteen
(15) days of the Company's receipt of an
invoice specifying such costs.
Additionally, the Severance Rights payment
shall be payable within fifteen (15) days
after the date the dispute is resolved in
favor of the Executive.
(g) Definitions. As used in this Section 7, the following terms shall
have the meanings set forth below:
(I) "Cause" shall mean willful misconduct,
intentional and material failure to perform
duties under this Agreement by Executive or
Executive's conviction of a felony. For purposes
of this subsection, no act or omission shall be
regarded as intentionally or willfully done
unless done or omitted to be done not in good
faith and with knowledge at the time that the act
or omission was not in the best interest of the
Company. No termination for cause shall be
effective unless and until Executive is given
written notice that the act or omission
constitutes "Cause" under this Agreement and
Executive is given an opportunity to correct or
cure the particular act or omission within sixty
(60)days after receipt by the Executive of such
written notice from the Company.
(II) A "Change in Control" shall be deemed to have taken
place if; (i.) any person, including a group but not
excluding the Company or any current stockholder of
the Company who beneficially owns five percent (5%)
or more of the Company's outstanding shares, becomes
the beneficial owner of shares of the Company having
twenty percent (20%) or more of the total number of
votes that may be cast for the election of
directors; (ii.) there occurs any cash tender or
exchange offer for shares of the Company, merger or
other business combination, sale of assets or
contested election, or any combination of the
foregoing transactions, and as a result of or in
connection with any such event persons who were
directors of the Company before the event shall
cease to constitute a majority of the Board of
Directors of the Company or any successor to
Company. As used herein, the terms "person" and
"beneficial owner" have the same meaning as under
Section 13(d) of the Securities Exchange Act of 1934
and the rules and regulations thereunder.
(III) Disability shall mean the absence of the Executive
from the Executive's usual and customary duties with
the Company for ninety (90) consecutive days as a
result of incapacity due to mental or physical
illness which a physician mutually selected by the
Executive and the Company reasonably determines in
writing will prevent the Executive
<PAGE> 6
from substantially performing all of his usual and
customary duties under this Agreement for a period
of twelve (12) consecutive months from the date of
such physician determination.
(h) Notice of Termination. Any notice of termination of
Employment Rights of Executive shall be given by the Company
in writing and delivered by hand delivery or by registered or
certified mail, return receipt requested, postage prepaid, at
the address first above written for Executive or at such other
address as Executive shall have furnished to the Company in
writing.
( i) Preservation of Rights. The Executive's right to receive
payments under this Agreement shall not decrease the amount of,
or otherwise adversely affect, any benefits payable to the
Executive under any plan, agreement or arrangement relating to
employee benefits provided by the Company.
8. Non-Competition and Non-Solicitation.
(a) Restrictions on Competition. While employed by Company under this
Agreement and for a period of one (1) year following termination of
Executive's employment hereunder, Executive agrees that he will not
directly or indirectly own an interest in, manage or control, or
provide consulting services or services as an employee or partner, to
a business engaged in managing, leasing, owning or operating assisted
living facilities, nursing homes or sub-acute operations (the
"Business Activities") within a thirty (30) mile radius of a Company
facility existing or under active development at the time of such
termination.
(b) Restriction on Solicitation. While employed by the Company under
this Agreement and for a period of one (1) year following termination
of Executive's employment hereunder, Executive agrees that he will
not: (i.) directly or indirectly solicit or encourage Company's
customers to deal with Executive or any other third party other than
the Company; or (ii.) Directly or indirectly solicit for Executive's
benefit or for the benefit of any third party the employment or
services of any then current employee of Company.
( c ) Listed Stock Ownership Exception. Nothing in this Section 8
shall prohibit Executive from owning stock in a publicly traded
company as a passive investor provided that Executive shall not own
more than 5% of the equity of a publicly traded competing enterprise
of Company's.
9. Successors.
(a) This Agreement is personal to Executive and shall not be
assignable by the Executive otherwise than by his will or
the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets
of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the
Company shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by
operation of law or otherwise.
<PAGE> 7
10. Entire Agreement. This writing represents the entire
agreement and understanding between the parties with respect
to the subject matter contained herein and may not be altered
or amended except in a writing signed by both parties.
11. Unenforceability. If any provision of this Agreement shall
be adjudged by any court of competent jurisdiction to be
invalid or unenforceable for any reason, such judgment
shall not affect, impair or invalidate the remainder of
this Agreement.
12. Waiver. The failure of the parties to insist upon strict
compliance with any provision hereof or the failure to assert
any right the parties may have hereunder shall not be deemed
to be a waiver of such provision or right or any other
provision or right thereof by the parties.
13. Counterparts. This Agreement may be executed by the
parties in two or more counterparts, each of which shall
be deemed to be an original, but all such counterparts
shall constitute one and the same instrument.
14. Headings. The headings of the sections and subsections of
this Agreement are for convenience only and shall not control
or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
15. Governing Law. This Agreement has been negotiated and
executed within the Commonwealth of Pennsylvania and shall
be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ATTEST: BALANCED CARE CORPORATION
/s/ Robert J. Sutton By: /s/ Brad E. Hollinger
----------------------- --------------------------
Secretary Brad E. Hollinger
Title: Chief Executive Officer
WITNESS: EXECUTIVE:
/s/ Theresa M. Haddad s/ Stephen G. Marcus
------------------------ --------------------------
Stephen G. Marcus
<PAGE> 1
EXHIBIT 11.1
BALANCED CARE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Loss $ (4,492) $ (909) $ (10)
============= ============ =============
Weighted average common shares
outstanding 3,583 2,474 2,325
Additional shares assuming exercise of (1):
Convertible preferred stock 3,757 -- --
Common Stock 242 242 242
Stock options 478 478 478
Warrants 240 240 240
Shares assumed repurchased (346) (346) (346)
Weighted average common and common
equivalent shares outstanding 7,954 3,088 2,939
============= ============ =============
Net loss per share $ (.56) $ (.29) $ --
============= ============ =============
</TABLE>
(1) Pursuant to Securities and Exchange Commission policies, Common
Stock, stock options and warrants issued within the one year period prior
to the filing of this registration statement have been treated as
outstanding for all periods presented. Additionally, mandatorily
redeemable convertible preferred stock will convert into common
shares upon completion of the Offering.
<PAGE> 1
BALANCED CARE CORPORATION EXHIBIT 11.2
SUPPLEMENTARY EARNINGS PER SHARE COMPUTATION
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Loss..................... $(4,492) $(909) $ (10)
Interest savings or debt
retirement(2)............... 806 -- --
------- ----- ------
Adjusted net loss............ (3,686) (909) (10)
======= ===== ======
Weighted average common
shares outstanding.......... 3,583 2,474 2,325
Additional shares assuming
exercise or issuance(1)
Convertible preferred
stock..................... 3,757 -- --
Common Stock............... 242 242 242
Stock Options.............. 478 478 478
Warrants................... 240 240 240
Shares assumed repurchase.... (346) (346) (346)
Incremental shares issued for
retirement of debt(2)....... 812 -- --
------- ----- ------
Adjusted shares outstanding.. 8,766 3,088 2,939
======= ===== ======
Supplemental net loss per
common share................ $ (.42) $(.29) $ --
======= ===== ======
</TABLE>
(1) Pursuant to Securities and Exchange Commission policies, Common
Stock, stock options and warrants issued within the one year prior
to the filing of this regulation statement have been treated as
outstanding for all periods presented. Additionally, mandatorily
redeemable convertible preferred Stock will convert into common
shares upon completion of the Offering.
(2) As required by APB 15 the supplemental earnings per share
presentation reflects the effect of the retirement of debt
with the proceeds of the offering (using a proposed offering
price of $10.00).
<PAGE> 1
EXHIBIT 21.1
Significant Subsidiaries of
Balanced Care Corporation
BCC Development and Management Co.
BCC at Missouri, Inc.
BCC at Hermitage Park Care Center, Inc.
BCC at Lebanon Care Center, Inc.
BCC at Lebanon Park Manor, Inc.
BCC at Mt. Vernon Park Care Center, Inc.
BCC at Mt. Vernon Park Care Center West, Inc.
BCC at Nevada Park Care Center, Inc.
BCC at Nixa Park Center, Inc.
BCC at Republic Park Center, Inc.
BCC at Springfield Care Center, Inc.
BCC at Cherokee Residential Care Center, Inc.
BCC at Nevada Park Terrace Apartments, Inc.
BCC at Management Company at Missouri, Inc.
BCC at Blakely, Inc.
BCC at Kingston II, Inc.
BCC at Bloomsburg, Inc.
BCC at Kingston, Inc.
BCC at Mid-Valley, Inc.
BCC at Old Forge, Inc.
BCC at West View, Inc.
BCC of Wisconsin, Inc.
BCC at State College, Inc.
Balanced Care at Butler, Inc.
Balanced Care at Sarver, Inc.
Balanced Care at Saxonburg, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,362
<SECURITIES> 0
<RECEIVABLES> 7,774
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,447
<PP&E> 3,291
<DEPRECIATION> 809
<TOTAL-ASSETS> 31,624
<CURRENT-LIABILITIES> 8,282
<BONDS> 8,354
13,875
1
<COMMON> 5
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,624
<SALES> 19,138
<TOTAL-REVENUES> 19,138
<CGS> 0
<TOTAL-COSTS> 19,664
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> (650)
<INCOME-TAX> 7
<INCOME-CONTINUING> (657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (657)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0
</TABLE>
