<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998
REGISTRATION NO. 333-37833
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5 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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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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RONALD D. WEST RICHARD B. VILSOET
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. [ ]
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<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 FEBRUARY 11, 1998
BALANCED CARE CORP LOGO
7,000,000 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 $6.50
and $7.50 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.
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========================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- --------------------------------------------------------------------------------------------------------
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Per Share............................. $ $ $
- --------------------------------------------------------------------------------------------------------
Total (2)............................. $ $ $
========================================================================================================
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(1) Before deducting expenses payable by the Company, estimated at $2,100,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
1,050,000 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 , 1998.
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
SALOMON SMITH BARNEY
The date of this Prospectus is , 1998.
<PAGE> 3
[PHOTOS/MAP]
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.
---------------------
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TABLE OF CONTENTS PAGE
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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.............................................................................. 52
Management............................................................................ 75
Certain Transactions.................................................................. 85
Principal Stockholders................................................................ 87
Description of Capital Stock.......................................................... 90
Shares Eligible For Future Sale....................................................... 91
Underwriting.......................................................................... 93
Legal Matters......................................................................... 95
Experts............................................................................... 95
Additional Information................................................................ 96
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, Triangle Retirement Services,
Inc. d/b/a Northridge Retirement Center ("Northridge") in December 1997 and
Gethsemane Affiliates ("Gethsemane") in January 1998 (collectively, the "Recent
Acquisitions"). 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 10 of its
signature assisted living facilities. As of February 2, 1998, the Company
operated a total of 34 assisted living facilities, 13 skilled nursing facilities
and four independent living facilities in Pennsylvania, Missouri, Arkansas,
North Carolina and Wisconsin, as well as a home health care agency in Missouri
and a rehabilitation therapy operation in Pennsylvania. Assuming completion of
the planned divestiture of the Company's assisted living
4
<PAGE> 6
facilities in Wisconsin, the Company will own nine and lease 35 senior living
and health care facilities in Pennsylvania, Missouri, Arkansas and North
Carolina with a capacity for 1,565 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 -- Planned Divestiture," "Unaudited Pro Forma Financial Information"
and "Business--Operating Facilities."
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
Company would have had a net loss for the year ended June 30, 1997 of $1,084,000
and net income of $24,000 for the three month period ended September 30, 1997 on
a pro forma basis. See "Unaudited Pro Forma Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
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 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.
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<PAGE> 7
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.
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THE OFFERING
Common Stock Offered by the
Company............................. 7,000,000 shares
Common Stock to be Outstanding
after the Offering................ 15,645,343 shares(1)
Use of Proceeds..................... To repay outstanding long-term
indebtedness of $8,151,000 and
indebtedness of $29,473,000 incurred to
fund the purchase of four completed
acquisitions; the balance will be used
for general corporate purposes,
including working capital and possible
future acquisitions. See "Use of
Proceeds."
Proposed American Stock Exchange
Symbol.............................. BAL
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(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)
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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)
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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) (1,955) (1,955) (556) (526) (52) (52)
Net income (loss).............. $ (10) $ (909) $(4,492) $(3,461) $(1,084) $ (729) $ (657) $ (570) $ 24
Net income (loss) per
share(5)..................... $ -- $(0.31) $ (0.58) $ (0.44) $ (0.07) $ (0.09) $ (0.08) $ (0.07) $ --
Weighted average common and
common equivalent shares
outstanding(5)............... 2,791 2,940 7,806 7,806 14,708 7,806 7,832 7,832 14,734
Supplementary net loss per
share(5)..................... N/A N/A $ (0.41) N/A N/A N/A $ (0.05) N/A N/A
SELECTED OPERATING DATA:
Facilities operated at end of
period:
Assisted living.............. -- 8 18 25 25 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 1,144 1,144 225 782 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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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA--CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
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<CAPTION>
SEPTEMBER 30,
-------------------------------
PRO FORMA
JUNE 30, AS
------------------------- PRO FORMA ADJUSTED
1995 1996 1997 1997 1997(3) 1997(4)
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BALANCE SHEET DATA:
Working capital.............................................. $ 16 $ 727 $13,300 $10,966 $(15,611) $19,749
Total assets................................................. 17 7,292 33,017 31,624 63,993 69,839
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) 169 57,514
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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 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.
(4) Gives effect to: (i) the sale by the Company of 7,000,000 shares of Common
Stock in the Offering (at an assumed initial public offering price of $7.00
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 only applicable to the latest
fiscal year and subsequent interim period.
For a discussion of the Company's preliminary results of operations for the
quarter ended December 31, 1997, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments."
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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 $1,084,000 and net income of $24,000 for the
three-month period ended September 30, 1997, on a pro forma basis after giving
effect to the Recent Acquisitions and the Pharmacy Divestiture as if such
transactions had occurred on July 1, 1996 and assuming completion of the
Offering. 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 nine additional signature assisted living facilities through February 2,
1998. 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 the
facilities planned for development over the next three years is
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<PAGE> 11
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 10 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. 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 future
acquisitions, that operations of acquired facilities can be successfully
integrated or that acquired operations will be profitable.
SUBSTANTIAL FIXED CHARGES; PLEDGE OF ASSETS
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 as if such transactions had occurred on July 1, 1996, the
10
<PAGE> 12
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 and, in certain other cases, indebtedness and facility
leases are secured by a pledge of stock of certain of the Company's
subsidiaries. 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.
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
11
<PAGE> 13
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 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
12
<PAGE> 14
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 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 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 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."
13
<PAGE> 15
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; CHANGE OF CONTROL
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
55.3% of the outstanding shares of Common Stock and the rights to purchase an
additional 7.5% of the outstanding shares of Common Stock through the exercise
of currently exercisable options and warrants (51.8% and 7.1%, 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.
In addition, the acquisition by one or more related persons of 50% or more
of the Common Stock constitutes a default under certain leases between the
Company and Meditrust and may result in the termination of such leases or the
exercise of other remedies thereunder by the lessor. See "Certain Transactions."
Future financing arrangements of the Company may contain similar change of
control provisions which may result in the termination of such arrangements or
the exercise of other remedies thereunder.
14
<PAGE> 16
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 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
15,645,343 shares of Common Stock (16,695,343 shares outstanding if the
Underwriters' over-allotment option is exercised in full) including 9,817,867
shares of Common Stock owned beneficially by existing stockholders. The
7,000,000 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, 45,281 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
15
<PAGE> 17
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 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 $3.70 per share at an assumed
initial public offering price of $7.00 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." Furthermore, the Company has entered into certain leases, and may enter
into additional financing arrangements in the future, which provide that the
Company will be in default under such leases in the event of a change of control
of the Company. See "--Control by Current Stockholders; Change of Control."
16
<PAGE> 18
USE OF PROCEEDS
Based on an assumed initial public offering price of $7.00 per share (the
midpoint of the estimated range of initial public offering prices), the Company
will receive approximately $43,470,000 from the sale of shares of Common Stock
in the Offering after deduction of estimated underwriting discounts and
commissions and estimated expenses (approximately $50,305,500 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 and indebtedness of $29,473,000 incurred to fund the
purchase of four completed acquisitions; 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 -- Planned
Divestiture." 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, Northridge and Gethsemane
and the Pharmacy Divestiture and the borrowing of $29,473,000 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 7,000,000 shares of Common Stock in the Offering at an assumed
initial public offering price of $7.00 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 $29,571 $ 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;
15,645,343 shares outstanding on a pro forma as
adjusted basis(1)................................... 5 5 16
Additional paid-in capital............................. 3,335 3,335 60,670
Accumulated deficit.................................... (6,068) (3,172) (3,172)
------- ------- -------
Total stockholders' equity.......................... (2,727) 169 57,514
------- ------- -------
Total capitalization........................... $19,600 $51,969 $57,815
======= ======= =======
</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 adjusted net tangible book value of the Company prior to the Offering
at September 30, 1997 was $8,858,000 or $1.02 per share of Common Stock.
Adjusted net tangible book value per share represents the amount of the
Company's total net tangible assets less total liabilities, divided by the
number of shares of Common Stock issued and outstanding at that date after
giving effect to the conversion of the Outstanding Preferred Stock. After giving
effect to the sale of the shares of Common Stock in the Offering (at an assumed
initial offering price of $7.00 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 $57,858,000 or $3.30 per share, representing an immediate $3.70 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............................ $ 7.00
Historical tangible book value per share......................... $(0.58)
Increase per share attributable to conversion of Outstanding
Preferred Stock............................................... 1.60
------
Adjusted net tangible book value prior to the Offering........... 1.02
Increase per share attributable to new investors................. 2.28
------
Adjusted pro forma net tangible book value per share after the Offering.... 3.30
------
Dilution per share to new investors (1).................................... $ 3.70
======
</TABLE>
- ------------
(1) 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 $3.44.
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 7,000,000 shares in
the Offering at an assumed initial public offering price of $7.00 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 55.3% $14,668,000 23.0% $ 1.70
New investors........ 7,000,000 44.7 49,000,000 77.0 7.00
---------- ----- ----------- -----
Total.............. 15,645,343 100.0% $63,668,000 100.0%
========== ===== =========== =====
</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 6,844 8,412 8,412
Other operating
expenses................ -- 179 20,727 27,988 27,988 1,765 7,648 7,487 7,487
General and administrative
expense................... 10 1,000 5,653 5,653 5,653 747 2,679 2,679 2,679
Lease expense............... -- 77 5,417 7,810 7,810 475 2,212 2,212 2,212
Depreciation and
amortization expense...... -- 49 693 1,710 1,710 90 281 511 511
Write-down of long-lived
assets.................... -- -- 1,591 1,591 1,591 -- -- -- --
----- ------ ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 10 1,625 53,267 73,577 73,577 4,928 19,664 21,301 21,301
----- ------ ------- ------- ------- ------- ------- ------- -------
Loss from operations.......... (10) (814) (3,787) (1,955) (1,955) (556) (526) (52) (52)
Other income (expense):
Interest income............. -- 13 265 265 265 13 113 113 113
Interest expense............ -- (102) (917) (4,079) (117) (183) (237) (1,011) (21)
----- ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (10) (903) (4,439) (5,769) (1,807) (726) (650) (950) 40
Provision (benefit) for income
taxes....................... -- 6 53 (2,308) (723) 3 7 (380) 16
----- ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ (10) $ (909) $(4,492) $(3,461) $(1,084) $ (729) $ (657) $ (570) $ 24
===== ====== ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share(5).................... -- $(0.31) $ (0.58) $ (0.44) $ (0.07) $ (0.09) $ (0.08) $ (0.07) $ --
===== ====== ======= ======= ======= ======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding(5).............. 2,791 2,940 7,806 7,806 14,708 7,806 7,832 7,832 14,734
===== ====== ======= ======= ======= ======= ======= ======= =======
Supplementary net loss per
share(5).................... $ N/A $ N/A $ (0.41) $ N/A $ N/A $ N/A $ (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 25 25 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 1,144 1,144 225 782 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 $13,300 $10,966 $(15,611) $19,749
Total assets................................................. 17 7,292 33,017 31,624 63,993 69,839
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) 169 57,514
</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 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.
(4) Gives effect to (i) the sale by the Company of 7,000,000 shares of Common
Stock in the Offering (at an assumed initial public offering price of $7.00
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 only applicable to the latest
fiscal year and subsequent interim period.
For a discussion of the Company's preliminary results of operations for the
quarter ended December 31, 1997, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Developments."
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, Northridge in December 1997 and Gethsemane in January 1998. The Company
completed the Pharmacy Divestiture in October 1997. The Company has also leased
two facilities and has designed, developed and opened 10 of its signature
assisted living facilities. As of February 2, 1998, the Company operated a total
of 34 assisted living facilities, 13 skilled nursing facilities and four
independent living facilities in Pennsylvania, Missouri, Arkansas, North
Carolina and Wisconsin, as well as a home health care agency in Missouri and a
rehabilitation therapy operation in Pennsylvania. Assuming completion of the
planned divestiture of the Company's assisted living facilities in Wisconsin,
the Company will own nine and lease 35 senior living and health care facilities
in Pennsylvania, Missouri, Arkansas and North Carolina with a capacity for 1,565
assisted living residents, 1,294 skilled nursing patients and 154 independent
living residents. See "-- Recent Acquisitions" and "Planned Divestiture" and
"Unaudited Pro Forma Financial Information."
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 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."
22
<PAGE> 24
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) general and administrative expenses, which primarily include corporate
office expenses, regional office expenses, development and pre-opening expenses
and other overhead costs; (iii) lease expense, which includes rent for the
facilities operated by the Company as well as corporate office and other rent;
and (iv) 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.
RECENT DEVELOPMENTS
The following paragraphs discuss the Company's preliminary results of
operations for the three months ended December 31, 1997 compared to the three
months ended December 31, 1996.
Total revenues for the three months ended December 31, 1997 increased by
$8,634,000 to $21,255,000 (including patient services revenue of $14,655,000,
resident services revenue of $4,569,000 and development and management fees of
$1,957,000) compared to $12,621,000 for the three months ended December 31,
1996. The increase was primarily the result of: (i) revenues of $4,344,000 from
facilities acquired subsequent to December 31, 1996; (ii) increased development
fee revenues of $1,740,000 due to the Company's expanded development efforts;
(iii) additional patient services revenue of $1,934,000 from increased ancillary
charges at the Foster facilities; and (iv) revenues from the Company's eight
signature assisted living facilities which opened between May and December of
1997.
The Company's loss from operations increased to $1,426,000 for the three
months ended December 31, 1997 from $395,000 for the same period in 1996.
Although the five acquisitions completed subsequent to December 31, 1996
contributed $544,000 to operating income for the 1997 quarter and the Company
recognized additional development fee revenues of $1,740,000, the operating loss
for the 1997 quarter increased primarily as a result of: (i) startup losses of
$1,418,000 on the seven newly opened facilities; (ii) a $1,629,000 increase in
general and administrative expenses resulting from increased corporate and
regional office staffing and other expenses incurred to manage the Company's
actual and anticipated growth; and (iii) the decreased operating income and the
additional writedown of assets held for sale of the Wisconsin facilities
aggregating $288,000. Additionally, the increase in Foster ancillary revenues
was largely offset by the cost of those ancillary services.
Other income (expense) increased by $2,490,000 to $2,305,000 for the three
months ended December 31, 1997 from $(185,000) for the three months ended
December 31, 1996, primarily as a result of a non-recurring gain of $2,858,000
from the sale of the Pharmacy, partially offset by a $364,000 increase in
interest expense resulting from acquisition bridge financing to be repaid with
the proceeds of the Offering.
23
<PAGE> 25
Net income for the three months ended December 31, 1997 was $849,000
compared to a net loss of $583,000 for the three months ended December 31, 1996.
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
General and administrative expense............... 17.1 14.0 123.4 11.4
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%
24
<PAGE> 26
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 facility operating expenses of both
the Foster and Keystone operations, as well as facility operating expenses from
the Company's developed assisted living facilities.
General and administrative expenses increased by $1,932,000 to $2,679,000
for the three months ended September 30, 1997 from $747,000 for the three months
ended September 30, 1996. As a percentage of total revenue, these expenses
decreased to 14.0% for the 1997 period from 17.1% for the 1996 period. Of the
$1,932,000 increase in general and administrative expenses in 1997,
approximately $1,259,000 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 $673,000 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 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
25
<PAGE> 27
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.
General and administrative expenses for fiscal 1997 increased by $4,653,000
to $5,653,000 from $1,000,000 in fiscal 1996. As a percentage of total revenue,
these expenses decreased to 11.4% in fiscal 1997 from 123.4% in fiscal 1996 as a
result of the Company's minimal total revenues in fiscal 1996. Of the $4,653,000
increase in general and administrative expenses in fiscal 1997, approximately
$3,164,000 resulted from labor and travel costs relating to the addition of new
corporate and regional office staff to plan and manage the Company's actual and
anticipated growth and $1,489,000 was attributable to marketing, consulting,
development, pre-opening, 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, $413,000 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 $231,000 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.
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 Divestiture provided some of the working capital needed
to sustain the Company's continued growth.
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.
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.
26
<PAGE> 28
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. These letters of
intent represent arrangements whereby the REITs will fund development projects
or acquisitions and the Company will develop assisted living facilities for the
Owners or the Owners will acquire existing facilities identified by the Company
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. The additional rent is capped at 2% or 3% of the prior year's total rent
depending on the REIT involved and is based on either the annual increase in
revenues of the facility or the increase in the consumer price index. The
Company's lease arrangements generally contain a purchase option at the end of
the initial lease term and each renewal term to purchase the facility at its
fair market value. Certain of the Company's lease arrangements limit the
Company's right to operate other senior care facilities within a ten mile radius
of 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 a ten mile radius 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 February
1998.
The Company plans to use the net proceeds from the Offering to repay
$8,151,000 of outstanding long-term debt, indebtedness of $29,473,000 incurred
to fund the purchase of the assets and business of Feltrop, Butler, Northridge
and Gethsemane. The remainder of the net proceeds will be used for working
capital and other general corporate purposes.
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
27
<PAGE> 29
$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."
The Company's future results of operations and financial condition may be
affected by a number of factors including, without limitation, the ability of
the Company to successfully implement its strategies; the need for substantial
additional capital resources to fund the Company's development and acquisition
strategy as well as its working capital needs to fund the growth in its
operations; the ability of the Company to achieve its assisted living facility
development goals; the risks associated with construction and occupancy; the
ability of the Company to effect acquisitions and integrate acquired businesses
into its operations; the substantial fixed charges under long-term operating
leases for the Company's facilities; the extensive federal and state regulation
of the health care industry and frequent changes to such regulations; and health
care reform, including proposed changes in Medicare and Medicaid funding. See
"Risk Factors" for a discussion of these and other risk factors relating to the
Company and its business, and "Business" for a discussion of the Company's
business.
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
28
<PAGE> 30
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.
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 $1,851,000 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. Commencing in August 1996, the Company 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
29
<PAGE> 31
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 $1,800,000 in
cash and issued 187,500 shares of Common Stock for the operations of the
existing facilities and the rights to seven early stage development projects.
Goodwill of approximately $1,800,000 was recorded for this acquisition and is
being amortized over 25 years. This agreement provides for additional payments
of up to $500,000. These payments are to be made in five installments of
$100,000 when financing closes for each of the first five development projects.
When made, these payments will be recorded as additional goodwill and amortized
over 25 years.
In May 1997, the Company completed the Clark acquisition which involved
leasehold interests in three assisted living facilities with 77 operating beds
in and around Nevada, Missouri. In August 1997, the Company acquired a fourth
leasehold interest in an assisted living facility 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
$9,554,000, including transaction costs. This acquisition has been accounted for
using the purchase method and the estimated goodwill of $3,093,000 will be
amortized over 40 years. The asset purchase agreement provides for additional
purchase price payments of up to $4,100,000 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.
The Gethsemane acquisition, which occurred on January 2, 1998, involved 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
purchase price of approximately $5,528,000 for the skilled nursing facility,
including transaction costs, was paid in cash. This acquisition was 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
additional goodwill. The Company estimates that goodwill of approximately
$535,000 (excluding any contingent payments) will be recorded for the skilled
nursing facility acquisition and amortized over 40 years.
30
<PAGE> 32
PLANNED DIVESTITURE
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."
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.
31
<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
acquisition of Gethsemane which was completed on January 2, 1998, 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 acquisitions and the Pharmacy Divestiture and gives effect to (i) the
sale by the Company of 7,000,000 shares of Common Stock in the Offering at an
assumed initial public offering price of $7.00 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 $1,851,000 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
$2,050,000 was comprised of approximately $1,800,000 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 and certain
other assets were acquired by a health care REIT for $21,600,000 and are leased
to the Company. The agreement provides for additional payments of up to
$500,000. These payments are to be made in five installments of $100,000 when
financing closes for each of the first five development projects. When made,
these payments will be recorded as additional goodwill and amortized over 25
years.
Clark
The Clark acquisition 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. This transaction represents the acquisition of
leasehold interests in four assisted living facilities as a result of entering
into a lease obligation. 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 acquisition involved no payment by
the Company and no goodwill was recorded since the total costs of acquiring the
facilities were borne by the REIT.
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 $9,554,000, 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 $4,100,000 will be made. Except for the initial
payment of $450,000 which has been recorded, the contingent payments will be
recorded as additional goodwill when the net operating income targets have been
achieved. The Company estimates that goodwill of approximately $3,093,000
(excluding future contingent payments) will be recorded for this acquisition and
amortized over 40 years.
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<PAGE> 35
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.
Gethsemane
The Gethsemane acquisition occurred on January 2, 1998 and involved 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
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 additional goodwill. The Company
estimates that goodwill of approximately $535,000 (excluding any contingent
payment) will be recorded 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
RECENT DIVESTITURE
THE COMPANY ACQUISITIONS PRO FORMA
ACTUAL PRO FORMA ADJUSTMENTS
----------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Patient services............................................................ $14,496 $ 853 $(656)(a)
Resident services........................................................... 2,998 1,843 0
Other revenues.............................................................. 1,644 71 0
------- ------ -----
Total revenues........................................................ 19,138 2,767 (656)
------- ------ -----
Expenses:
Facility operating expenses:
Salaries, wages and benefits.............................................. 6,844 1,187 (80)(a)
Other operating expenses.................................................. 7,648 771 (471)(a)
General and administrative.................................................. 2,679 0 0
Lease expense............................................................... 2,212 0 0
Depreciation and amortization expense....................................... 281 229 1(a)
Write-down of long-lived assets............................................. 0 0 0
------- ------ -----
Total expenses............................................................ 19,664 2,187 (550)
------- ------ -----
Income (loss) from operations................................................. (526) 580 (106)
Other income (expense):
Interest income............................................................. 113 0 0
Interest expense............................................................ (237) (774) 0
------- ------ -----
Income (loss) before taxes.................................................... (650) (194) (106)
Provision (benefit) for income taxes.......................................... 7 (78) (42)(a)
------- ------ -----
Net income (loss)............................................................. $ (657) $ (116) $ (64)
======= ====== =====
Pro forma net income (loss) per share......................................... $ (0.08)
=======
Shares used in computing pro forma loss per share............................. 7,832
=======
<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.............................................. 7,951 0 7,951
Other operating expenses.................................................. 7,948 0 7,948
General and administrative.................................................. 2,679 0 2,679
Lease expense............................................................... 2,212 0 2,212
Depreciation and amortization expense....................................... 511 0 511
Write-down of long-lived assets............................................. 0 0 0
------- ---- -------
Total expenses............................................................ 21,301 0 21,301
------- ---- -------
Income (loss) from operations................................................. (52) 0 (52)
Other income (expense):
Interest income............................................................. 113 0 113
Interest expense............................................................ (1,011) 990(c) (21)
------- ---- -------
Income (loss) before taxes.................................................... (950) 990 40
Provision (benefit) for income taxes.......................................... (380) 396(d) 16
------- ---- -------
Net income (loss)............................................................. $ (570) $ 594 $ 24
======= ==== =======
Pro forma net income (loss) per share......................................... $ (0.07) $ --(d-1)
======= =======
Shares used in computing pro forma loss per share............................. 7,832 6,902 14,734
======= ==== =======
</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
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 36(h) 71 35
Write-down of long-lived assets.......... 0 0 0 0 0 0 0
---- ----- ----- ---- ----- ----- ----
Total expenses......................... 431 32 463 476 36 512 481
---- ----- ----- ---- ----- ----- ----
Income (loss) from operations............. 41 (32) 9 261 (36) 225 224
Other income (expense):
Interest income.......................... 0 0 0 7 (7)(i) 0 4
Interest expense......................... (29) (124)(f) (153) (51) (200)(i) (251) (68)
---- ----- ----- ---- ----- ----- ----
Income (loss) before taxes................ 12 (156) (144) 217 (243) (26) 160
Provision (benefit) for income taxes...... 0 (58)(g) (58) 0 (10)(j) (10) 0
---- ----- ----- ---- ----- ----- ----
Net income (loss)......................... $ 12 $ (98) $ (86) $217 $(233) $ (16) $160
---- ----- ----- ---- ----- ----- ----
<CAPTION>
GETHSEMANE
-------------------------------- RECENT
PRO FORMA PRO FORMA PRO FORMA PRO FORMA ACQUISITIONS
ADJUSTMENTS SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL PRO FORMA
----------- --------- ------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Patient services......................... $ 0 $ 0 $853 $ 0 $ 853 $ 853
Resident services........................ 0 698 0 0 0 1,843
Other revenues........................... 0 7 0 0 0 71
----- ----- ---- ----- ----- -----
Total revenues......................... 0 705 853 0 853 2,767
----- ----- ---- ----- ----- -----
Expenses:
Facility operating expenses:
Salaries, wages and benefits........... 0 329 354 0 354 1,187
Other operating expenses............... 0 117 300 0 300 771
General and administrative............... 0 0 0 0 0 0
Lease expense............................ 0 0 0 0 0 0
Depreciation and amortization expense.... 28(k) 63 36 13(n) 49 229
Write-down of long-lived assets.......... 0 0 0 0 0 0
----- ----- ---- ----- ----- -----
Total expenses......................... 28 509 690 13 703 2,187
----- ----- ---- ----- ----- -----
Income (loss) from operations............. (28) 196 163 (13) 150 580
Other income (expense):
Interest income.......................... (4)(l) 0 0 0 0 0
Interest expense......................... (157)(l) (225) (60) (85)(o) (145) (774)
----- ----- ---- ----- ----- -----
Income (loss) before taxes................ (189) (29) 103 (98) 5 (194)
Provision (benefit) for income taxes...... (12)(m) (12) 0 2(p) 2 (78)
----- ----- ---- ----- ----- -----
Net income (loss)......................... $(177) $ (17) $103 $(100) $ 3 $ (116)
----- ----- ---- ----- ----- -----
</TABLE>
36
<PAGE> 38
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)
6,039,000 of the 7,000,000 shares to be issued in the Offering, the net proceeds
of which will be used for the repayment of debt 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................... 9,554 10.5% 251
Northridge Bridge Financing............... 8,549 10.5% 225
Gethsemane Bridge Financing............... 5,528 10.5% 145
----
Total pro forma adjustment........... $990
====
</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............... 7,832
Shares utilized from offering proceeds to repay debt............... 6,039
Shares issued upon conversion of Series A Preferred Stock.......... 863
------
14,734
Pro forma net income............................................... $ 24
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.
37
<PAGE> 39
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........................................... $ 52
Seller's depreciation............................................... (35)
----
17
Goodwill amortization for three months ($3,093/40 years/4
quarters)......................................................... 19
----
Net adjustment...................................................... $ 36
====
</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 $9,554,000 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>
38
<PAGE> 40
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.......................................... $ 46
Seller's depreciation.............................................. (36)
----
10
Annual goodwill amortization ($535)/40 years/4 quarters)........... 3
----
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%.
39
<PAGE> 41
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PHARMACY
DIVESTITURE
THE COMPANY RECENT PRO FORMA
ACTUAL ACQUISITIONS ADJUSTMENTS
----------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Patient services........................................................ $41,616 $ 13,294 $(2,305)(a)
Resident services....................................................... 6,778 10,834 0
Other revenues.......................................................... 1,086 470 (151)(a)
------- ------- -------
Total revenues.................................................... 49,480 24,598 (2,456)
------- ------- -------
Operating Expenses:
Facility operating expenses:
Salaries, wages and benefits.......................................... 19,186 9,934 (295)(a)
Other operating expenses.............................................. 20,727 8,928 (1,667)(a)
General and administrative expense...................................... 5,653 0 0
Lease expense........................................................... 5,417 2,481 (88)(a)
Depreciation and amortization expense................................... 693 1,012 5(a)
Write-down of long-lived assets......................................... 1,591 0 0
------- ------- -------
Total expenses.................................................... 53,267 22,355 (2,045)
------- ------- -------
Income (loss) from operations............................................. (3,787) 2,243 (411)
Other income (expense):
Interest income......................................................... 265 0 0
Interest expense........................................................ (917) (3,162) 0
------- ------- -------
Income (loss) before taxes................................................ (4,439) (919) (411)
Provision (benefit) for income taxes...................................... 53 (371) (164)(a)
------- ------- -------
Net income (loss)......................................................... $(4,492) $ (548) $ (247)
======= ======= =======
Pro forma net loss per share.............................................. $ (0.57)
=======
Shares used in computing pro forma loss per share......................... 7,806
=======
<CAPTION>
CONSOLIDATED
CONSOLIDATED OFFERING PRO FORMA AS
PRO FORMA ADJUSTMENTS ADJUSTED
------------ ----------- ------------
<S> <C<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
General and administrative expense...................................... 5,653 0 5,653
Lease expense........................................................... 7,810 0 7,810
Depreciation and amortization expense................................... 1,710 0 1,710
Write-down of long-lived assets......................................... 1,591 0 1,591
------- ------- -------
Total expenses.................................................... 73,577 0 73,577
------- ------- -------
Income (loss) from operations............................................. (1,955) 0 (1,955)
Other income (expense):
Interest income......................................................... 265 0 265
Interest expense........................................................ (4,079) 3,962(c) (117)
------- ------- -------
Income (loss) before taxes................................................ (5,769) 3,962 (1,807)
Provision (benefit) for income taxes...................................... (2,308) 1,585(d) (723)
------- ------- -------
Net income (loss)......................................................... $ (3,461) $ 2,377 $ (1,084)
======= ======= =======
Pro forma net loss per share.............................................. $ (0.44) $ (0.07) (d-1)
======= =======
Shares used in computing pro forma loss per share......................... 7,806 6,902 14,708
======= ======= =======
</TABLE>
40
<PAGE> 42
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
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>
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
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) 184 135 152(t) 287 142 109(w) 251
Write-down of long-lived
assets...................... 0 0 0 0 0 0 0 0 0
------ ----- ------ ------ ------ ------ ------ ------ ------
Total expenses............. 1,605 111 1,716 1,926 152 2,078 1,824 109 1,933
------ ----- ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations................... 375 (111) 264 873 (152) 721 716 (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) (820)(u) (1,003) (265) (633)(x) (898)
------ ----- ------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes.... 257 (606) (349) 707 (989) (282) 468 (759) (291)
Provision (benefit) for income
taxes........................ 0 (140)(s) (140) 0 (113)(v) (113) 0 (117)(y) (117)
------ ----- ------ ------ ------ ------ ------ ------ ------
Net income (loss).............$ 257 $(466) $ (209) $ 707 $(876) $ (169) $ 468 $(642) $ (174)
====== ===== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
GETHSEMANE
---------------------------------
PRO PRO RECENT
FORMA FORMA ACQUISITIONS
ACTUAL ADJUSTMENTS SUBTOTAL PRO FORMA
------- -------- --------- ------------
Revenues:
Patient services.............$2,876 $ 0 $ 2,876 $ 13,294
Resident services............ 0 0 0 10,834
Other revenues............... 1 0 1 470
------
Total revenues............. 2,877 0 2,877 24,598
------
Operating Expenses:
Facility operating expenses:
Salaries, wages and
benefits................... 1,227 0 1,227 9,934
Other operating expenses.... 1,054 0 1,054 8,928
General and administrative
expense..................... 0 0 0 0
Lease expense................ 0 0 0 2,481
Depreciation and amortization
expense..................... 120 76 (z) 196 1,012
Write-down of long-lived
assets...................... 0 0 0 0
------
Total expenses............. 2,401 76 2,477 22,355
------
Income (loss) from
operations................... 476 (76) 400 2,243
Other income (expense):
Interest income.............. 0 0 0 0
Interest expense............. (191) (389) (aa) (580) (3,162)
------
Income (loss) before taxes.... 285 (465) (180) (919)
Provision (benefit) for income
taxes........................ 0 (72) (bb) (72) (371)
------
Net income (loss).............$ 285 $ (393) $ (108) $ (548)
======
</TABLE>
41
<PAGE> 43
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)
6,039,000 of the 7,000,000 shares to be issued in the Offering, the net proceeds
of which will be used for the repayment of debt 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............................ 5,036 10.6% 535
Feltrop Bridge Financing...................... 5,842 10.5% 613
Butler Bridge Financing....................... 9,554 10.5% 1,003
Northridge Bridge Financing................... 8,549 10.5% 898
Gethsemane Bridge Financing................... 5,528 10.5% 580
------
Total pro forma adjustment.......... $3,962
======
</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)......... 7,806
Shares utilized from offering proceeds to repay debt............... 6,039
Shares issued upon conversion of Series A Preferred Stock.......... 863
-------
14,708
Pro forma net loss................................................. $(1,084)
Pro forma net loss per share....................................... $ (0.07)
</TABLE>
42
<PAGE> 44
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) net of a $16,000 reduction of lease
expense representing amortization of straight-line lease liability (See
note 1(m) to the consolidated financial statements of the Company) for
the period from July 1, 1996 through August 31, 1996, the date of
acquisition (($41,385,000 x 10.71%/360 days x 62 days) - $16,000 =
$747,000).
(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 $1,851,000 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.................................. 31
Goodwill amortization................................................ 12
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.
43
<PAGE> 45
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%.
44
<PAGE> 46
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 ($3,093/40 years)...................... 77
-----
Net adjustment...................................................... $152
=====
</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 $9,554,000 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%.
45
<PAGE> 47
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................................................. $183
Seller's depreciation............................................... (120)
-----
63
Annual goodwill amortization ($535/40 years)........................ 13
-----
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%.
46
<PAGE> 48
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PHARMACY
RECENT DIVESTITURE
THE COMPANY ACQUISITIONS PRO FORMA CONSOLIDATED
ACTUAL PRO FORMA ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................... $ 2,362 $ 0 $ 4,700(a) $ 7,062
Accounts receivable.......................................... 7,774 0 0 7,774
Deferred costs............................................... 2,373 0 0 2,373
Prepaid expenses and other current assets.................... 1,938 0 (2)(a) 1,936
Assets held for sale......................................... 4,801 0 (1,802)(a) 2,999
------- ------- ------- -------
Total current assets..................................... 19,248 0 2,896 22,144
Due to/from affiliates......................................... 0 0 0 0
Investments in subsidiaries.................................... 0 0 0 0
Restricted investments......................................... 2,594 0 0 2,594
Property and equipment, net.................................... 4,841 20,946 0 25,787
Goodwill, net.................................................. 2,290 8,527 0 10,817
Other assets................................................... 2,651 0 0 2,651
------- ------- ------- -------
Total assets $31,624 $ 29,473 $ 2,896 $ 63,993
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and short-term
borrowings................................................. $ 98 $ 29,473 $ 0 29,571
Accounts payable............................................. 4,858 0 0 4,858
Accrued payroll.............................................. 1,154 0 0 1,154
Accrued expenses............................................. 2,172 0 0 2,172
------- ------- ------- -------
Total current liabilities................................ 8,282 29,473 0 37,755
Long-term debt................................................. 8,354 0 0 8,354
Straight-line lease liability.................................. 3,166 0 0 3,166
Deferred revenues.............................................. 604 0 0 604
Other liabilities.............................................. 70 0 0 70
------- ------- ------- -------
Total liabilities........................................ 20,476 29,473 0 49,949
------- ------- ------- -------
REDEEMABLE STOCK
Series B....................................................... 13,875 0 0 13,875
------- ------- ------- -------
STOCKHOLDERS' EQUITY
Preferred A stock.............................................. 1 0 0 1
Common stock................................................... 5 0 0 5
Additional paid-in capital..................................... 3,335 0 0 3,335
Accumulated earnings (deficit)................................. (6,068) 0 2,896(a) (3,172)
------- ------- ------- -------
Total stockholders' equity................................... (2,727) 0 2,896 169
------- ------- ------- -------
Total liabilities and stockholders' equity............... $31,624 $ 29,473 $ 2,896 63,993
======= ======= ======= =======
<CAPTION>
CONSOLIDATED
OFFERING PRO FORMA
ADJUSTMENTS ELIMINATIONS AS ADJUSTED
----------- ------------ ------------
<S> <C><C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................... $ 5,846(b) $ 0 $ 12,908
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..................................... 5,846 0 27,990
Due to/from affiliates......................................... 0 0 0
Investments in subsidiaries.................................... 29,473(b) (29,473) 0
Restricted investments......................................... 0 0 2,594
Property and equipment, net.................................... 0 0 25,787
Goodwill, net.................................................. 0 0 10,817
Other assets................................................... 0 0 2,651
------- ------- -------
Total assets $ 35,319 $(29,473) $ 69,839
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and short-term
borrowings................................................. $ (29,514) $ 0 $ 57
Accounts payable............................................. 0 0 4,858
Accrued payroll.............................................. 0 0 1,154
Accrued expenses............................................. 0 0 2,172
------- ------- -------
Total current liabilities................................ (29,514) 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........................................ (37,624) 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..................................... 86,808(b) (29,473) 60,670
Accumulated earnings (deficit)................................. 0 0 (3,172)
------- ------- -------
Total stockholders' equity................................... 86,818 (29,473) 57,514
------- ------- -------
Total liabilities and stockholders' equity............... $ 35,319 $(29,473) $ 69,839
======= ======= =======
</TABLE>
47
<PAGE> 49
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>
GETHSEMANE
-------------------------------- RECENT
PRO FORMA PRO FORMA PRO FORMA ACQUISITIONS
SUBTOTAL ACTUAL ADJUSTMENTS SUBTOTAL PRO FORMA
--------- ------ ----------- --------- -----------
<S> <<C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.............. $ 0 $ 25 $ (25)(i) $ 0 $ 0
Accounts receivable........ 0 205 (205)(i) 0 0
Deferred costs............. 0 0 0 0 0
Prepaid expenses and other
current assets........... 0 107 (107)(i) 0 0
Assets held for sale....... 0 0 0 0 0
------ -------
Total current assets... 0 337 (337) 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 3,093(f) 3,093 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 $ 5,715 $ 9,554 $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 $ 9,288(e) $ 9,554 $ 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 9,146 9,554 308 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 6,862 9,554 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 $ 5,715 $ 9,554 $3,764 $ 4,785
====== ====== ====== ====== ======= ====== ====== =======
<CAPTION>
Due to/from affiliates....... 0 0 0 0 0
<S> <<C> <C> <C> <C> <C>
Investments in
subsidiaries............... 0 0 0 0 0
Restricted investments....... 0 0 0 0 0
Property and equipment,
net........................ 5,200 3,902 1,091(j) 4,993 20,946
Goodwill, net................ 3,349 0 535(j) 535 8,527
Other assets................. 0 11 (11)(i) 0 0
------ -------
Total assets........... $ 8,549 $4,250 $ 1,278 $ 5,528 $29,473
====== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current portion of
long-term debt and short-
term borrowings.......... $ 8,549 $ 456 $ 5,072(i) $ 5,528 $29,473
Accounts payable........... 0 269 (269)(i) 0 0
Accrued payroll............ 0 121 (121)(i) 0 0
Accrued expenses........... 0 18 (18)(i) 0 0
------ -------
Total current
liabilities........... 8,549 864 4,664 5,528 29,473
Long-term debt............... 0 2,356 (2,356)(i) 0 0
Straight-line lease
liability.................. 0 0 0 0 0
Deferred revenues............ 0 0 0 0 0
Other liabilities............ 0 343 (343)(i) 0 0
------ -------
Total liabilities...... 8,549 3,563 1,965 5,528 29,473
------ -------
REDEEMABLE STOCK
Series B..................... 0 0 0 0 0
------ -------
STOCKHOLDERS' EQUITY
Preferred A stock............ 0 0 0 0 0
Common stock................. 0 10 (10)(j) 0 0
Additional paid-in capital... 0 240 (240)(j) 0 0
Accumulated earnings
(deficit).................. 0 437 (437)(j) 0 0
------ -------
Total stockholders'
equity................... 0 687 (687) 0 0
------ -------
Total liabilities and
stockholders'
equity................ $ 8,549 $4,250 $ 1,278 $ 5,528 $29,473
====== =======
</TABLE>
48
<PAGE> 50
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 $1,851,000 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 $43,470,000 from the sale of
7,000,000 shares of common stock at $7.00 per share less assumed
offering expenses of $5,530,000. The assumed use of proceeds is to
repay long-term debt of $8,151,000 and to repay indebtedness of
$29,473,000 incurred to fund the purchase price of four completed
acquisitions; 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
$9,554,000 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
49
<PAGE> 51
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................................................ $ 3,093
======
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 and to record the short-term
borrowings incurred to finance the purchase price of $8,549,000.
(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 and to record the short-term
borrowings incurred to finance the purchase price of $5,528,000.
50
<PAGE> 52
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 4,465
Furniture and equipment............................... 5 years 356
-------
Estimated fair value of assets at acquisition date.... 4,993
Net fixed assets of seller at September 30, 1997...... (3,902)
-------
Property and equipment................................ $ 1,091
=======
Goodwill.............................................. $ 535
=======
Stockholders' equity.................................. $ (687)
=======
</TABLE>
The estimated fair value was based on a valuation prepared by an
independent appraiser.
51
<PAGE> 53
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, Northridge in December 1997 and Gethsemane in January 1998. The Company
completed the Pharmacy Divestiture in October 1997. The Company has also leased
two facilities and has designed, developed and opened 10 of its signature
assisted living facilities. As of February 2, 1998, the Company operated a total
of 34 assisted living facilities, 13 skilled nursing facilities and four
independent living facilities in Pennsylvania, Missouri, Arkansas, North
Carolina and Wisconsin, as well as a home health care agency in Missouri and a
rehabilitation therapy operation in Pennsylvania. Assuming completion of the
planned divestiture of the Company's assisted living facilities in Wisconsin,
the Company will own nine and lease 35 senior living and health care facilities
in Pennsylvania, Missouri, Arkansas and North Carolina with a capacity for 1,565
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 -- Planned Divestiture" and "Unaudited Pro
Forma Financial Information."
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
52
<PAGE> 54
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.
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
53
<PAGE> 55
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
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
54
<PAGE> 56
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 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
55
<PAGE> 57
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, 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
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<PAGE> 58
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. The Company has designed, developed and opened 10 of its
signature assisted living facilities to date. 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 24 assisted living
facilities with a capacity for 1,119 residents, 13 skilled nursing facilities
with a capacity for 1,294 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). 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 -- 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 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
57
<PAGE> 59
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 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
58
<PAGE> 60
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 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
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<PAGE> 61
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 three facilities
in northeast Pennsylvania (169 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.
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.
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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.
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.
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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 DECEMBER 31, 1997
- --------------------------------------------------------- ---------- --- ----- --- ------------------
<S> <C> <C> <C> <C> <C>
CURRENTLY OPERATED:
MISSOURI
Dixon
Balanced Care, Dixon(2).............................. L -- 60 -- 83%
Hermitage
Balanced Care, Hermitage(2).......................... L -- 120 -- 79%
Lebanon
Balanced Care, Lebanon North(2)...................... L -- 180 -- 78%
Balanced Care, Lebanon South(2)...................... L 12 106 -- 93%
The Terraces at Lebanon South(2)..................... L -- -- 31 71%
Nixa
Balanced Care, Nixa(2)............................... L -- 82 -- 100%
The Terraces at Nixa(2).............................. L -- -- 30 93%
Republic
Balanced Care, Republic(2)........................... O -- 127 -- 83%
Springfield
Balanced Care, Springfield East(2)................... L -- 120 -- 95%
The Terraces at Springfield East(2).................. L -- -- 31 81%
Balanced Care, Springfield West I(2)................. L -- 180 -- 92%
Balanced Care, Springfield West II(2)................ L -- 90 -- 76%
The Terraces at Springfield(2)....................... L 34 -- -- 82%
Nevada
Balanced Care, Nevada(2)............................. O -- 60 -- 93%
The Terraces at Nevada(2)............................ L -- -- 28 96%
The Terraces of Balanced Care(3)..................... L 27 -- -- 78%
The Terraces of Balanced Care(3)..................... L 25 -- -- 84%
Butler
The Terraces of Balanced Care(3)..................... L 25 -- -- 80%
Lamar
The Terraces of Balanced Care(4)..................... L 25 -- -- 92%
----- ----- ---
Subtotal:........................................ 148 1,125 120
----- ----- ---
PENNSYLVANIA
Allison Park
Outlook Pointe(TM) at Allison Park(5)................ L 95 -- -- 71%
State College
Outlook Pointe(TM) at State College(6)............... L 54 -- -- 69%
Altoona
Outlook Pointe(TM) at Altoona(7)(8)(9)............... L 54 -- -- --
Harrisburg
Outlook Pointe(TM) at Harrisburg(8)(9)(17)........... L 57 -- -- --
Reading
Outlook Pointe(TM) at Reading(8)(9)(18).............. L 64 -- -- --
Bloomsburg
Bloomsburg Manor(10)................................. L 69 -- -- 100%
Darlington
Feltrop's Personal Care Home(11)..................... O 92 -- -- 86%
Kingston
Kingston Manor(10)................................... L 78 -- -- 94%
Kingston Health Care Center(10)...................... L -- 65 -- 88%
Peckville
Mid Valley Manor(10)................................. L 71 -- -- 96%
Blakely Pine Health Care Center(10).................. L -- 38 -- 100%
Old Forge
Old Forge Manor(10).................................. L 49 -- -- 96%
Wyoming
West View Manor(10).................................. L 50 -- -- 100%
Butler
Silver Haven Summit(12).............................. O 36 -- -- 92%
Sarver
Sterling Care of Sarver(12).......................... O 41 -- 4 88%
</TABLE>
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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 DECEMBER 31, 1997
- --------------------------------------------------------- ---------- --- ----- --- ------------------
<S> <C> <C> <C> <C> <C>
Saxonburg
Sterling Care of Saxonburg(12)....................... O 108 -- 16 80%
Bloomsburg
Gethsemane Retirement Community and Rehabilitation O -- 66 -- 98%
Center(13).........................................
Millville
Gethsemane Assisted Living Community(13)(14)......... O 51 -- -- 65%
----- ----- ---
Subtotal:........................................ 969 169 20
----- ----- ---
ARKANSAS
Sherwood
Outlook Pointe(TM) at Sherwood(8)(9)................. L 50 -- 7 --
Mountain Home
Outlook Pointe(TM) at Mountain Home(8)(9)............ L 57 -- -- --
Maumelle
Outlook Pointe(TM) at Maumelle(8)(9)................. L 50 -- 7 --
Pocohontas
Outlook Pointe(TM) at Pocohontas(8)(9)............... L 57 -- -- --
Blytheville
Outlook Pointe(TM) at Blytheville(9)(15)............. L 57 -- -- --
----- ----- ---
Subtotal:........................................ 271 0 14
----- ----- ---
OHIO
Ravenna
Outlook Pointe(TM) at Ravenna(8)(9)(19).............. L 60 -- -- --
NORTH CAROLINA
Raleigh
Northridge Retirement Center(16)..................... O 117 -- -- 97%
----- ----- ---
Total.......................................... 1,565 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. The occupancy rate reflects such recent opening.
(7) Opened in October 1997.
(8) The occupancy rate is not meaningful as the facilities opened in September
and October 1997.
(9) In the third quarter of fiscal 1998, the Company sold certain of the assets
and assigned its leasehold interest in this facility to an Operator/Lessee
(as defined herein). The Company manages the facility for the
Operator/Lessee and has an option to acquire the stock of the
Operator/Lessee. See "Business -- Development."
(10) Acquired January 1997.
(11) Acquired October 1997.
(12) Acquired in October 1997. A 29-bed expansion at Sterling Care of Saxonburg
was completed and opened in early December 1997.
(13) Acquired in January 1998.
(14) Opened in March 1997. The occupancy rate reflects such recent opening.
(15) Opened in November 1997.
(16) Acquired in December 1997.
(17) Opened in December 1997.
(18) Opened in February 1998.
(19) Opened in January 1998.
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
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<PAGE> 65
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 -- 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 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 Divestiture provided 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. The Company has designed, developed
and opened 10 of its signature assisted living facilities to date. 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
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<PAGE> 66
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.
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
the third quarter of fiscal 1998, the Company sold certain assets and assigned
the leasehold interests of ten of its operating subsidiaries to Operator/Lessees
for an aggregate price of approximately $2,160,000, which does not represent a
significant disposition of assets. The Company has entered into to management
agreements with the Operator/Lessees and the Company has 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
Hilliard...................................... 106 Manage(1) Mar. 1998 June 1999
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) Sept. 1998 Dec. 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: 902
-----
</TABLE>
65
<PAGE> 67
<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>
FLORIDA
Tallahassee................................... 80 Manage(1) Sept. 1998 Dec. 1999
PENNSYLVANIA
Loyalsock..................................... 72 Manage(1) Sept. 1998 Sept. 1999
Dillsburg..................................... 66 Manage(1) Mar. 1998 Dec. 1998
Hampden....................................... 106 Manage(1) Commenced Dec. 1998
Scranton...................................... 72 Manage(1) Commenced Sept. 1998
Chippewa...................................... 66 Manage(1) Commenced Dec. 1998
Lewistown..................................... 72 Manage(1) Commenced June 1998
Mid-Valley.................................... 40 Manage(1) Commenced Sept. 1998
Lewisburg..................................... 72 Manage(1) Commenced Sept. 1998
Hazelton...................................... 72 Manage(1) Sept. 1998 Mar. 1999
Bridgeville................................... 106 Manage(1) Mar. 1998 June 1999
Shippensburg.................................. 66 Manage(1) Mar. 1998 Dec. 1998
Berwick....................................... 72 Manage(1) Commenced Dec. 1998
York.......................................... 66 Manage(1) Mar. 1998 Mar. 1999
Bangor........................................ 72 Manage(1) Sept. 1998 June 1999
--------
Subtotal: 1,020
--------
TENNESSEE
Jackson....................................... 66 Manage(1) Commenced Dec. 1998
Bristol....................................... 66 Manage(1) June 1998 June 1999
Knoxville..................................... 106 Manage(1) Sept. 1998 Sept. 1999
Bartlett...................................... 66 Manage(1) June 1998 June 1999
Murfreesboro.................................. 66 Manage(1) Mar. 1998 Mar. 1999
Johnson City.................................. 66 Manage(1) Sept. 1998 Sept. 1999
Oak Ridge..................................... 66 Manage(1) Sept. 1998 Sept. 1999
Kingsport..................................... 66 Manage(1) June 1998 June 1999
--------
Subtotal: 568
--------
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
Evansville.................................... 106 Manage(1) Mar. 1998 June 1999
Anderson...................................... 66 Manage(1) Commenced Mar. 1999
--------
Subtotal: 172
MARYLAND
Hagerstown.................................... 80 Manage(1) June 1998 June 1999
WEST VIRGINIA
Martinsburg................................... 66 Manage(1) Commenced Dec. 1998
--------
Total: 3,204
=========
</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 sold certain of the assets and assigned its leasehold interests
in this facility in the third quarter of fiscal 1998. The Company manages
the facility for the Operator/Lessee and has 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 24 assisted living facilities with a capacity
for 1,119 residents, 13 skilled nursing facilities with a capacity for 1,294
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
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<PAGE> 68
and the Pharmacy). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- 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 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.
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<PAGE> 69
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 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
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<PAGE> 70
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.
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<PAGE> 71
COMPETITION
The Company is one of the 50 largest providers of assisted living services
in the United States in terms of resident capacity, according to the Largest
Providers Annual Survey 1997, published by KPMG Peat Marwick LLP. 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.
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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 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"
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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 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
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<PAGE> 74
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 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.
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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, 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 December 31, 1997, the Company had approximately 2,000 employees,
including approximately 1,600 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> 77
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> 78
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 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> 79
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.
Project Financing Committee. The members of the Project Financing
Committee, which was formed on December 18, 1997, are currently Brad E.
Hollinger, Kenneth F. Barber and Edward R. Stolman. The Project Financing
Committee was formed to take the actions necessary to finalize the financial
closings of those projects previously authorized and approved by the Board of
Directors.
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> 80
<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 COMPENSATION LONG-TERM
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 -- Mergers and
Acquisitions
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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<PAGE> 82
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> 83
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 preceding 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> 84
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 5.57% $2.00 08/01/01 $240,855 $304,763
37,500 5.57 6.67 06/25/02 80,637 166,062
William T. McCarthy... 3,750 0.56 2.00 08/01/01 24,085 30,476
15,000 2.23 6.67 06/25/02 32,255 66,425
Russell A. DiGilio.... 3,750 0.56 2.00 08/01/01 24,085 30,476
15,000 2.23 6.67 06/25/02 32,255 66,425
Robert J. Sutton...... 15,000 2.23 2.00 08/01/01 96,342 121,905
10,500 1.56 6.67 06/25/02 22,578 46,497
Kurt A. Meyer......... 3,750 0.56 2.00 08/01/01 24,085 30,476
10,500 1.56 6.67 06/25/02 22,576 46,497
</TABLE>
- ------------
(1) Based on an assumed initial public offering price of $7.00 per share, and
assuming that all such options are currently exercisable.
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<PAGE> 85
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.
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> 86
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
85
<PAGE> 87
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
approximately $4,500,000. 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 with 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
$8,161,000 which was funded with mortgage financing from Meditrust, and which is
expected to be repaid with proceeds from the Offering.
86
<PAGE> 88
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........................... 640,538 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%
735 Markham Court
Lewisberry, PA 17339
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............................ 728,813(4) 8.4% 4.6%
c/o Hakman & Company, Inc.
1350 Bayshore Highway, Suite 300
Burlingame, CA 94010
</TABLE>
87
<PAGE> 89
<TABLE>
<CAPTION>
PERCENT OWNED
BENEFICIALLY
-----------------------
NUMBER OF PRIOR TO AFTER
NAME SHARES OWNED BENEFICIALLY OFFERING OFFERING
- ----------------------------------------- ------------------------- -------- --------
<S> <C> <C> <C>
Brad E. Hollinger........................ 787,688(5) 9.1% 5.0%
2850 Ford Farm Road
Mechanicsburg, PA 17055
John M. Brennan.......................... 1,274,551(6) 14.4% 8.0%
Brennan Holdings
11212 Mann Road
Mooresville, IN 46158
Kenneth F. Barber........................ 67,500(7) * *
1540 Fox Hollow Circle
Mechanicsburg, PA 17055
William R. Foster, Sr.................... 782,412(8) 9.0% 5.0%
Foster Health Care Group
426 South Jefferson
Springfield, MO 65801-2351
George H. Strong......................... 41,250(9) * *
946 Naveskink Road
Locust, NJ 07760
David L. Goldsmith....................... 45,000(10) * *
Robertson, Stephens & Company
555 California Street
San Francisco, CA 94104
Edward R. Stolman........................ 11,250(11) * *
8189 Sonoma Mountain Road
Glen Ellen, CA 94552
William T. McCarthy...................... 38,437(12) * *
386 Penn Road
Wynnewood, PA 19096
Robert J. Sutton......................... 437,588(13) 5.1% 2.8%
1055 Country Club Road
Camp Hill, PA 17011
Russell A. DiGilio....................... 38,437(14) * *
115 Cambridge Road
Landenberg, PA 19096
Kurt A. Meyer............................ 55,312(15) * *
253 Indian Creek Road
Mechanicsburg, PA 17055
David K. Barber.......................... 648,038(16) 7.5% 4.1%
111 Brindle Road
Mechanicsburg, PA 17055
Directors and officers of the Company as
a
group (18 persons)..................... 4,711,738(17) 52.4% 29.5%
</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> 90
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 15,000 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 15,000 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 15,000 shares held subject to stock options.
(9) Includes 3,750 shares held subject to stock options.
(10) 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 15,000 shares held subject to stock options.
(11) Includes 11,250 shares held subject to stock options.
(12) Includes 38,437 shares held subject to stock options.
(13) Includes 3,750 shares held subject to stock options.
(14) Mr. DiGilio may be deemed to have an indirect pecuniary interest in Mr.
Hollinger's interest in 5,250 shares owned by HCO. Also includes 38,437
shares held subject to stock options.
(15) 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.
(16) 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.
(17) Includes 138,000 shares held subject to warrants and 215,623 shares held
subject to stock options.
89
<PAGE> 91
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 15,645,343 shares of Common Stock
outstanding upon completion of the Offering. As of September 30, 1997, warrants
and options to purchase an aggregate of 1,951,292 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> 92
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
15,645,343 shares of Common Stock (16,695,343 shares outstanding if the
Underwriters' over-allotment option is exercised in full) including shares of
Common Stock beneficially owned by existing stockholders. The 7,000,000 shares
of Common Stock to be sold pursuant to the Offering (8,050,000 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, 45,281 shares of Common Stock owned by
91
<PAGE> 93
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 156,453 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 American Stock Exchange 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.
92
<PAGE> 94
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............................................................... 7,000,000
=======
</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 1,050,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 7,000,000 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
7,000,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 7,000,000
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 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,
93
<PAGE> 95
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 American Stock Exchange or otherwise
and, if commenced, may be discontinued at any time.
Certain investment funds managed by BancAmerica Robertson Stephens own
approximately 17.0% of the Common Stock (9.4% after giving effect to the
Offering) excluding any exercise of the Underwriters' over-allotment option).
94
<PAGE> 96
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 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 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.
95
<PAGE> 97
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.
96
<PAGE> 98
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
BALANCED CARE CORPORATION:
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 (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
(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> 99
INDEX TO FINANCIAL STATEMENTS--CONTINUED
<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 (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
(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> 100
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Balanced Care Corporation
We have audited the consolidated balance sheets of Balanced Care
Corporation 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 as of June 30, 1997 and 1996 and the results of its operations,
and its 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 January 2, 1998
F-3
<PAGE> 101
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...................................... 4,801 4,801 --
------- ------- ------
Total current assets............................... 19,248 22,395 1,774
Restricted investments...................................... 2,594 1,825 279
Property and equipment, net................................. 4,841 4,115 4,897
Goodwill, net............................................... 2,290 2,219 315
Other assets................................................ 2,651 2,463 27
------- ------- ------
Total assets....................................... $ 31,624 $33,017 $ 7,292
======= ======= ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
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> 102
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED JUNE
SEPTEMBER 30, 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...... 6,844 1,851 19,186 320 --
Other operating expenses
(including related parties of
$751 in 1997)................... 7,648 1,765 20,727 179 --
General and administrative expense
(including related parties of
$1,210 in 1997)................... 2,679 747 5,653 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) $ (0.57) $(0.30) $ --
======= ======= ======= ======= =======
Shares used in computing pro forma
loss per share.................... 7,832 7,806 7,806 2,940 2,791
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 103
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> 104
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> 105
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 2-37 years. Expenditures for maintenance and repairs necessary to maintain
F-8
<PAGE> 106
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 $123,000 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. This comparison is performed on a facility by
facility basis. 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> 107
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> 108
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 $7.00). 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> 109
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.......................................... (494) (494) (494)
----- ----- -----
Weighted average common and common equivalent shares used in the
computation of pro forma net loss per common share................ 7,806 2,940 2,791
===== ===== =====
</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 $9.50).
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net loss........................................................................... $(4,492)
Interest savings on debt retirement................................................ 806
-------
Adjusted net loss.................................................................. $(3,686)
=======
Weighted average common and common equivalent shares used in the computation of pro
forma net loss per common share.................................................. 7,806
Incremental shares issued for retirement of debt................................... 1,160
-------
Adjusted shares.................................................................... 8,966
=======
Supplementary net loss per common share............................................ $ (.41)
=======
</TABLE>
2. ACQUISITIONS
In May 1997, the Company completed the Clark acquisition of leasehold
interests in 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 leasehold interest in an
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. The Company entered into a lease obligation but made no payments and
recorded no goodwill in this acquisition since the total costs of acquiring the
facilities were borne by Capstone.
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 $1,800,000 in cash 187,500 shares
of its common stock valued at $1.33 per share for the
F-12
<PAGE> 110
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations of the existing facilities and the rights to seven early stage
development projects. The agreement provides for additional cash payments of up
to $500,000. These payments are to be made in five installments of $100,000 when
financing closes for each of the first five development projects. Goodwill of
approximately $1,800,000 was recorded for this acquisition, which is being
amortized over 25 years. When made, the contingent payments will be recorded as
additional goodwill and 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 $1,851,000 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 which commenced in
August 1996 and has four 6-year renewal options. This acquisition was accounted
for as a purchase. The notes payable were paid in January 1997. 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>
F-13
<PAGE> 111
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 2,059 4,081
Fixed and moveable equipment.......................... 3-20 yrs 2,119 671
------
4,596 4,946
Less: accumulated depreciation........................ (481) (49)
------
$4,115 $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%
F-14
<PAGE> 112
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-15
<PAGE> 113
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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. In addition, the stock of certain
of the Company's subsidiaries is pledged as collateral for certain of its lease
and debt obligations. 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>
F-16
<PAGE> 114
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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............................... $ (365) $ 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................................................. (2,092) (355)
Valuation allowance...................................................... 2,092 355
------- -----
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 $2,092,000 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.
F-17
<PAGE> 115
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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) $(0.58) $(0.31)
Pro forma $(4,511) $(910) $(0.58) $(0.31)
</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> 116
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> 117
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. These letters of
intent represent arrangements whereby the REITs will fund development projects
or acquisitions and the Company will develop assisted living facilities for the
Owners or the Owners will acquire existing facilities identified by the Company
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 February 1998.
F-20
<PAGE> 118
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
$9,554,000, 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 $3,093,000 (excluding future contingent payments) will
be recorded for this acquisition and amortized over 40 years. A 29-bed addition
(the "Addition") which was completed in December 1997 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, which has been paid, (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. Except for the initial
payment of $450,000 which has been recorded, the 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.
On January 2, 1998, the Company acquired a 66-bed skilled nursing facility
(Gethsemane Retirement Community, Inc.--"GRCI") and a 51-bed assisted living
facility (Gethsemane Assisted Living, Inc.--"GALI"). The purchase price of
approximately $5,528,000, including transaction costs, for GRCI was paid in cash
and funded with bridge financing from Capstone at the prime rate plus 2%. The
Company estimates that goodwill of approximately $535,000 (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 goodwill.
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 $2,900,000 before tax effects will be recorded in the quarter
ending December 31, 1997.
F-21
<PAGE> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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 three 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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
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> 140
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> 141
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> 142
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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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> 178
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> 179
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> 180
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> 181
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> 182
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
(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> 183
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> 184
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> 185
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> 186
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> 187
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> 188
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, Inc. 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> 189
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> 190
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> 191
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> 192
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> 193
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> 194
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> 195
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> 196
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> 197
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> 198
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> 199
BALANCED CARE CORP LOGO
SENIOR CARE FOR LIFE
<PAGE> 200
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...................... $ 26,824
NASD Fee................................................................. 9,306
American Stock Exchange Listing Fee...................................... 50,000
Printing and Engraving Expenses.......................................... 540,000
Accounting Fees and Expenses............................................. 760,000
Legal Fees and Expenses.................................................. 490,000
Blue Sky Qualification Fees and Expenses................................. 20,000
Transfer Agent Fees and Expenses......................................... 10,000
Miscellaneous............................................................ 193,870
----------
Total.......................................................... $2,100,000
==========
</TABLE>
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> 201
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> 202
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
- ------- -------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
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> 203
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
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*
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*
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> 204
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
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*
4.13 Form of Common Stock Certificate*
5.1 Opinion of Kirkpatrick & Lockhart LLP as to the legality of the securities being
registered*
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*
10.12 Form of Meditrust Facility Lease Agreement, together with schedule*
10.13 Form of Meditrust Security Agreement, together with schedule*
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*
10.17 Form of Meditrust Guaranty, together with schedule*
10.18 Form of Meditrust Guaranty (Development), together with schedule*
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*
10.22 Form of Capstone Lease, together with schedule*
</TABLE>
II-5
<PAGE> 205
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
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*
10.27 Form of Capstone Guaranty, together with schedule*
10.28 Form of Capstone Indemnity Agreement, together with schedule*
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*
10.32 Form of Capstone Promissory Note, together with schedule*
10.33 Form of Capstone Mortgage, Security Agreement and Fixture Filing, together with
schedule*
10.34 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*
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*
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*
10.46 Form of Meditrust Facility Lease Agreement, together with schedule (filed herewith)
10.47 Form of Meditrust Leasehold Improvement Agreement, together with schedule (filed
herewith)
10.48 Form of Meditrust Promissory Note, together with schedule (filed herewith)
10.49 Form of Meditrust Guaranty, together with schedule (filed herewith)
10.50 Form of Meditrust Security Agreement, together with schedule (filed herewith)
</TABLE>
II-6
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
10.51 Form of Meditrust Assignment of Subleases and Rents, together with schedule (filed
herewith)
10.52 Form of Meditrust Environmental Indemnity Agreement, together with schedule (filed
herewith)
10.53 Form of Meditrust Collateral Assignment of Permits, Licenses, Approvals and
Contracts, together with schedule (filed herewith)
10.54 Form of Meditrust Option Agreement, together with schedule (filed herewith)
10.55 Form of Meditrust Shortfall Funding Agreement, together with schedule (filed
herewith)
10.56 Form of Meditrust Management Agreement, together with schedule (filed herewith)
10.57 Form of Meditrust Open-End Leasehold Mortgage and Security Agreement, together with
schedule (filed herewith)
10.58 Form of Meditrust Stock Subscription and Capitalization Agreement, together with
schedule (filed herewith)
10.59 Meditrust Escrow Agreement (filed herewith)
10.60 Form of Capstone Assignment and Security Agreement, together with schedule (filed
herewith)
10.61 Form of Capstone Assignment, Assumption and Amendment of Lease Agreement, together
with schedule (filed herewith)
10.62 Form of Capstone Consent and Subordination Agreement, together with schedule (filed
herewith)
10.63 Form of Capstone Subordination and Standstill Agreement, together with schedule
(filed herewith)
10.64 Form of Capstone Option Agreement, together with schedule (filed herewith)
10.65 Form of Capstone Shortfall Funding Agreement, together with schedule (filed herewith)
10.66 Form of Capstone Management Agreement, together with schedule (filed herewith)
10.67 Form of Capstone Open-End Leasehold Mortgage, together with schedule (filed herewith)
10.68 Form of Capstone Promissory Note, together with schedule (filed herewith)
10.69 Form of Capstone Right of First Refusal, together with schedule (filed herewith)
10.70 Form of Capstone Stock Pledge, together with schedule (filed herewith)
10.71 Form of Capstone Working Capital Assurance Agreement, together with schedule (filed
herewith)
10.72 Capstone Assignment and Assumption of Leases (filed herewith)
10.73 American Health Properties, Inc. ("AHP") Facility Agreement (filed herewith)
10.74 Form of AHP Development Agreement, together with schedule (filed herewith)
10.75 Form of AHP Shortfall Funding Agreement, together with schedule (filed herewith)
10.76 Form of AHP Environmental Indemnification Agreement, together with schedule (filed
herewith)
10.77 Form of AHP Management Agreement, together with schedule (filed herewith)
10.78 Form of AHP Non-Competition Agreement, together with schedule (filed herewith)
10.79 Form of AHP Right of First Offer, together with schedule (filed herewith)
10.80 Form of AHP Working Capital Assurance Agreement, together with schedule (filed
herewith)
</TABLE>
II-7
<PAGE> 207
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
10.81 Form of AHP Completion Guaranty and Agreement, together with schedule (filed
herewith)
10.82 Letter Agreement between Balanced Care Corporation and AHP dated as of February 6,
1998
10.83 Form of Meditrust Working Capital Assurance Agreement, together with schedule (filed
herewith)
10.84 Form of Meditrust Demand Promissory Note, together with schedule (filed herewith)
11.1 Statement Regarding Computation of Earnings Per Share (filed herewith)
11.2 Statement Regarding Computation of Supplementary Earnings Per Share (filed herewith)
21.1 Schedule of Subsidiaries*
23.1 Consent of Kirkpatrick & Lockhart LLP (included in opinion filed as Exhibit 5.1)*
23.2 Consent of KPMG Peat Marwick LLP (filed herewith)
23.3 Consents of Coopers & Lybrand LLP (filed herewith)
23.4 Consent of Baird, Kurtz & Dobson (filed herewith)
23.5 Consent of Snyder & Clemente (filed herewith)
23.6 Consent of Hodge, Steward & Company, P.A. (filed herewith)
24.1 Power of Attorney*
27.1 Financial Data Schedule 3 months 9/30/97*
27.2 Financial Data Schedule Y/E 6/30/97*
</TABLE>
- ------------
* Previously filed.
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,
II-8
<PAGE> 208
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.
(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-9
<PAGE> 209
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 February 10, 1998.
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, February 10, 1998
- ------------------------------------------ President and Chief Executive
Brad E. Hollinger Officer (Principal Executive
Officer) and a Director
/s/ PAUL A. KRUIS Chief Financial Officer February 10, 1998
- ------------------------------------------ (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 February 10, 1998
- ------------------------------------------
Mark S. Moore
Attorney-in-Fact
</TABLE>
<PAGE> 210
The Board of Directors and Stockholders
Balanced Care Corporation:
Under date of July 30, 1997 except for Notes 11 and 12 which are as of
January 2, 1998, we reported on the consolidated balance sheets of Balanced Care
Corporation 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. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedule in the
Registration Statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion such financial statement schedule when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KMPG Peat Marwick LLP
Philadelphia, Pennsylvania
July 30, 1997
S-1
<PAGE> 211
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
10.46 Form of Meditrust Facility Lease Agreement, together with schedule
10.47 Form of Meditrust Leasehold Improvement Agreement, together with schedule
10.48 Form of Meditrust Promissory Note, together with schedule
10.49 Form of Meditrust Guaranty, together with schedule
10.50 Form of Meditrust Security Agreement, together with schedule
10.51 Form of Meditrust Assignment of Subleases and Rents, together with
schedule
10.52 Form of Meditrust Environmental Indemnity Agreement, together with
schedule
10.53 Form of Meditrust Collateral Assignment of Permits, Licenses, Approvals
and Contracts, together with schedule
10.54 Form of Meditrust Option Agreement, together with schedule
10.55 Form of Meditrust Shortfall Funding Agreement, together with schedule
10.56 Form of Meditrust Management Agreement, together with schedule
10.57 Form of Meditrust Open-End Leasehold Mortgage and Security Agreement,
together with schedule
10.58 Form of Meditrust Stock Subscription and Capitalization Agreement,
together with schedule
10.59 Meditrust Escrow Agreement
10.60 Form of Capstone Assignment and Security Agreement, together with
schedule
10.61 Form of Capstone Assignment, Assumption and Amendment of Lease Agreement,
together with schedule
10.62 Form of Capstone Consent and Subordination Agreement, together with
schedule
10.63 Form of Capstone Subordination and Standstill Agreement, together with
schedule
10.64 Form of Capstone Option Agreement, together with schedule
10.65 Form of Capstone Shortfall Funding Agreement, together with schedule
10.66 Form of Capstone Management Agreement, together with schedule
10.67 Form of Capstone Open-End Leasehold Mortgage, together with schedule
10.68 Form of Capstone Promissory Note, together with schedule
10.69 Form of Capstone Right of First Refusal, together with schedule
10.70 Form of Capstone Stock Pledge, together with schedule
10.71 Form of Capstone Working Capital Assurance Agreement, together with
schedule
10.72 Capstone Assignment and Assumption of Leases
10.73 American Health Properties, Inc. ("AHP") Facility Agreement
10.74 Form of AHP Development Agreement, together with schedule
10.75 Form of AHP Shortfall Funding Agreement, together with schedule
10.76 Form of AHP Environmental Indemnification Agreement, together with
schedule
</TABLE>
<PAGE> 212
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
10.77 Form of AHP Management Agreement, together with schedule
10.78 Form of AHP Non-Competition Agreement, together with schedule
10.79 Form of AHP Right of First Offer, together with schedule
10.80 Form of AHP Working Capital Assurance Agreement, together with schedule
10.81 Form of AHP Completion Guaranty and Agreement, together with schedule
10.82 Letter Agreement between Balanced Care Corporation and AHP dated as of
February 6, 1998
10.83 Form of Meditrust Working Capital Assurance Agreement, together with
schedule
10.84 Form of Meditrust Demand Promissory Note, together with schedule
11.1 Statement Regarding Computation of Earnings Per Share
11.2 Statement Regarding Computation of Supplementary Earnings Per Share
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.
</TABLE>
<PAGE> 1
EXHIBIT 10.46
F A C I L I T Y L E A S E A G R E M E N T
MEDITRUST ACQUISITION CORPORATION II
(A Delaware Corporation)
as
Lessor
AND
BLACK BOX OF LEWISBURG, INC.
(A Delaware Corporation)
as
Lessee
Dated As Of December 31, 1997
(Lewisburg)
<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..........................................................................22
ARTICLE 3 RENT...........................................................................................23
3.1 Base Rent for Land, Leased Improvements, Related
Rights and Fixtures............................................................................23
3.2 Calculation and Payment of Additional Rent; Annual Reconciliation..............................24
3.2.1 Estimates and Payments................................................................24
3.2.2 Annual Statement......................................................................25
3.2.3 Deficits..............................................................................25
3.2.4 Overpayments..........................................................................25
3.2.5 Final Determination...................................................................25
3.2.6 Best Efforts to Maximize Gross Revenues...............................................25
3.3 Confirmation and Audit of Additional Rent......................................................26
3.3.1 Maintain Accounting Systems...........................................................26
3.3.2 Audit by Lessor.......................................................................26
3.3.3 Deficiencies and Overpayments.........................................................26
3.3.4 Survival..............................................................................27
3.4 Additional Charges.............................................................................27
3.5 [Intentionally Deleted]........................................................................27
3.6 Net Lease......................................................................................27
3.7 No Lessee Termination or Offset................................................................27
3.7.1 No Termination........................................................................27
3.7.2 Waiver................................................................................28
3.7.3 Independent Covenants.................................................................28
3.8 Abatement of Rent Limited......................................................................28
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 4 IMPOSITIONS; TAXES; UTILITIES; INSURANCE PAYMENTS..............................................28
4.1 Payment of Impositions.........................................................................28
4.1.1 Lessee To Pay.........................................................................28
4.1.2 Installment Elections.................................................................29
4.1.3 Returns and Reports...................................................................29
4.1.4 Refunds...............................................................................29
4.1.5 Protest...............................................................................29
4.2 Notice of Impositions..........................................................................30
4.3 Adjustment of Impositions......................................................................30
4.4 Utility Charges................................................................................30
4.5 Insurance Premiums.............................................................................30
4.6 Deposits.......................................................................................30
4.6.1 Lessor's Option.......................................................................30
4.6.2 Use of Deposits.......................................................................31
4.6.3 Deficits..............................................................................31
4.6.4 Other Properties......................................................................32
4.6.5 Transfers.............................................................................32
4.6.6 Security..............................................................................32
4.6.7 Return................................................................................32
4.6.8 Receipts..............................................................................32
ARTICLE 5 OWNERSHIP OF LEASED PROPERTY AND PERSONAL
PROPERTY; INSTALLATION, REMOVAL AND REPLACEMENT
OF PERSONAL PROPERTY;..........................................................................33
5.1 Ownership of the Leased Property...............................................................33
5.2 Personal Property; Removal and Replacement of
Personal Property..............................................................................33
5.2.1 Lessee To Equip Facility..............................................................33
5.2.2 Sufficient Personal Property..........................................................33
5.2.3 Removal and Replacement; Lessor's Option to
Purchase..............................................................................33
ARTICLE 6 SECURITY FOR LEASE OBLIGATIONS.................................................................34
6.1 Security for Lessee's Obligations; Permitted
Prior Security Interests.......................................................................34
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
6.1.1 Security..............................................................................34
6.1.2 Purchase-Money Security Interests, Receivables
and Equipment Leases..................................................................35
6.2 Guaranties.....................................................................................35
ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY; MANAGEMENT
AGREEMENTS.....................................................................................35
7.1 Condition of the Leased Property...............................................................35
7.2 Use of the Leased Property; Compliance;
Management.....................................................................................36
7.2.1 Obligation to Operate.................................................................36
7.2.2 Permitted Uses........................................................................36
7.2.3 Compliance with Insurance Requirements................................................36
7.2.4 No Waste..............................................................................37
7.2.5 No Impairment.........................................................................37
7.2.6 No Liens..............................................................................37
7.3 Compliance with Legal Requirements.............................................................37
7.4 Management Agreements..........................................................................37
ARTICLE 8 REPAIRS; RESTRICTIONS..........................................................................38
8.1 Maintenance and Repair.........................................................................38
8.1.1 Lessee's Responsibility...............................................................38
8.1.2 No Lessor Obligation..................................................................39
8.1.3 Lessee May Not Obligate Lessor........................................................39
8.2 Encroachments; Title Restrictions..............................................................40
ARTICLE 9 MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS..............................................................................40
9.1 Lessor's Approval..............................................................................40
9.2 General Provisions as to Capital Additions and
Certain Material Structural Work.............................................................41
9.2.1 No Liens..............................................................................41
9.2.2 Lessee's Proposal Regarding Capital Additions
and Material Structural Work........................................................41
9.2.3 Lessor's Options Regarding Capital Additions
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
and Material Structural Work........................................................41
9.2.4 Lessor May Elect to Finance Capital Additions
or Material Structural Work.........................................................41
9.3 Capital Additions Financed by Lessor...........................................................41
9.3.1 Lessee's Financing Request............................................................41
9.3.2 Lessor's General Requirements.........................................................42
9.3.3 Payment of Costs......................................................................44
9.4 General Limitations............................................................................44
9.5 Non-Capital Additions..........................................................................44
ARTICLE 10 WARRANTIES AND REPRESENTATIONS.......................................................................45
10.1 Representations and Warranties.................................................................45
10.1.1 Existence; Power; Qualification.......................................................45
10.1.2 Valid and Binding.....................................................................45
10.1.3 Single Purpose........................................................................45
10.1.4 No Violation..........................................................................45
10.1.5 Consents and Approvals................................................................46
10.1.6 No Liens or Insolvency Proceedings....................................................46
10.1.7 No Burdensome Agreements..............................................................46
10.1.8 Commercial Acts.......................................................................46
10.1.9 Adequate Capital, Not Insolvent.......................................................46
10.1.10 Not Delinquent........................................................................47
10.1.11 No Affiliate Debt.....................................................................47
10.1.12 Taxes Current.........................................................................47
10.1.13 Financials Complete and Accurate......................................................47
10.1.14 Pending Actions, Notices and Reports..................................................48
10.1.15 Compliance with Legal and Other Requirements..........................................48
10.1.16 No Action By Governmental Authority...................................................49
10.1.17 Property Matters......................................................................49
10.1.18 Third Party Payor Agreements..........................................................50
10.1.19 Rate Limitations......................................................................51
10.1.20 Free Care.............................................................................51
10.1.21 No Proposed Changes...................................................................51
10.1.22 ERISA.................................................................................51
10.1.23 No Broker.............................................................................51
10.1.24 No Improper Payments..................................................................51
</TABLE>
(iv)
<PAGE> 6
<TABLE>
<S> <C> <C>
10.1.25 Nothing Omitted.......................................................................52
10.1.26 No Margin Security....................................................................52
10.1.27 No Default............................................................................52
10.1.28 Principal Place of Business...........................................................52
10.1.29 Labor Matters.........................................................................52
10.1.30 Intellectual Property.................................................................53
10.1.31 Management Agreements.................................................................53
10.1.32 [Intentionally Deleted]...............................................................53
10.1.33 Working Capital Loan Documents........................................................53
10.2 Continuing Effect of Representations and Warranties............................................53
ARTICLE 11 FINANCIAL AND OTHER COVENANTS........................................................................54
11.1 Status Certificates............................................................................54
11.2 Financial Statements; Reports; Notice and Information..........................................54
11.2.1 Obligation to Furnish.................................................................54
11.2.2 Responsible Officer...................................................................58
11.2.3 No Material Omission..................................................................58
11.2.4 Confidentiality.......................................................................58
11.3 Financial Covenants............................................................................59
11.3.1 Rent Coverage Ratio of Lessee.........................................................59
11.3.2 [Intentionally Deleted]...............................................................59
11.3.3 [Intentionally Deleted]...............................................................59
11.3.4 No Indebtedness.......................................................................59
11.3.5 No Guaranties.........................................................................60
11.4 Affirmative Covenants..........................................................................60
11.4.1 Maintenance of Existence..............................................................60
11.4.2 Materials.............................................................................60
11.4.3 Compliance with Legal Requirements and
Applicable Agreements.................................................................60
11.4.4 Books and Records.....................................................................60
11.4.5 Participation in Third Party Payor Programs...........................................60
11.4.6 Conduct of its Business...............................................................61
11.4.7 Address...............................................................................61
11.4.8 Subordination of Affiliate Transactions...............................................61
11.4.9 Inspection............................................................................61
11.4.10 Additional Property...................................................................62
</TABLE>
(v)
<PAGE> 7
<TABLE>
<S> <C> <C>
11.4.11 Annual Facility Upgrade Expenditures..................................................62
11.5 Additional Negative Covenants..................................................................62
11.5.1 Restrictions Relating to Lessee.......................................................62
11.5.2 No Liens..............................................................................63
11.5.3 Limits on Certain Transactions........................................................63
11.5.4 Non-Competition.......................................................................63
11.5.5 No Default............................................................................65
11.5.6 Restrictions Relating to the Guarantor and the Developer..............................65
11.5.7 [Intentionally Deleted]...............................................................65
11.5.8 ERISA.................................................................................65
11.5.9 Forgiveness of Indebtedness...........................................................65
11.5.10 Value of Assets.......................................................................65
11.5.11 Changes in Fiscal Year and Accounting Procedures......................................65
11.6 Access to Records..............................................................................66
ARTICLE 12 INSURANCE AND INDEMNITY..............................................................................66
12.1 General Insurance Requirements.................................................................66
12.1.1 Types and Amounts of Insurance........................................................66
12.1.2 Insurance Company Requirements........................................................68
12.1.3 Policy Requirements...................................................................68
12.1.4 Notices; Certificates and Policies....................................................68
12.1.5 Lessor's Right to Place Insurance.....................................................69
12.1.6 Payment of Proceeds...................................................................69
12.1.7 Irrevocable Power of Attorney.........................................................69
12.1.8 Blanket Policies......................................................................70
12.1.9 No Separate Insurance.................................................................70
12.1.10 Assignment of Unearned Premiums.......................................................70
12.2 Indemnity......................................................................................70
12.2.1 Indemnification.......................................................................70
12.2.2 Indemnified Parties...................................................................71
12.2.3 Limitation on Lessor Liability........................................................71
12.2.4 Risk of Loss..........................................................................72
ARTICLE 13 FIRE AND CASUALTY....................................................................................72
13.1 Restoration Following Fire or Other Casualty...................................................72
</TABLE>
(vi)
<PAGE> 8
<TABLE>
<S> <C> <C>
13.1.1 Following Fire or Casualty............................................................72
13.1.2 Procedures............................................................................72
13.1.3 Disbursement of Insurance Proceeds....................................................73
13.2 Disposition of Insurance Proceeds..............................................................77
13.2.1 Proceeds To Be Released To Pay For Work...............................................77
13.2.2 Proceeds Not To Be Released...........................................................78
13.2.3 Lessee Responsible for Short-Fall.....................................................78
13.3 Tangible Personal Property.....................................................................78
13.4 Restoration of Certain Improvements and the
Tangible Personal Property...................................................................79
13.5 No Abatement of Rent...........................................................................79
13.6 Termination of Certain Rights..................................................................79
13.7 Waiver.........................................................................................79
13.8 Application of Rent Loss and/or Business Interruption Insurance................................79
13.9 Obligation To Account..........................................................................80
ARTICLE 14 CONDEMNATION.........................................................................................80
14.1 Parties' Rights and Obligations................................................................80
14.2 Total Taking...................................................................................80
14.3 Partial or Temporary Taking....................................................................80
14.4 Restoration....................................................................................81
14.5 Award Distribution.............................................................................81
14.6 Control of Proceedings.........................................................................81
ARTICLE 15 PERMITTED CONTESTS...................................................................................82
15.1 Lessee's Right to Contest......................................................................82
15.2 Lessor's Cooperation...........................................................................82
15.3 Lessee's Indemnity.............................................................................83
ARTICLE 16 DEFAULT..............................................................................................83
16.1 Events of Default..............................................................................83
16.2 Remedies.......................................................................................87
16.3 Damages........................................................................................90
16.4 Lessee Waivers.................................................................................91
16.5 Application of Funds...........................................................................91
16.6 [Intentionally Deleted]........................................................................91
</TABLE>
(vii)
<PAGE> 9
<TABLE>
<S> <C> <C>
16.7 Lessor's Right to Cure.........................................................................91
16.8 No Waiver by Lessor............................................................................91
16.9 Right of Forbearance...........................................................................92
16.10 Cumulative Remedies............................................................................92
ARTICLE 17 SURRENDER OF LEASED PROPERTY OR LEASE;
HOLDING OVER..................................................................................93
17.1 Surrender......................................................................................93
17.2 Transfer of Permits and Contracts..............................................................93
17.3 No Acceptance of Surrender.....................................................................94
17.4 Holding Over...................................................................................94
ARTICLE 18 PURCHASE OF THE LEASED PROPERTY......................................................................94
18.1 Purchase of the Leased Property................................................................94
18.2 Appraisal......................................................................................95
18.2.1 Designation of Appraisers.............................................................95
18.2.2 Appraisal Process.....................................................................95
18.2.3 Specific Enforcement and Costs........................................................95
18.3 Lessee's Limited Right of First Refusal........................................................96
18.4 Lessee's Option to Purchase....................................................................96
18.4.1 Conditions to Option..................................................................96
18.4.2 Exercise of Option....................................................................96
18.4.3 Conveyance............................................................................97
18.4.4 Calculation of Purchase Price.........................................................97
18.4.5 Payment of Purchase Price.............................................................97
18.4.6 Place and Time of Closing.............................................................97
18.4.7 Condition of Leased Property..........................................................97
18.4.8 Quality of Title......................................................................97
18.4.9 Lessor's Inability to Perform.........................................................98
18.4.10 Merger by Deed........................................................................98
18.4.11 Use of Purchase Price to Clear Title..................................................98
18.4.12 Lessee's Default......................................................................98
ARTICLE 19 SUBLETTING AND ASSIGNMENT............................................................................99
19.1 Subletting and Assignment......................................................................99
19.2 Permitted Subleases............................................................................99
19.3 Attornment.....................................................................................99
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19.4 Permitted Assignments..........................................................................99
19.5 Other Permitted Transfers.....................................................................100
ARTICLE 20 TITLE TRANSFERS AND LIENS GRANTED BY LESSOR.........................................................101
20.1 No Merger of Title............................................................................101
20.2 Transfers by Lessor...........................................................................101
20.3 Lessor May Grant Liens........................................................................101
20.4 Subordination and Non-Disturbance.............................................................102
ARTICLE 21 LESSOR OBLIGATIONS..................................................................................102
21.1 Quiet Enjoyment...............................................................................102
21.2 Memorandum of Lease...........................................................................103
21.3 Default by Lessor.............................................................................103
ARTICLE 22 NOTICES.............................................................................................103
ARTICLE 23 LIMITATION OF LIABILITY.............................................................................105
ARTICLE 24 MISCELLANEOUS PROVISIONS............................................................................105
24.1 Broker's Fee Indemnification..................................................................105
24.2 No Joint Venture or Partnership...............................................................105
24.3 Amendments, Waivers and Modifications.........................................................105
24.4 Captions and Headings.........................................................................106
24.5 Time is of the Essence........................................................................106
24.6 Counterparts..................................................................................106
24.7 Entire Agreement..............................................................................106
24.8 WAIVER OF JURY TRIAL..........................................................................106
24.9 Successors and Assigns........................................................................107
24.10 No Third Party Beneficiaries..................................................................107
24.11 Governing Law.................................................................................107
24.12 General.......................................................................................108
ARTICLE 25 SUBSTITUTION OF PROPERTY............................................................................109
25.1 Substitution of Property for the Leased Property..............................................109
25.2 Conditions to Substitution....................................................................109
25.3 Conveyance to Lessee..........................................................................113
25.4 Expenses......................................................................................113
EXHIBIT A LEGAL DESCRIPTION OF THE LAND
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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 WORKING CAPITAL LOAN DOCUMENTS
EXHIBIT I RENT COVERAGE RATIO CALCULATION
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FACILITY LEASE AGREEMENT
(Lewisburg)
This FACILITY LEASE AGREEMENT ("Lease") is dated as of the 31st day of
December, 1997, and is between MEDITRUST ACQUISITION CORPORATION II ("Lessor"),
a Delaware corporation having its principal office at 197 First Avenue, Needham
Heights, Massachusetts 02194, and BLACK BOX OF LEWISBURG, INC., a Delaware
corporation ("Lessee").
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").
<PAGE> 13
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 December 31, 1997 (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.
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
<PAGE> 14
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, Pennsylvania Department of Public Welfare
and all other Persons having or claiming jurisdiction over the accreditation,
certification, evaluation or operation of the Facility.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Section 3.1(c).
ADDITIONAL RENT COMMENCEMENT DATE: As defined in Section 3.1(c).
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 herewith by and among Lessee, the other
Black Box Parties, the Guarantor, the Current Manager and Lessor.
AGREEMENT REGARDING RELATED LEASE TRANSACTIONS: That certain Amended and
Restated Agreement Regarding Related Lease Transactions of even date, by and
among Lessee, Lessor and any other Tenant Party that is a party to any Related
Lease. Lessor and Lessee anticipate that the Agreement Regarding Related Lease
Transactions will be amended
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<PAGE> 15
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.
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 of even date herewith by and
between the Guarantor and Lessee, relating to the Option Agreement.
AWARD: All compensation, sums or anything of value awarded, paid or
received on a total or partial Condemnation.
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.
BCC GUARANTY: As defined in Section 19.4.
BCC OPTION AGREEMENT: That certain Option Agreement of even date herewith
by and among Black Box Holding Company and the Guarantor.
BCC STOCK PLEDGE: As defined in Section 19.4.
BLACK BOX PARTIES: As defined under the Agreement Regarding Related Lease
Transactions.
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,
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<PAGE> 16
including, without limitation, the construction of a new wing or new story, the
renovation of 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 or bed capacity of the Facility, (ii)
change the purpose for which such units or beds 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 ADJUSTMENT: As defined in Section 25.2.
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.
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<PAGE> 17
COMMENCEMENT DATE: As defined in Section 1.2.
COMPARABLE FACILITY: As defined in Section 25.1.
COMPLETION DATE: As defined in the Leasehold Improvement Agreement.
COMPLETION GUARANTY: That certain Guaranty of even date executed by
Guarantor in favor of Lessor, relating to completion of the Facility.
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.
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<PAGE> 18
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.
CONTRACTS: All agreements (including, without limitation, Provider
Agreements and Patient Admission 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.
CURRENT MANAGER: Balanced Care at Lewisburg, Inc.
CURRENT MANAGEMENT AGREEMENT: That certain Management Agreement of even
date by and between Lessee and the Current Manager.
DATE OF TAKING: The date the Condemnor has the right to possession of the
property being condemned.
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DEED: As defined in Section 18.4.
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 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 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.
EXCESS GROSS REVENUES: Gross Revenues for a fiscal year less the Gross
Revenues for the immediately preceding fiscal year.
EXPIRATION DATE: As defined in Section 1.2.
EXTENSION TERM ADJUSTMENT DATES: During any Extended Terms, the tenth
(10th), fifteenth (15th) and twentieth (20th) anniversaries of the Conversion
Date.
EXTENDED TERMS: As defined in Section 1.3.
FACILITY: The personal care home with seventy (70) licensed beds (located
in forty-four (44) units) to be known as "Balanced Care at Lewisburg" 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
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Capital Additions paid for by Lessee had been constructed.
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.
GROSS REVENUES: Collectively, all revenues generated by reason of the
operation of the Leased Property (including any Capital Additions), whether or
not directly or indirectly received or to be received by the Lessee, including,
without limitation, all patient and/or resident revenues received or receivable
for the use of, or otherwise by reason of, all rooms, beds, units and other
facilities provided, meals served, services performed, space or facilities
subleased or goods sold on or from the Leased Property and further including,
without limitation, except as otherwise specifically provided below, any
consideration received under any subletting, licensing, or other arrangements
with any Person relating to the possession or use of the Leased Property and all
revenues from all ancillary services provided at or relating to the Leased
Property; provided, however, that Gross Revenues shall not include non-operating
revenues such as interest income or gain from the sale of assets not sold in the
ordinary course of business; and provided, further, that there shall be excluded
or deducted (as the case may be) from such revenues:
(i) contractual allowances (relating to any period during the Term of
this Lease and thereafter until the Rent hereunder is paid in full) for
billings not paid by or received from the appropriate Governmental
Authorities or Third Party Payors,
(ii) allowances according to GAAP for uncollectible accounts,
(iii) all proper patient and/or resident billing credits and
adjustments according to GAAP relating to health care accounting,
(iv) federal, state or local sales, use, gross receipts and excise
taxes and any tax based upon or measured by said Gross Revenues which is
added to or made a part of the amount billed to the patient, resident or
other recipient of such services or goods, whether included in the billing
or stated separately,
(v) provider discounts for hospital or other medical facility
utilization contracts,
(vi) the cost of any federal, state or local governmental program
imposed specially to provide or finance indigent patient and/or resident
care (other than Medicare, Medicaid and the like), and
(vii) deposits refundable to residents of the Facility.
To the extent that the Leased Property is subleased or occupied by an Affiliate
of the Lessee,
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Gross Revenues calculated for all purposes of this Lease (including, without
limitation, the determination of the Additional Rent payable under this Lease)
shall include the Gross Revenues of such Sublessee with respect to the premises
demised under the applicable Sublease (i.e., the Gross Revenues generated from
the operations conducted on such subleased portion of the Leased Property) and
the rent received or receivable from such Sublessee pursuant to such Subleases
shall be excluded from Gross Revenues for all such purposes. As to any Sublease
between the Lessee and a non-Affiliate of the Lessee (other than the Guarantor
or any Affiliate of the Guarantor), only the rental actually received by the
Lessee from such non-Affiliate shall be included in Gross Revenues.
GUARANTIES: Collectively, the Completion Guaranty and any BCC Guaranty
hereafter executed and delivered to Lessor by the Guarantor in accordance with
the terms of Section 19.4.
GUARANTOR: Balanced Care Corporation, a Delaware corporation, and its
successors and assigns.
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 proceeds, or any portion thereof,
received by Lessor as a result of the sale, exchange or other disposition by
Lessor of the Leased Property, except any sale, transfer, exchange or other
disposition of the Leased Property to Lessee, or (4) except as
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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 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
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Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease, the Guaranties, the Security
Agreement, the Deposit Pledge Agreement, the Pledge Agreement, the Leasehold
Improvement Agreement, the Note, the Lessee's Guaranty, the Agreement Regarding
Related Lease Transactions, the Permits Assignments, the Financing Statements,
the Affiliated Party Subordination Agreement, the Environmental Indemnity
Agreement, the Construction Assignment, the Architect's Assignment, the
Assignment Agreement, the Working Capital Assurance Documents and any and all
other instruments, documents, certificates and/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 among Lessor, Lessee and the Developer.
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.
LEASEHOLD MORTGAGE: That certain Open-End Leasehold Mortgage and Security
Agreement of even date herewith granted by Lessee to Guarantor, encumbering
Lessee's interest under this Lease.
LEASED PROPERTY: As defined in Article 1.
LEASING GROUP: Collectively, Lessee, the Pledgor, 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, health care licensing and senior housing
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,
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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 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 GUARANTY: That certain Guaranty of even date herewith executed by
the Lessee for the benefit of Lessor, guarantying the obligations under the
Note.
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)
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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.
MEDICAID: The medical assistance program established by Title XIX of the
Social Security Act (42 USC Sections 1396 et seq.) and any statute succeeding
thereto.
MEDICARE: The health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 USC Sections 1395 et
seq.) and any statute succeeding thereto.
MEDITRUST ENTITIES: Collectively, 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 now or hereafter advanced under the Leasehold
Improvement Agreement, including, without limitation, the aggregate amount which
may hereafter be advanced by Lessor to Lessee in connection with the
consummation of the Stock Transfer in the event that the Lessee elects to
request that Lessor advance an amount equal to the outstanding principal,
accrued interest and any other sum due under the Note in order to satisfy the
outstanding obligations thereunder, 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.
NOTE: That certain Promissory Note of even date herewith made by the
Pledgor to the order of Lessor in the original principal amount of THREE HUNDRED
SIXTY TWO THOUSAND TWO HUNDRED TWENTY-FIVE DOLLARS ($362,225.00).
OBLIGATIONS: Collectively, the Lease Obligations and the Related Party
Obligations.
OFFER: As defined in Section 18.3.
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 AGREEMENT: That certain Option Agreement dated as of August 7, 1997
by and between the Guarantor and Dennis L. Derk.
OPTION PURCHASE DOCUMENTS: Collectively, the Option Agreement and all other
documents and instruments now or hereafter executed and/or delivered in
connection therewith or pursuant thereto.
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ORIGINAL MEDITRUST INVESTMENT: ONE HUNDRED FIFTY THOUSAND DOLLARS
($150,000.00).
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.
PATIENT ADMISSION AGREEMENTS: Collectively, all contracts, agreements and
consents executed by or on behalf of any patient or other Person seeking
services at the Facility, including, without limitation, assignments of benefits
and guarantees.
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 Stock Pledge Agreement of even date herewith by and
among the Pledgor, Lessee and Lessor.
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PLEDGOR: Black Box Holding Company, a Delaware corporation.
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: One Hundred Ninety (190) basis points
over the Prime Rate.
PRIMARY INTENDED USE: The use of the Facility as a personal care home with
seventy (70) licensed beds (located in forty-four (44) units) or such additional
number of beds or units 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.
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.
PROPOSED FACILITY: As defined in Section 25.2.
PRORATION FACTOR: As defined in Section 3.1(c).
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.
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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.
RELATED PARTIES: Collectively, each Person that may now or hereafter be a
party to any Related Party Agreement other than the Meditrust Entities,
including, without limitation, until such time as the Stock Transfer may be
consummated in accordance with the provisions of Section 19.4 and the
satisfaction of the conditions set forth in Section 19.4, those Black Box
Parties that are not owned and controlled, directly or indirectly, by the
Guarantor and, after such consummation of the Stock Transfer, all Black Box
Parties that are owned and controlled, directly or indirectly, by the Guarantor.
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 (other than the Guarantor, the Developer and the
Current Manager, but only until such time as the Stock Transfer has been
consummated or the Guarantor has exercised its rights and remedies under the
Leasehold Mortgage in accordance with the terms of the Subordination and
Standstill Agreement) 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.
RENT: Collectively, the Base Rent, the Additional Rent, the Additional
Charges and all other sums payable under this Lease and the other Lease
Documents.
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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 forty (340) 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 (or, in the case of a Comparable Facility,
all rent and other sums payable under the proposed Substitution Lease) payable
during the initial Lease Year or accrued for such period.
RENT INSURANCE PROCEEDS: As defined in Section 13.8.
RESIDENCE AGREEMENTS: Collectively, all Subleases now or hereafter entered
into by or on behalf of any Person allowing such Person to reside at the
Facility.
RETAINAGE: As defined in Section 13.1.
RIGHT OF FIRST REFUSAL: As defined in Section 18.3.
SECURITY AGREEMENT: The Security Agreement as of even date herewith between
Lessee and Lessor.
SHORTFALL AGREEMENT: That certain Shortfall Agreement of even date by and
between the Lessee and the Guarantor.
STATE: The state or commonwealth in which the Leased Property is located.
STATE COLLEGE LEASE: That certain Amended and Restated Facility Lease
Agreement, dated as of November 1, 1996, by and between Lessor and BCC at State
College, Inc., as amended, and as the same may hereafter be further amended.
STOCK TRANSFER: As defined in Section 19.4.
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 (but excluding Patient Admission Agreements), 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 Residence Agreement.
SUBORDINATION AND STANDSTILL AGREEMENT: That certain Subordination and
Standstill
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Agreement of even date herewith by and between Lessor and Guarantor,
subordinating the Working Capital Loan Obligations to the Lease Obligations.
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).
SUBSTITUTION CLOSING COSTS: As defined in Article 25.
SUBSTITUTION DATE: As defined in Article 25.
SUBSTITUTION DOCUMENTS: As defined in Article 25.
SUBSTITUTION LEASE: As defined in Article 25.
SUBSTITUTION NOTICE: As defined in Article 25.
SUBSTITUTION RIGHT: As defined in Article 25.
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 other personal property owned or leased (pursuant to
equipment leases) by Lessee and used in connection with the operation of the
Leased Property.
TENANT PARTIES: As defined under the Agreement Regarding Related Lease
Transactions.
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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 PARTIES: Collectively, each Person that may now or hereafter be a
party to any Third Party Agreement.
THIRD PARTY AGREEMENT: Any agreement, document or instrument now or
hereafter evidencing or securing any Third Party Obligation.
THIRD 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 Third Party Agreement.
THIRD 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 any entity (other
than Lessee, the other Black Box Parties and any other wholly-owned subsidiaries
of the Pledgor) with respect to which the Guarantor holds an option to purchase
the issued and outstanding capital stock of such entity or other applicable
ownership interests in such entity; 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.
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.
TITLE COMPANY: As defined in Section 25.2.
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.
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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 beds 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.
WORK: As defined in Section 13.1.
WORK CERTIFICATES: As defined in Section 13.1.
WORKING CAPITAL ASSURANCE AGREEMENT: That certain Working Capital Assurance
Agreement of even date by and among the Guarantor, the Lessee and the Lessor.
WORKING CAPITAL ASSURANCE DOCUMENTS: Collectively, the Working Capital
Assurance Agreement, the Subordination and Standstill Agreement, and all other
documents and instruments now or hereafter executed and/or delivered in
connection therewith or pursuant thereto.
WORKING CAPITAL LOAN DOCUMENTS: Collectively, the Shortfall Agreement, the
Leasehold Mortgage, the BCC Option Agreement, the Current Management Agreement
and all other documents and instruments now or hereafter evidencing and/or
securing the Working Capital Loans.
WORKING CAPITAL LOAN OBLIGATIONS: Collectively, all indebtedness,
covenants, liabilities, obligations, agreements and undertakings (other than the
Guarantor's obligations) under the Working Capital Loan Documents.
WORKING CAPITAL LOANS: As defined in the Working Capital Loan Agreement.
WORKING CAPITAL PAYOFF: As defined in Section 19.4.
WORKING CAPITAL RESERVE: An amount equal to THREE HUNDRED SIXTY TWO
THOUSAND TWO HUNDRED TWENTY-FIVE DOLLARS ($362,225.00) which shall equal the
original principal amount under the Note.
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
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"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 March 1, 1998,
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.
(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
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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
multiplied by 1.02 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) ADDITIONAL RENT: In addition to the Base Rent, commencing on the
first anniversary of the Conversion Date (the "Additional Rent Commencement
Date") the Lessee shall pay to the Lessor additional rent (the "Additional
Rent") which shall equal, in each fiscal year, the sum of (i) the
Additional Rent payable with respect to the immediately preceding fiscal
year plus (ii) an amount equal to twenty percent (20%) of Excess Gross
Revenues for the then current fiscal year. Additional Rent shall accrue
commencing on the Additional Rent Commencement Date and shall be payable
during the Term, quarterly in arrears, commencing on the first day of the
first fiscal quarter commencing after the Additional Rent Commencement Date
occurs and there shall be an annual reconciliation as provided in Section
3.2 below. Notwithstanding the foregoing, in no event shall any increase to
the Additional Rent for any fiscal year exceed two percent (2%) of the
total of Base Rent and Additional Rent payable with respect to the
immediately preceding fiscal year.
Additional Rent payable hereunder for any fractional fiscal year shall
be prorated so that such Additional Rent shall equal the product of (x) the
Additional Rent payable with respect to the immediately preceding fiscal
year plus an amount equal to twenty percent (20%) of the annualized Excess
Gross Revenues for the applicable fractional fiscal year multiplied by (y)
a fraction (the "Proration Factor"), the numerator of which is the number
of days in the applicable fractional fiscal year and the denominator of
which is 365; provided, however, that, in no event shall the Additional
Rent payable during (A) the fiscal year in which the Additional Rent
Commencement Date occurs exceed the product of two percent (2%) of the
total of Base Rent payable with respect to the immediately preceding fiscal
year multiplied by the applicable Proration Factor and (B) any other
fractional fiscal year increase by more than the product of two percent
(2%) of the total of Base Rent and Additional Rent payable with respect to
the immediately preceding fiscal year multiplied by the applicable
Proration Factor.
(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.
(e) Without limiting any of the other terms and conditions of the
Lease, Base Rent may be adjusted pursuant to Section 19.4 hereof.
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3.2 CALCULATION AND PAYMENT OF ADDITIONAL RENT; ANNUAL RECONCILIATION.
3.2.1 ESTIMATES AND PAYMENTS. Commencing on the Additional Rent
Commencement Date, Additional Rent to be paid during each fiscal year
during the Term shall be estimated by the Lessee at the beginning of each
fiscal year for which it is payable (and in no event shall such estimate be
less than the Additional Rent payable for the prior fiscal year, except
with respect to the estimate to be made on the Additional Rent Commencement
Date), and shall be paid quarterly in arrears (in equal installments on the
first day of July, October, January and April) based on such estimate, to
be adjusted at the end of each such year based on the actual Excess Gross
Revenues during that fiscal year. In addition, on the Additional Rent
Commencement Date, the Lessee shall estimate the Additional Rent to be paid
for the period from (and including) the Additional Rent Commencement Date
through (and including) the end of the fiscal quarter during which the
Additional Rent Commencement Date occurs. Notwithstanding the foregoing, on
a quarterly basis, with the prior consent of the Lessor, the Lessee may
also adjust the quarterly payments of Additional Rent to be made hereunder
based upon a comparison of (a) the actual Gross Revenues generated by the
Leased Property during the applicable fiscal quarter and (b) the original
estimate of Additional Rent for the applicable fiscal year prepared by the
Lessee and the amount of Additional Rent already paid by the Lessee
pertaining to the applicable fiscal year.
3.2.2 ANNUAL STATEMENT. In addition, within sixty (60) days following
any fiscal year for which Additional Rent is payable hereunder, the Lessee
shall deliver to the Lessor an Officer's Certificate, reasonably acceptable
to the Lessor and certified by the chief financial officer of the Lessee,
setting forth the Gross Revenues for the immediately preceding fiscal year.
3.2.3 DEFICITS. If the Additional Rent, as finally determined for any
fiscal year (or portion thereof), exceeds the sum of the quarterly payments
of Additional Rent previously paid by the Lessee with respect to said
fiscal year, within thirty (30) days after such determination is required
to be made hereunder, the Lessee shall pay such deficit to the Lessor and,
if the deficit exceeds five percent (5%) of the Additional Rent which was
previously paid to the Lessor with respect to said fiscal year, then the
Lessee shall also pay the Lessor interest on such deficit at the Overdue
Rate from the applicable quarterly date that such payment should have
originally been made by the Lessee to the date that the Lessor receives
such payment.
3.2.4 OVERPAYMENTS. If the Additional Rent, as finally determined for
any fiscal year (or portion thereof), is less than the amount previously
paid with respect thereto by the Lessee, and if no Lease Default exists,
the Lessee shall notify the Lessor either (a) to pay to the Lessee an
amount equal to such difference or (b) to grant the Lessee a credit against
Additional Rent next coming due in the amount of such difference.
3.2.5 FINAL DETERMINATION. The obligation to pay Additional Rent shall
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survive the expiration or earlier termination of the Term (as to Additional
Rent payments that are due and payable with respect to periods prior to the
expiration or earlier termination of the Term and during any periods that
the Lessee remains in possession of the Leased Property), and a final
reconciliation, taking into account, among other relevant adjustments, any
contractual allowances which related to Gross Revenues that accrued prior
to the date of such expiration or earlier termination, but which have been
determined to be not payable. The Lessee's good faith best estimate of the
amount of any unresolved contractual allowances shall be made not later
than two (2) years after said expiration or termination date. Within sixty
(60) days after the expiration or earlier termination of the Term, the
Lessee shall advise the Lessor of the Lessee's best estimate of the
approximate amount of such adjustments, which estimate shall not be binding
on the Lessee or have any legal effect whatsoever.
3.2.6 BEST EFFORTS TO MAXIMIZE GROSS REVENUES. The Lessee further
covenants that the operation of the Facility shall be conducted in a manner
consistent with the prevailing standards and practices recognized in the
assisted living industry as those customarily utilized by first class
business operations in the geographic region in which the Facility is
located. Subject to any applicable Legal Requirements, the members of the
Leasing Group shall use their best efforts to maximize the Facility's Gross
Revenues, and to that end, but without limiting the foregoing, (a) an
adequate staff of employees shall be maintained at the Facility and (b) a
maximum amount of space in the Facility shall be devoted to revenue
producing activities and only such part thereof shall be devoted for
office, storage and non-revenue producing purposes as shall be reasonably
necessary.
3.3 CONFIRMATION AND AUDIT OF ADDITIONAL RENT.
3.3.1 MAINTAIN ACCOUNTING SYSTEMS. The Lessee shall utilize, or cause
to be utilized, an accounting system for the Leased Property in accordance
with usual and customary practices in the assisted living industry and in
accordance with GAAP which will accurately record all Gross Revenues. The
Lessee shall retain, for at least three (3) years after the expiration of
each fiscal year (and in any event until the final reconciliation described
in Section 3.2 above has been made), adequate records conforming to such
accounting system showing all Gross Revenues for such fiscal year.
3.3.2 AUDIT BY LESSOR. The Lessor, at its own expense except as
provided hereinbelow, shall have the right, from time to time and upon
reasonable notice to the Lessee, to have the Lessor's accountants or
representatives audit the information set forth in the Officer's
Certificate referred to in Section 3.2 and in connection with such audits,
to examine the Lessee's records with respect thereto (including supporting
data, income tax and sales tax returns), subject to any prohibitions or
limitations on disclosure of any such data under applicable law or
regulations, 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 any Facility-patient
relationship and any physician-patient privilege.
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3.3.3 DEFICIENCIES AND OVERPAYMENTS. If any such audit discloses a
deficiency in the reporting of Gross Revenues and either the Lessee agrees
with the result of such audit or the matter is compromised, the Lessee
shall forthwith pay to the Lessor the amount of the deficiency in
Additional Rent which would have been payable by it had such deficiency in
reporting Gross Revenues not occurred, as finally agreed or determined,
together with interest on the Additional Rent which should have been
payable by it, calculated at the Overdue Rate, from the date when said
payment should have been made by the Lessee to the date that the Lessor
receives such payment. Notwithstanding anything to the contrary herein,
with respect to any audit that is commenced more than two (2) years after
the date Gross Revenues for any fiscal year are reported by the Lessee to
the Lessor, the deficiency, if any, with respect to Additional Rent shall
bear interest as permitted herein only from the date such determination of
deficiency is made, unless such deficiency is the result of gross
negligence or willful misconduct on the part of the Lessee (or any
Affiliate thereof). If any audit conducted for the Lessor pursuant to the
provisions hereof discloses that (a) the Gross Revenues actually received
by the Lessee for any fiscal year exceed those reported by the Lessee by
more than five percent (5%), the Lessee shall pay the reasonable cost of
such audit and examination or (b) the Lessee has overpaid Additional Rent,
and if no Lease Default exists, the Lessor shall so notify the Lessee and
the Lessee shall direct the Lessor either (i) to refund the overpayment to
the Lessee or (ii) grant a credit against Additional Rent next coming due
in the amount of such difference.
3.3.4 SURVIVAL. The obligations of the Lessor and the Lessee contained
in this Section shall survive the expiration or earlier termination of this
Lease.
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].
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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.
3.7 NO LESSEE TERMINATION OR OFFSET.
3.7.1 NO TERMINATION. Except as may be otherwise specifically and
expressly provided in Article 13 or Article 14 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
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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 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
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returns and reports in respect of any Imposition as may be required by
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 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,
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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 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
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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.
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
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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 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.
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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.
6.1.2 PURCHASE-MONEY SECURITY INTERESTS 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 and (b) lease
Tangible Personal Property from equipment lessors 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, 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".
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6.2 GUARANTIES. Completion of the Facility shall be unconditionally and
irrevocably guaranteed by the Guarantor pursuant to the Completion Guaranty and
the Pledgor's obligations under the Note shall be unconditionally and
irrevocably guaranteed by the Lessee pursuant to the Lessee's Guaranty.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY;
MANAGEMENT AGREEMENTS
7.1 CONDITION OF THE LEASED PROPERTY. Lessee acknowledges receipt and
delivery of possession of the Leased Property and that Lessee has examined and
otherwise has 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 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 patients, 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
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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 patients, residents, 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
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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 any Management Agreement as a result of any default by
any Manager thereunder), (d) any assignment by the Manager of its interest under
the 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. Notwithstanding the foregoing, in the event that Lessee enters into
any Management Agreement with an Affiliate of Lessee, Lessor shall consent to
the execution and delivery of such Management Agreement provided, that,
concurrently with the execution and delivery of such Management Agreement, the
Affiliated Party Subordination Agreement is amended so as to add as a party
thereto the applicable Affiliate of Lessee that is to be the Manager (so that
the payments to be made under such Management Agreement are fully subordinated
to the Lease Obligations).
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
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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 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
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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 (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,
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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.
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 or bed
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
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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 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
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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 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
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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;
(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.
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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.
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:
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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.
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
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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 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. No member of the Leasing Group 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
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(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 or the Subordination and Standstill Agreement.
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
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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, 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)
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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 Lessee and the Facility becoming
licensed by the Pennsylvania Department of Public Welfare (and/or any
appropriate Governmental Authority with jurisdiction over the operation of
the Facility), on or before the Conversion Date to operate seventy (70)
licensed beds (located in forty-four (44) units) at the Facility.
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,
including, without limitation, the Leasehold Mortgage (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
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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; and
(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.
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.
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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 residents) or that the Facility provide a certain amount of
welfare, free or charity care or discounted or government assisted patient
(or resident) care.
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
patients (or 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;
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(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 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 65 Allerton Street,
Boston, Massachusetts 02119 (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,
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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.
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 other than the Current
Management Agreement, a true and correct copy of which has been
furnished to Lessor.
10.1.32 OPTION PURCHASE DOCUMENTS. True and correct copies of the
Option Agreement and other Option Purchase Documents have been
delivered to Lessor and the transactions related to the Land
contemplated by the Option Purchase Documents have closed in
accordance with the terms thereof and in compliance with all
applicable Legal Requirements.
10.1.33 WORKING CAPITAL LOAN DOCUMENTS. True and correct copies
of the Shortfall Agreement and the other Working Capital Loan
Documents have been delivered to Lessor and the transaction
contemplated by the Working Capital Loan Documents has closed in
accordance with the terms thereof and in compliance with all
applicable Legal Requirements. Attached hereto as EXHIBIT H is a true
and correct list of all of the Working Capital Loan Documents. There
are no agreements in force and effect between Lessee and the Guarantor
or any Affiliate of the Guarantor, other than (i) the Leasehold
Improvement Agreement, (ii) the Affiliated Party Subordination
Agreement, (iii) the Current Management Agreement and (iv) the Working
Capital Loan Documents. The Lessee shall not terminate, amend,
abridge, modify or otherwise limit any of the Working Capital Loan
Documents without the prior written consent of the Lessor, in each
instance, which consent may be withheld in the Lessor's sole and
absolute discretion. Notwithstanding anything to the contrary set
forth herein, from and after the date hereof, the Lessee shall not
enter into any contractual arrangement with the Guarantor, the
Developer, the Current Manager or any of their Affiliates without the
prior written consent of the Lessor, in each instance, which consent
may be withheld in the Lessor's sole and absolute discretion.
10.2 CONTINUING EFFECT OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Lease and the other Lease
Documents shall constitute
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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 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 Lessee and the Guarantor
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 and the Guarantor 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 and
each Sublessee, stating whether, to the best of the signer's knowledge
and belief after making due inquiry, Lessee, the Guarantor or such
Sublessee, as the case may be, is in default in the performance or
observance of
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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 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 income and expense statement for the Leased Property which
shall include a comparison to corresponding budget figures, occupancy
statistics [including the actual number of patients and residents and
the number of units and beds available] and patient/resident mix
breakdowns (for each patient or resident day during such month
classifying patients and 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 health
care or senior housing matters and (ii) Contracts (involving payments
in the aggregate in excess of $100,000 per
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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 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.
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(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:
(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.
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(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 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
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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 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 second 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 1.25 to 1.
11.3.2 [INTENTIONALLY DELETED].
11.3.3 [INTENTIONALLY DELETED].
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,
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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 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 the Working
Capital Loan Documents.
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 all necessary Permits to
operate the Facility for its Primary Intended Use and shall thereafter
throughout the Term maintain such Permits in full force and effect and (b)
prior to the issuance of such license, Lessee shall obtain the
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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.
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 CERTAIN 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
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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 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 shall not apply to
(i) the Permitted Encumbrances that may be created on or after the
date hereof pursuant to the Lease Documents; (ii) Liens created in
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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 CERTAIN TRANSACTIONS. Lessee shall not enter into any
transaction with any Affiliate or any member of the Leasing Group (or any
Affiliate thereof), including, without limitation, the purchase, sale or
exchange of any property, the rendering of any service to or with any
Affiliate and 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
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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 or other similar senior housing
facility (or any other facility included within the definition of Primary
Intended Use), 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 or other similar senior housing facility (or any other
facility included within the definition of Primary Intended Use), 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
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.
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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, which
consent shall not be unreasonably withheld.
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.
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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 (except as may be otherwise permitted by
Lessor in connection with any transfer permitted under Section 19.4 and,
even then, only after the complete satisfaction of all requirements of
Lessor relating to such transfers) 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.
11.6 ACCESS TO RECORDS. To the extent required by applicable law, the
Lessor shall (and, if the Lessor carries out any of the duties under this Lease,
whether on the Lessor's or the Lessee's behalf, through a subcontract with a
related organization and such subcontract has a value or cost of Ten Thousand
Dollars ($10,000) or more during any twelve (12) month period, such subcontract
shall contain a clause to the effect that the subcontractor shall) until the
expiration of four (4) years after the furnishing of services pursuant to this
Lease, make available, upon request by the Secretary of Health and Human
Services or upon the request by the U.S. Comptroller General, or any duly
authorized representative of either of them, the books, documents and records of
the Lessor (or such subcontractor) that are necessary to verify the nature and
extent of such costs in connection with said services.
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,
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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 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 and may be maintained by the Developer
as long as Lessor and Lessee are named as additional named insureds on
any insurance policy maintained by the Developer and all other
requirements set forth herein that are applicable to such insurance
are met;
(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;
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(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 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
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modified except upon thirty (30) days' prior written notice to Lessor
and any Fee Mortgagee;
(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
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employers liability insurance) shall provide that in the event of loss,
injury or 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 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.
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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 Lessor, payable as an
Additional Charge. The indemnity provided for in this Section 12.2.1 shall
survive any termination of this Lease.
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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).
ARTICLE 13
FIRE AND CASUALTY
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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;
(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,
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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.
(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:
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(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.
(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.
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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 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
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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.
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
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subsoil conditions or any other physical condition or feature pertaining to
the Leased Property. All acts described in this paragraph, 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.
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
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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.
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.
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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 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.
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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) 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 bed 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
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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 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
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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 (or letter of credit) 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 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
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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;
(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 10.1.16, 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;
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(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:
i. except as expressly permitted under Sections 19.4 and 19.5
hereof, 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 as expressly permitted under Sections 19.4 and 19.5
hereof, 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 any member of the Leasing Group or, except as expressly
permitted under Section 19.5, the merger or consolidation of any member of
the Leasing Group with any other Person;
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(k) except as otherwise permitted pursuant to Section 11.5.2 and/or
Section 19.2 and/or Section 19.4 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 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 or a Third Party
Default;
(n) without limiting the provisions of 16.1(m), the occurrence of a
Lease Default under any of the Related Leases, notwithstanding the
consummation of the Stock Transfer as defined herein or as defined under
any of the Related Leases;
(o) 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);
(p) 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;
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(q) 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;
(r) 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;
(s) 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;
(t) 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;
(u) 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
(v) 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;
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(w) the appointment of a temporary manager (or operator) for the
Leased Property by any Governmental Authority;
(x) the entry of an order by a court with jurisdiction over the Leased
Property to close the Facility, to transfer one or more patients (or
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
(y) any failure to deliver the Cash Collateral to Lessor when required
under Section 1 of the Deposit Pledge Agreement.
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 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 unlawful detainer 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
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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.
(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
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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 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
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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.
(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
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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 of capitalization (highest present worth)
reasonably applicable at the time of such determination 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,
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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
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
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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.
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
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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
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
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premiums, attorneys' fees incurred by Lessor in connection with such conveyance,
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 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.
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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 LESSEE'S LIMITED RIGHT OF REFUSAL. At any time during the Term, as
long as, at the time of exercise and on the date of closing, this Lease is then
in full force and effect, and there exists no Lease Default, nor any state of
facts or circumstances which would constitute a Lease Default, or which, with
the passage of time and/or the giving of notice, would constitute a Lease
Default, Lessee shall have a "Right of First Refusal" subject to the following
terms and conditions: (a) if Lessor receives a bona fide written offer to
purchase the Leased Property from a Person which is not a member of the Leasing
Group or an Affiliate of any member of the Leasing Group (the "Offer"),
acceptable to Lessor in Lessor's sole and absolute discretion and Lessor elects,
in Lessor's sole and absolute discretion, to sell the Leased Property in
accordance with the Offer, Lessee shall have thirty (30) days following notice
of the Offer to elect to purchase the Leased Property on the same terms and
conditions as specified in the Offer; (b) unless Lessor receives notice from
Lessee within such thirty (30) day period setting forth Lessee's election to so
purchase the Leased Property and unless thereafter Lessee completes the
acquisition of the Leased Property exactly as provided for, and by the date
specified, in the Offer, Lessor shall be at liberty, and shall have the absolute
and unconditional right, to sell the Leased Property to any Person within the
next twelve (12) months substantially on the terms and conditions set forth in
the Offer or on any other terms and conditions more favorable to Lessor; and (c)
any such sale consummated in accordance with the provisions of the foregoing
clause (b) shall extinguish all rights granted to Lessee under this Section
18.3. Lessee's Right of First Refusal shall not apply to and shall survive: (a)
any sale or transfer of the Leased Property to any Affiliate of Lessor; (b) any
sale or transfer of the Leased Property occasioned by the exercise of any rights
or remedies of any Fee Mortgagee; or (c) a deed or transfer in lieu of
foreclosure to any Fee Mortgagee or any Affiliate thereof. Lessee's Right of
First Refusal shall in all events terminate upon the expiration or any earlier
termination of this Lease.
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").
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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.
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.
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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 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
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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 and Section 19.4 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 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.
19.4 PERMITTED ASSIGNMENTS. Notwithstanding the provisions of Section 19.1,
the current holders of all of the issued and outstanding capital stock of the
Lessee may transfer such capital stock of Lessee to the Guarantor (or, at the
option of the Guarantor, to a wholly-owned Subsidiary of the Guarantor), subject
to the Liens created by the Stock Pledge Agreement, pursuant to the terms and
conditions of the BCC Option Agreement (the "Stock Transfer"); provided that:
(a) at the time of the consummation of the Stock Transfer, no Lease Default
shall have occurred (excluding any Lease Default which has been waived, in
writing, by Lessor), nor any event which, with the giving of notice and/or the
passage of time, could result in a Lease Default and (b) prior to or
simultaneously with the consummation of the Stock Transfer, the Guarantor shall
have delivered to Lessor (i) a guaranty of the Lease
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Obligations executed by the Guarantor (the "BCC Guaranty"), in form and
substance acceptable to Lessor (and, without limiting the foregoing, the BCC
Guaranty shall include the financial covenants set forth in Section 10.9 of the
Working Capital Assurance Agreement), (ii) a fully-executed Stock Pledge
Agreement, in a form substantially similar to the Pledge Agreement, executed by
the Guarantor (or, if applicable, the wholly-owned Subsidiary of the Guarantor
to which the issued and outstanding stock of the Lessee is to be transferred)
granting to Lessor a first priority security interest in all of the issued and
outstanding shares of capital stock of Lessee (the "BCC Stock Pledge"), (iii)
the stock certificate(s) evidencing such pledged shares, along with stock
power(s) (in a form acceptable to Lessor) duly endorsed in blank and (iv) a
legal opinion, in form and substance satisfactory to Lessor (1) evidencing the
authority of the Guarantor to execute and deliver the BCC Stock Pledge, the BCC
Guaranty and such stock powers and the enforceability of such documents and (2)
stating whether any notices to and/or approvals from any Governmental Authority
(or other Person) are required for such transfer and, if so, that such notices
and approvals have been sent and/or obtained, as the case may be. From and after
the consummation of the Stock Transfer, in accordance with the terms hereof and
the terms of the Working Capital Loan Agreement, and the satisfaction of the
conditions set forth in this Section 19.4, the Related Party Obligations shall
include all "Related Party Obligations" as defined under the State College
Lease; provided, however, that, except as otherwise provided within the
definition of the term "Related Parties" in Article 2 hereof, the consummation
of the Stock Transfer shall have no effect whatsoever on the Related Leases, the
Tenant Parties or any terms, conditions or other provisions set forth herein or
in any of the other Lease Documents relating thereto.
In connection with the consummation the Stock Transfer, the Lessee shall
have the option, exercisable by written notice to the Lessor ten (10) Business
Days prior to the Stock Transfer, to request that the Lessor advance, under the
Leasehold Improvement Agreement, a lump sum payment (the "Working Capital
Payoff") equal to the total outstanding principal amount and all accrued
interest and other sums payable under the Note. The Working Capital Payoff shall
be used to pay the entire principal balance then remaining unpaid, together with
accrued and unpaid interest thereon and any costs, charges and other amounts due
under the Note (without any penalty or premium) and, upon any such advance of
the Working Capital Payoff by Lessor, Base Rent shall be adjusted accordingly
and the Cash Collateral held under the Deposit Pledge Agreement shall also be
adjusted to reflect the adjusted Base Rent hereunder (i.e., so that the Cash
Collateral then held under the Deposit Pledge Agreement equals 3 monthly
payments of Base Rent as adjusted). The Working Capital Payoff shall be due and
payable simultaneously with the consummation of the Stock Transfer. In the event
the Lessee does not elect to request Lessor to advance the Working Capital
Payoff under the Leasehold Improvement Agreement, the Working Capital Payoff
shall nevertheless be due and payable simultaneously with the consummation of
the Stock Transfer (from other funds of Pledgor) so that the outstanding
obligations under the Note may be paid in full (without penalty or premium), it
being understood and agreed that all obligations under the Note are due and
payable as of the date of the consummation of the Stock Transfer. If Lessor does
not advance the Working Capital Payoff to satisfy the outstanding obligations
under the Note, there shall be no adjustment to Base Rent in connection with the
satisfaction of the outstanding
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obligations under the Note.
19.5 OTHER PERMITTED TRANSFERS. Notwithstanding anything to the contrary
set forth herein, from and after the date of the consummation of the Guarantor's
initial public offering of shares of common stock, (i) subject to the provisions
of the paragraph immediately following this paragraph, any transfer (whether by
operation of law or otherwise) of any shares of the common stock of the
Guarantor shall not constitute a Lease Default and (ii) any merger of the
Guarantor with any other Person shall not constitute a Lease Default, provided,
that, the Guarantor is the surviving entity and remains in compliance with all
of the conditions, covenants and agreements set forth in the Lease Documents
pertaining to the Guarantor (including, without limitation, any financial
covenants).
Notwithstanding anything to the contrary set forth herein, from and after
the date of the consummation of the Guarantor's initial public offering of
common stock, the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended), at any time,
by any Person and its Affiliates, either individually or as a group, of an
aggregate of fifty percent (50%) or more of the common stock of the Guarantor
shall constitute a Lease Default.
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"), whether to
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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 form 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.
ARTICLE 21
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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 and the Right of First Refusal 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 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:
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If to Lessee: Black Box of Lewisburg, Inc.
65 Allerton Street
Boston, MA 02119
Attn: Walter K. McDonough
If to the Guarantor: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: President
With copies to: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: General Counsel
and
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Donald Kortlandt, Esq.
If to 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
and
Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110-2699
Attn: Marianne Ajemian, Esq.
or such other address as Lessor, Lessee or the Guarantor shall hereinafter from
time to time designate by a written notice to the others given in such manner.
Any notice given to Lessee
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or the Guarantor 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 LIABILITY
In no event shall 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 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.
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
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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 Working Capital Loan Documents, 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
Working Capital Loan Documents, 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,
extension, substitution, revisions, consolidation or modification of any of the
Lease Documents or any Management Agreement, Related Party Agreement, Working
Capital Loan Documents, 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 respects those provisions of the letter of intent dated
September 12, 1997 (and all prior iterations thereof), from Meditrust to the
Guarantor, accepted by the Guarantor on September 15, 1997 relating to the
Project.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT
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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 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.
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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 Commonwealth of Massachusetts, except (a) that the laws of the State
shall govern this Lease to the extent necessary to obtain the benefit of and/or
enforce the rights and remedies set forth herein with respect to the Leased
Property and (b) for procedural requirements relating to the Leased Property
which must be governed by the laws of the State.
To the maximum extent permitted by applicable law, Lessee 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,
Lessor's relationship with 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.
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
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<PAGE> 122
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).
ARTICLE 25
SUBSTITUTION OF PROPERTY
25.1 SUBSTITUTION OF PROPERTY FOR THE LEASED PROPERTY. Provided that no
default has occurred under this Lease (excluding any default which has been
cured in accordance with the terms hereof or which has been waived, in writing,
by the Lessor), nor any event which, with the giving of notice or the passage of
time or both, would constitute such a default, Lessee shall have the right from
time to time (referred to herein as the "Substitution Right"), exercisable upon
not less than ninety (90) days' prior written notice to Lessor (referred to
herein as a "Substitution Notice") to substitute, on a date specified in such
Substitution Notice (such date, as the same may be extended by express written
agreement of Lessor, shall be referred to herein as a "Substitution Date"), the
Leased Property with a Comparable Facility. As used herein, the term "Comparable
Facility" shall be defined as a personal care home, assisted living facility or
other similar senior housing facility which Lessor determines (a) has an
appraised Fair Market Value greater than or equal to the greater of (i) the
appraised Fair Market Value of the Leased Property at the Commencement Date or
(ii) the appraised Fair Market Value of the Leased Property at the time that the
applicable Substitution Notice is furnished to Lessor (based on appraisal
criteria then in effect), (b) has a Rent Coverage Ratio greater than or equal to
the greater of (i) the Rent Coverage Ratio of the Leased Property as of the
Commencement Date or (ii) the Rent Coverage Ratio of the Leased Property at the
time that the applicable Substitution Notice is furnished to Lessor, (c)
provides a mix of services similar to the Leased Property and (d) is otherwise
reasonably acceptable, in all respects, to Lessor (based on Lessor's usual and
customary property evaluation criteria then in effect). Lessee may not exercise
its Substitution Right more than once in any calendar year.
25.2 CONDITIONS TO SUBSTITUTION. Without limiting the foregoing, as
conditions precedent to the consummation of any proposed substitution:
(a) as of the applicable Substitution Date, no Lease Default shall
have occurred (excluding any Lease Default which has been waived, in
writing, by Lessor), nor any event which with the giving of notice and/or
the passage of time would constitute such a default;
(b) Lessor shall have received engineering and inspection reports
relating to the medical office building identified by Lessee in the
applicable Substitution Notice (referred to herein as a "Proposed
Facility"), reasonably satisfactory in all respects to Lessor;
(c) Lessee shall have delivered to Lessor (i) an MAI appraisal of the
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Proposed Facility (prepared by an appraiser selected by Lessee and approved
by Lessor), in form and substance reasonably satisfactory to Lessor and
(ii) an instrument survey of the premises upon which the Proposed Facility
is located acceptable to Lessor and the Title Company;
(d) Lessor shall be satisfied as to compliance of Lessee, the Proposed
Facility, the owner of the Proposed Facility (to the extent such owner is
not Lessee as provided in subsection (l) below) and/or the proposed
substitution, as the case may be, with (i) all applicable land use, zoning,
subdivision and environmental laws and regulations, (ii) all applicable
health-care and/or personal care, assisted living or other similar senior
housing licensure laws and regulations and (iii) such other matters as
Lessor reasonably deems relevant (including, without limitation, whether
the conveyance of the property to Lessor in connection with the proposed
substitution may be avoided under the Bankruptcy Code);
(e) Lessee shall have delivered to Lessor a valid and binding owner's
or lessee's (as applicable) title insurance commitment issued by a title
insurer reasonably acceptable to Lessor (the "Title Company"), in an amount
equal to the Fair Market Value of the Proposed Facility, with such
endorsements and affirmative coverages, and in such form, as Lessor may
reasonably require insuring Lessor's fee title or leasehold title to the
Proposed Facility, subject to no Liens except those approved or assumed by
Lessor and arrangements satisfactory to Lessor shall have been made for the
issuance of a title insurance policy on the Substitution Date in accordance
with such title insurance commitment;
(f) Lessee shall have delivered an environmental site assessment
report relating to the Proposed Facility, in form and substance reasonably
acceptable to Lessor and prepared by an environmental consultant reasonably
acceptable to Lessor;
(g) Lessor shall have obtained, at Lessee's cost, an opinion of
Lessor's counsel, in form and substance acceptable to Lessor, confirming
that (i) the substitution of the Proposed Facility 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 1250(d)(4)
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
(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 or any Affiliate of Lessee or of any
Guarantor pursuant to any other leases with Lessor (or any of its
Affiliates) or any other transfers of the Leased Property or the properties
leased under other such leases, during the relevant time period, will not
jeopardize the qualification of Lessor as a real estate investment trust
under Code Sections 856-860;
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(h) Lessor shall have received opinions of Lessee's counsel as to (i)
the compliance of the Proposed Facility with land use, zoning, subdivision
and environmental laws and regulations, (ii) the compliance of Lessee, the
owner of the Proposed Facility (to the extent such owner is not Lessee as
provided in subsection (l) below), the proposed substitution and the
Proposed Facility with applicable health care, personal care, assisted
living and/or other similar senior housing laws and regulations, (iii) the
due authorization, execution and enforceability of the Substitution
Documents and (iv) such other matters as are reasonably requested; in form
and substance reasonably acceptable to Lessor;
(i) Lessee and the Guarantor shall have executed and delivered, or
caused to be executed and delivered, such documents as are reasonably
required by Lessor to effectuate the substitution (collectively, the
"Substitution Documents"), including, without limitation, (i) a deed with
full warranties or assignment of a leasehold estate with full warranties
(as applicable) conveying to Lessor title to the Proposed Facility free and
clear of all Liens, except those approved or assumed by Lessor, (ii) a
facility lease (the "Substitution Lease") duly executed, acknowledged and
delivered by Lessee, containing the same terms and conditions as are
contained herein except that (1) the legal description of the land shall
refer to the Proposed Facility, (2) the Meditrust Investment in the
Proposed Facility shall be an amount equal to the Meditrust Investment in
the Leased Property increased by any Cash Adjustment paid by Lessor, (3)
the Rent under the Substitution Lease in all respects shall provide Lessor
with a substantially equivalent yield at the time of the substitution
(i.e., annual return on its equity in such Proposed Facility) to that
received (and reasonably expected to be received thereafter) from the
Leased Property, taking into account the Cash Adjustment, if any, paid by
Lessor and any other relevant factors and (4) such other changes therein as
may be necessary or appropriate under the circumstances shall be made;
(iii) a collateral assignment of permits, licenses, approvals and contracts
relating to the Proposed Facility, substantially in the form of the Lessee
Permits Assignment; (iv) UCC financing statements and (v) an affiliated
party subordination agreement, substantially in the form of Affiliated
Party Subordination Agreement, shall be executed by the parties to the
Affiliated Party Subordination Agreement and such other Persons as are
deemed necessary or appropriate by the Lessor. The Substitution Documents
shall be based upon and contain the same terms and conditions as are set
forth in Lessee Documents in effect prior to the substitution, except that
such changes shall be made as may be necessary or reasonably appropriate
under the circumstances to effectuate the substitution and secure the
protection and priority of the property and security interests conveyed
and/or granted to Lessor;
(j) without limiting any other provision contained herein, Lessee
shall have delivered to Lessor such other information and materials
relating to Lessee, the owner of the Proposed Facility (to the extent that
such owner is not Lessee as provided in subsection (l) below) and the
Proposed Facility as Lessor may reasonably request,
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including, without limitation, leases, receipted bills, management
agreements and other Contracts, Provider Agreements, cost reports, Permits,
evidence of legal and actual access to the Proposed Facility, evidence of
the availability and sufficiency of utilities servicing the Proposed
Facility, historical and current operating statements, detailed budgets and
financial statements and Lessor shall have found the same to be
satisfactory in all respects;
(k) without limiting Lessee's obligations to pay the Substitution
Closing Costs in accordance with the provisions of Section 25.4, Lessee
shall also pay to Lessor a fee equal to one percent (1%) of the Meditrust
Investment;
(l) the Proposed Facility shall be owned or leased by Lessee or an
Affiliate of Lessee that is acceptable to Lessor; provided, however, that
in the event that the Proposed Facility is owned by any such Affiliate, (i)
said Affiliate shall execute and deliver to Lessor such Substitution
Documents as may be reasonably required by Lessor and (ii) Lessor shall be
provided with such evidence as it may require to determine that the
conveyance of the Proposed Facility (or a leasehold interest therein) to
Lessor does not constitute a fraudulent conveyance (under applicable
federal or state law);
(m) Lessee shall have delivered to Lessor an insurance certificate
evidencing compliance with all of the insurance requirements set forth in
the Substitution Documents;
(n) Lessee shall have delivered to Lessor an Officer's Certificate
certifying as of the Substitution Date that (i) the Proposed Facility has
been accepted by Lessee for all purposes of the Substitution Lease and
there has been no material damage to the improvements located on the
Proposed Facility, nor is any condemnation or eminent domain proceeding
pending with respect thereto; (ii) all Permits (including, but not limited
to, a permanent, unconditional certificate of occupancy) which are
necessary to permit the use of the Proposed Facility in accordance with the
provisions of the Substitution Lease have been obtained and are in full
force and effect; (iii) under applicable zoning and use laws, ordinances,
rules and regulations, the Proposed Facility may be used for the purposes
contemplated by Substitution Documents and all necessary subdivision
approvals have been obtained; (iv) to the best knowledge of Lessee, there
exists no Lease Default under this Lease, and no defense, offset or claim
exists with respect to any sums to be paid by Lessee hereunder, and (v) any
exceptions to Lessor's title to the Proposed Facility do not materially
interfere with the intended use of the Proposed Facility by Lessee;
(o) Lessor shall have determined that the Proposed Facility
constitutes a Comparable Facility; and
(p) Lessor shall have received all Rent due and payable hereunder
through
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<PAGE> 126
the Substitution Date.
In the event that the equity value of the Proposed Facility (i.e., the Fair
Market Value of the Proposed Facility minus the Liens to which Lessor will take
the Proposed Facility subject) 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 Liens to which Lessee will take the Leased Property subject
other than those Liens which Lessee is obligated to pay or discharge pursuant to
the terms of this Lease) as of the Substitution Date, subject to the limitation
set forth below, Lessor shall pay an amount equal to the difference to Lessee;
provided, however, that Lessor shall not be obligated to consummate such
substitution if Lessor would be required to make a payment to Lessee of an
amount equal to or in excess of fifteen percent (15%) of said Fair Market Value
of the Leased Property (the amount of cash paid by Lessor to Lessee being
referred to herein as the "Cash Adjustment"). Without limiting the generality or
effect of the preceding sentence, in the event that, on the Substitution Date,
Lessor is obligated to pay a Cash Adjustment to Lessee and Lessor does not have
sufficient funds available, or elects not to make such payment in cash, Lessor
shall provide Lessee with (and Lessee shall accept) a purchase money note and
mortgage for a term not to exceed eighteen (18) months from the Substitution
Date and bearing interest, payable monthly, at a rate of interest equal to one
hundred ten percent (100%) of the applicable federal rate (determined at the
time of execution of such note pursuant to Section 1274 of the Code or any
successor section thereto), compounded semi-annually, or, if no such rate exists
or such rate is in excess of that permitted under applicable law, at the Prime
Rate, which interest shall be payable monthly in arrears.
25.3 CONVEYANCE TO LESSEE. If the Lessor shall have determined that the
Proposed Facility constitutes a Comparable Facility, on the Substitution Date,
after the consummation of a substitution in accordance with the terms hereof,
Lessor will convey the Leased Property to Lessee in accordance with the
provisions of Article 18 (except as to payment of any expenses in connection
therewith which shall be governed by Section 25.4 below) and this Lease shall
thereupon terminate as to the Leased Property. Upon completion of the purchase
of the Leased Property, no Rent shall thereafter accrue with respect thereto.
25.4 EXPENSES. Whether or not any proposed substitution is consummated,
Lessee shall pay all of the out-of-pocket expenses and other costs incurred or
expended by Lessor in connection with any proposed substitution (collectively
referred to herein as "Substitution Closing Costs"), including, without
limitation, reasonable attorneys' fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and tax review costs, out-of-pocket
travel expenses, inspection fees, title insurance premiums and other title fees,
survey expenses, mortgage taxes, transfer, documentary stamp and other taxes,
search charges of any nature, recording, registration and filing costs, broker's
fees and commissions, if any, escrow fees, fees and expenses, if any, incurred
in qualifying Lessor and maintaining its right to do business in the state where
the Proposed Facility is located, the cost of obtaining, preparing and recording
a release of the Leased Property from the lien of any Fee Mortgage (other than
the amount necessary to payoff such Fee Mortgage) and any other costs expended
or incurred
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by Lessor in connection with the preparation for and the documentation and/or
the closing of the proposed substitution. The Substitution Closing Costs shall
be a demand obligation of Lessee to Lessor 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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<PAGE> 128
IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
attested by their respective officers thereunto duly authorized.
WITNESS: LESSEE:
BLACK BOX OF LEWISBURG, INC.,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ----------------------- -----------------------
Name: Name:
Title:
WITNESS: LESSOR:
MEDITRUST ACQUISITION
CORPORATION II, a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ----------------------- ---------------------------
Name: Name:
Title:
<PAGE> 129
Schedule to Exhibit 10.46 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Facility Lease Agreement
<TABLE>
<CAPTION>
Date of
Project Parties Agreement Location
- ------- ------- --------- --------
<S> <C> <C> <C>
Chippewa, PA Meditrust Acquisition 1/7/98 Chippewa, PA
Corporation II (Lessor)
TC Realty of Chippewa,
Inc. (Lessee)
Lewistown, PA Meditrust Acquisition 1/7/98 Lewistown, PA
Corporation II (Lessor)
TC Realty of Lewistown,
Inc. (Lessee)
Berwick, PA Meditrust Acquisition 1/7/98 Berwick, PA
Corporation II (Lessor)
TC Realty of Berwick,
Inc. (Lessee)
Martinsburg, WV Meditrust Acquisition 12/31/97 Martinsburg, WV
Corporation II (Lessor)
Black Box of Martinsburg,
Inc. (Lessee)
Peckville, PA Meditrust Acquisition 12/31/97 Peckville, PA
Corporation II (Lessor)
Black Box of Peckville,
Inc. (Lessee)
Dillsburg, PA Meditrust Acquisition 12/31/97 Dillsburg, PA
Corporation II (Lessor)
Black Box of Dillsburg,
Inc. (Lessee)
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
Date of
Project Parties Agreement Location
- ------- ------- --------- --------
<S> <C> <C> <C>
Maumelle, AR* Meditrust Acquisition 12/19/97 Maumelle, AR
Corporation II (Lessor)
TC Realty of Maumelle,
Inc.(lessee)
Reading, PA* Meditrust Acquisition 12/19/97 Reading, PA
Corporation II (Lessor)
TC Realty of Reading,
Inc. (Lessee)
Sherwood, AR* Meditrust Acquisition 12/19/97 Sherwood, AR
Corporation II (Lessor)
TC Realty of Sherwood,
Inc. (Lessee)
Mountain Home, Meditrust Acquisition 12/19/97 Mountain Home, AR
AR* Corporation II (Lessor)
TC Realty of Mountain
Home, Inc. (Lessee)
Altoona, PA* Meditrust Acquisition 12/19/97 Altoona, PA
Corporation II (Lessor)
TC Realty of Altoona,
Inc. (Lessee)
Blytheville, AR* Meditrust Acquisition 12/19/97 Blytheville, AR
Corporation II (Lessor)
TC Realty of Blytheville,
Inc. (Lessee)
Pocahontas, AR* Meditrust Acquisition 12/19/97 Pocahontas, AR
Corporation II (Lessor)
TC Realty of Pocahontas,
Inc. (Lessee)
</TABLE>
*First Amended and Restated Facility Lease Agreement
<PAGE> 1
EXHIBIT 10.47
LEASEHOLD IMPROVEMENT AGREEMENT
AMONG
MEDITRUST ACQUISITION CORPORATION II
AND
BCC DEVELOPMENT AND MANAGEMENT CO.
AND
BLACK BOX OF LEWISBURG, INC.
DATED AS OF DECEMBER 31, 1997
(Lewisburg)
<PAGE> 2
LEASEHOLD IMPROVEMENT AGREEMENT
AMONG
MEDITRUST ACQUISITION CORPORATION II
AND
BCC DEVELOPMENT AND MANAGEMENT CO.
AND
BLACK BOX OF LEWISBURG, INC.
SUMMARY OF TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. BACKGROUND.................................................................................1
1.1 The Parties.......................................................................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 Developer's
Agreement to Supervise the Project................................................2
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..............................................................3
1.11 Lessee's Agreement to Pay Rent....................................................3
1.12 Guaranties, Indemnities and Other Agreements......................................3
1.13 Access to the Leased Property.....................................................3
2. DEFINITIONS................................................................................4
3. FEES.......................................................................................4
3.1 Leasehold Improvement Fee.........................................................4
3.2 Development Fee...................................................................4
4. LEASE DOCUMENTS AND DEVELOPMENT DOCUMENTS; COLLATERAL SECURITY.............................5
4.1 Lease Documents...................................................................5
4.2 Lease Obligations and Development Obligations.....................................6
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
4.3 Collateral Security...............................................................7
5. REPRESENTATIONS AND WARRANTIES.............................................................8
5.1 Architect's Contract and Construction Contract....................................8
5.2 Project Plans.....................................................................8
5.3 Prior Construction Work...........................................................8
5.4 Suitability of Project Plans......................................................9
5.5 Compliance with Legal Requirements and Applicable Agreements......................9
5.6 Permits and Contracts.............................................................9
5.7 First Advance....................................................................10
5.8 Prior Services...................................................................10
6. COVENANTS.................................................................................11
6.1 Collection and Enforcement Costs.................................................11
6.2 Agreements to Perform Certain Obligations........................................11
6.3 Continuing Effect of Representation and Warranties...............................12
6.4 Construction Covenants...........................................................12
6.4.01 Commencement of Construction............................................12
6.4.02 Quality of Materials and Workmanship....................................12
6.4.03 Project Budget..........................................................13
6.4.04 Architect Certificates..................................................13
6.4.05 Subcontractors..........................................................14
6.4.06 The Lessor's Consultant.................................................14
6.4.07 Title To Materials and Security Interest Granted to Lessor..............15
6.4.08 Compliance With Legal Requirements And Applicable Agreements............16
6.4.09 Liens 16
6.4.10 Books And Records.......................................................17
6.4.11 Inspection Of Construction..............................................17
6.4.12 Notice Of Delay.........................................................17
6.4.13 Bonds 17
6.4.14 Use of Project Funds....................................................17
6.4.15 Occupancy of the Project................................................18
7. ADVANCES OF PROJECT FUNDS.................................................................18
7.1 Conditions Precedent to First Advance of Project Funds...........................18
7.2 The Lessor's Right to Advance....................................................21
7.3 Submission of Requests for Advances..............................................21
7.4 Advances by Wire Transfer........................................................23
7.5 Conditions Precedent to All Advances.............................................23
7.6 Completion of the Project........................................................25
7.7 Condition of the Project.........................................................25
8. THE LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER ACTION.................................26
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
9. INSURANCE; CASUALTY; TAKING...............................................................28
9.1 General Insurance Requirements...................................................28
9.2 Fire or Other Casualty or Condemnation...........................................28
10. EVENTS OF DEFAULT.........................................................................28
11. REMEDIES IN EVENT OF DEFAULT..............................................................29
12. GENERAL...................................................................................31
13. TERM......................................................................................31
EXHIBIT A DESCRIPTION OF THE LAND
EXHIBIT B PLANS AND SPECIFICATIONS
EXHIBIT C SCHEDULE OF CONSTRUCTION
EXHIBIT D PROJECT BUDGET
EXHIBIT E DEFINITIONS
EXHIBIT F FUTURE PERMITS AND CONTRACTS REQUIRED
FOR COMPLETION OF CONSTRUCTION AND
COMMENCEMENT OF OPERATION
EXHIBIT G SURVEY
EXHIBIT H SURVEYOR'S CERTIFICATE
EXHIBIT I ARCHITECT'S CERTIFICATE AND CIVIL ENGINEER'S CERTIFICATE
EXHIBIT J BCC DEVELOPMENT AND MANAGEMENT CO. REQUISITION CERTIFICATE
EXHIBIT K GENERAL CONTRACTOR'S REQUISITION CERTIFICATE
EXHIBIT L ARCHITECT'S REQUISITION CERTIFICATE
</TABLE>
<PAGE> 5
LEASEHOLD IMPROVEMENT AGREEMENT (Lewisburg)
THIS LEASEHOLD IMPROVEMENT AGREEMENT is made as of December 31, 1997 by and
among BCC DEVELOPMENT AND MANAGEMENT CO., a Delaware corporation (the
"Developer"), BLACK BOX OF LEWISBURG, INC., a Delaware corporation (the
"Lessee"), and MEDITRUST ACQUISITION CORPORATION II, a Delaware corporation (the
"Lessor").
1. BACKGROUND
1.1 THE PARTIES
The Lessee is a Delaware corporation. The Developer is (A) a Delaware
corporation with a principal place of business at 5021 Louise Drive, Suite 200,
Mechanicsburg, Pennsylvania 17055 and (B) a wholly-owned subsidiary of the
Guarantor (as hereinafter defined). The Guarantor is a Delaware corporation with
a principal place of business at 5021 Louise Drive, Suite 200, Mechanicsburg,
Pennsylvania 17055.
1.2 THE LAND AND EXISTING IMPROVEMENTS.
The Lessor is the owner of a certain parcel of land located in East Buffalo
Township, Union County, Pennsylvania 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 Union County, Pennsylvania.
1.4 PROJECT
The Lessor proposes to cause the Developer to construct a personal care
home with seventy (70) licensed beds (located in forty-four (44) units) and
certain other improvements more particularly described on the Project Plans (as
hereinafter defined), 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".
<PAGE> 6
1.5 LESSOR'S AGREEMENT TO FUND THE PROJECT AND DEVELOPER'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 to the Developer an amount not to exceed
TWO MILLION NINE HUNDRED TWENTY-EIGHT THOUSAND THREE HUNDRED SIXTY-SEVEN DOLLARS
($2,928,367.00) of the cost of the Project (the "Project Funds") and, in
accordance with the terms hereof, the Developer has agreed to supervise and
manage, the construction of the Project. Subject to the terms and conditions
hereof, the Lessor hereby agrees to advance to the Developer an amount not to
exceed the Project Funds to pay for the cost of the construction of the Project
and the Developer hereby agrees to supervise and manage 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 Swendsen Engineering, Inc. (the "Architect") pursuant to the
contract dated as of September 8, 1997, by and between the Developer and the
Architect (the "Architect's Contract"), as the same may be revised in accordance
with the terms hereof.
1.7 CONSTRUCTION CONTRACT
All of the Improvements are to be constructed pursuant to a guaranteed
maximum price contract (the "Construction Contract"), dated as of December 3,
1997, by and between the Developer and Mariano Construction, Inc. (the "General
Contractor"), as the same may be revised in accordance with the terms hereof.
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 June 30, 1999 (the "Completion
Date").
1.9 PROJECT BUDGET
The Developer has submitted to the Lessor and the Lessee a line item budget
(the "Project Budget"), a copy of which is annexed hereto as EXHIBIT D, setting
forth a total cost of TWO MILLION NINE HUNDRED TWENTY-EIGHT THOUSAND THREE
HUNDRED SIXTY-SEVEN DOLLARS ($2,928,367.00) for the acquisition cost of the Land
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<PAGE> 7
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) the Working Capital Reserve (as
hereinafter defined) in an amount equal to the original principal balance of the
Note (as hereinafter defined), (e) a projected draw schedule and (f) 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. Without
limiting any other provision set forth herein, in the event that the total
amount of the Project Funds is not sufficient for the payment of the Project
costs set forth in the Project Budget (or the actual costs incurred in
connection with the completion of construction of the Project), the Developer
shall, nevertheless, remain obligated, at its sole cost and expense, to complete
the construction of the Project in accordance with the terms hereof.
1.11 LESSEE'S AGREEMENT TO PAY RENT
Subject to all of the terms, conditions and provisions of this Agreement,
and of the agreements and instruments referred to herein, the Lessee, in
consideration of the Lessor (a) arranging for the construction of the Project,
which shall inure to the benefit of the Lessee, and (b) advancing sums hereunder
to fund such construction, agrees 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 all such sums as shall
have been advanced by the Lessor from time to time under this Agreement,
including, without limitations, all amounts which the Lessor may, but, is not
obligated to advance, in excess of the Project Funds, pursuant to the provisions
of Section 6.1, Section 6.4.06, Section 8 and/or Section 11 hereof.
1.12 GUARANTIES, INDEMNITIES AND OTHER AGREEMENTS
As an inducement to the Lessor to acquire the Land, enter into this
Agreement, advance the Project Funds and enter into the Facility Lease, (i) the
Guarantor has agreed to furnish certain guaranties as hereinafter described and
certain working capital loans as more particularly described in the Working
Capital Assurance Agreement (as hereinafter defined) and (ii) the Pledgor (as
hereinafter defined) has agreed to make equity contributions to the Lessee, in
amounts equal to the advances from time to time made to the Pledgor by the
Lessor
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under the Note, to provide the Lessee with funds to fulfill its working
capital obligations.
1.13 ACCESS TO THE LEASED PROPERTY.
Without limiting any provisions set forth in this Agreement or any of the
other Lease Documents with respect to the Lessor's rights of access to the
Leased Property, the Lessee shall allow the Developer and the Developer's
agents, contractors, subcontractors, employees, representatives, consultants and
invitees to have such access to the Leased Property as the Developer deems
necessary in order to allow the Developer to complete the construction of the
Project in accordance with the terms hereof and to perform all of its
obligations hereunder.
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. FEES.
3.1 LEASEHOLD IMPROVEMENT FEE.
The Lessee shall pay the Leasehold Improvement Fee to the Lessor
simultaneously with the execution of this Agreement (which Leasehold Improvement
Fee shall be included in the Project Budget and shall be advanced hereunder in
connection with the initial advance of the Project Funds); 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.
3.2 DEVELOPMENT FEE.
As compensation for the performance of the Developer's obligations
hereunder, the Lessor agrees that the Development Fee shall be included within
the Project Budget and shall be payable to the Developer, subject to the
Lessor's right to set-off any amounts owed to the Lessor by the Developer
hereunder or under any of the other Development Documents, as follows: (a) TWO
HUNDRED TWENTY FIVE THOUSAND DOLLARS ($225,000.00) upon the first advance of
Project Funds hereunder and (b) from and after the completion of
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seventy-five percent (75%) of the Project, the remainder of the Development Fee
shall be disbursed in equal installments in connection with the monthly advances
of Project Funds. Notwithstanding the foregoing, the Lessee acknowledges and
agrees that any amounts that are set-off by the Lessor against the sums that are
due hereunder from the Developer to the Lessor, shall nevertheless, for all
purposes of this Agreement, be deemed to have been advanced hereunder (even if
the aggregate amount of such sums so advanced 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.
4. LEASE DOCUMENTS; COLLATERAL SECURITY
4.1 LEASE DOCUMENTS AND DEVELOPMENT DOCUMENTS
The Project Funds shall be advanced, evidenced and administered, in
accordance with the terms of this Agreement and shall be secured and governed by
all of the terms, conditions and provisions of each of the following:
A. this Agreement;
B. 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;
C. an Environmental Indemnity Agreement of even date by and among the
Lessee, the Developer, and the Lessor (the "Environmental Indemnity
Agreement");
D. 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 "Guaranty");
E. an Assignment of Construction Contract of even date granted by the
Developer to the Lessor and containing the consent of the General
Contractor (the "Construction Assignment");
F. 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"); and
G. all other documents, instruments, or agreements now or hereafter
evidencing or securing the obligations of the Developer under this
Agreement.
Items (A) through (G) above, as the same from time to time may be hereinafter
amended,
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modified or supplemented, are referred to herein as the "Development Documents".
The Lessee's obligations with respect to the Land and the Project shall be
evidenced, administered, secured and governed by all of the terms, conditions
and provisions of each of the following:
i. this Agreement;
ii. the Facility Lease;
iii. 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;
iv. a Security Agreement of even date by and between the Lessee and the
Lessor (the "Security Agreement");
v. the Environmental Indemnity Agreement;
vi. a Deposit Pledge Agreement of even date by and between the Lessee and
the Lessor (the "Deposit Pledge Agreement");
vii. a Pledge Agreement of even date by and among the Lessee, the Lessor
and Black Box Holding Company (the "Pledgor"), pursuant to which the
Pledgor granted the Lessor a security interest in all of the
outstanding capital stock of the Lessee (the "Pledge Agreement") and
related stock powers;
viii.an Affiliated Party Subordination Agreement of even date by and among
the Lessee, the Guarantor, the Current Manager, the Black Box Parties
(as hereinafter defined) and the Lessor (the "Affiliated Party
Subordination Agreement");
ix. the Amended and Restated Agreement Regarding Related Lease
Transactions of even date by and among the Lessee, the Tenant Parties
and the Lessor (the "Agreement Regarding Related Lease Transactions");
and
x. all other documents, instruments, or agreements now or hereafter
evidencing or securing the obligations of the Lessee under this
Agreement and/or the Facility Lease, including, without limitation,
the Lessee's Guaranty (as hereinafter defined).
Items (i) through (x) above, as the same from time to time may be hereinafter
amended, modified or supplemented, are referred to herein as the "Lease
Documents".
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4.2 LEASE OBLIGATIONS AND DEVELOPMENT OBLIGATIONS
The Lessee agrees to pay and perform all of its indebtedness, covenants,
liabilities, obligations, agreements and undertakings under this Agreement and
all of the other Lease Documents (collectively, the "Lease Obligations"). The
Developer agrees to pay and perform all of its indebtedness, covenants,
liabilities, obligations, agreements and undertakings under this Agreement and
all of the other Development Documents (collectively, the "Development
Obligations").
4.3 COLLATERAL SECURITY
The Lease Obligations shall be secured by the following:
A. a perfected first priority security interest in the Lessee's interest
in all Permits and Contracts pursuant to the Lessee Permits
Assignment;
B. a perfected first priority security interest in Tangible Personal
Property, Receivables and certain other Collateral pursuant to the
Security Agreement;
C. the Environmental Indemnity Agreement;
D. a perfected first priority security interest in all of the outstanding
capital stock of the Lessee pursuant to the Pledge Agreement;
E. a perfected first priority interest in the Cash Collateral pursuant to
the Deposit Pledge Agreement;
F. all other security interests in such other property for which
provision is made in the Lease Documents or at law or in equity; and
G. certain other Related Party Agreements.
All of the property in which security interests are granted (i) as described in
items (A) through (G) above and (ii) pursuant to any other Lease Document is
collectively referred to herein as the "Lessee Collateral".
The Development Obligations shall be secured by the following:
1. a perfected first security interest in the Developer's interest in all
Permits and Contracts pursuant to the Developer Permits Assignment;
2. the Guaranty;
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3. the Environmental Indemnity Agreement; and
4. all other security interests in such other property for which
provision is made in the Development Documents or at law or in equity.
All of the property in which security interests are granted (i) as
described in items (1) through (4) above and (ii) pursuant to any other
Development Document is collectively referred to herein as the "Developer
Collateral."
5. REPRESENTATIONS AND WARRANTIES
In order to induce (a) the Lessor to advance the Project Funds pursuant to
the terms and conditions of this Agreement and (b) the Lessee to agree to be
liable for the payment of Rent regarding such sums as shall have been advanced
from time to time under this Agreement, the Developer represents and warrants to
the Lessor and the Lessee that:
5.1 ARCHITECT'S 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 and the
Lessee by the Developer (a) are true and correct and satisfactory to the
Developer 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
Leased Property, the Project or Developer, as the case may be, 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 and the Lessee, 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 Developer
has been advised or of which the Developer has notice or knowledge. The
Developer has not received any notice claiming that, and the Developer has no
knowledge
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that, the Project Plans violate any Legal Requirement.
5.3 PRIOR CONSTRUCTION WORK
No Person has commenced or performed any construction work or furnished any
services in connection with any construction carried on or to be carried on at
the Leased Property meaning, without limitation, that no lumber, brick, pipe,
tile or other building material has been delivered to the Leased Property, there
has been no grading or excavating of the Leased Property, no lines or grade
stakes have been laid out, and no existing structure has been demolished, and no
Person will commence or perform any such construction work or services or
furnish such materials on the Leased Property until after this Agreement, the
Facility Lease and the other Lease Documents have been executed by all parties
thereto and a memorandum or notice of the Facility Lease has been filed of
record in the office of the Clerk/Prothonotary in the county in which the Leased
Property is situated.
5.4 SUITABILITY OF PROJECT PLANS
The Project Plans provide (a) 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 (b) after the completion of the construction of the
Project, 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 Developer, recommended by the applicable
Governmental
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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 Developer 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.
5.7 FIRST ADVANCE
As of the date of the first advance of Project Funds to the Developer
pursuant to this Agreement, the amount of the money expended by the Developer 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.
5.8 PRIOR SERVICES
Prior to the date of this Agreement, the Developer has performed the
following services in connection with the Project:
(a) completing a market analysis to confirm bed need;
(b) finding a suitable site and obtaining rights thereto;
(c) obtaining the Project Plans;
(d) retaining and supervising engineers, architects, land planners,
surveyors, consultants, independent contractors, subcontractors,
attorneys, service agents, suppliers and other providers of materials
or services;
(e) pursuing with the appropriate Governmental Authorities obtaining any
necessary Permits to allow the use and development of the Project in a
manner reflected in the Project Plans and as required hereunder;
(f) negotiating and/or entering into contracts for labor, materials and
services;
(g) coordinating with all applicable Governmental Authorities and securing
all necessary Permits to allow the use of the Project in accordance
with its Primary Intended Use;
(h) negotiating for the provision of utilities to serve the Leased
Property and the Project;
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(i) creating and filing and, where required, arranging for the execution
of any easements, plats, maps, plans, declarations of covenants and
restrictions, right-of-way deeds and other similar instruments
necessary to the development of the Project.
6. COVENANTS
6.1 COLLECTION AND ENFORCEMENT COSTS
Upon demand, the Developer and 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 (a) any of the Lessor's rights under this Agreement and/or
any of the other Development Documents and/or (b) the obligations of the
Developer and/or any other member of the Leasing Group under this Agreement or
any of the other Development 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 Development Obligations and
the Lease Obligations and shall be secured by the Liens created by the
Development Documents and the Lease Documents as fully and effectively and with
the same priority as every other obligation of the Developer and/or the Lessee,
as the case may be, 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 obligations of the
Developer and the Lessee to pay all costs, charges and sums due hereunder 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 Developer and the Lessee shall nevertheless remain
obligated to pay their respective indebtedness evidenced by this Agreement, as
extended or modified by any such agreement or stipulation, unless the Developer
and/or the Lessee, as the case may be, are released and discharged from such
obligation by a written agreement executed by the Lessor. Notwithstanding the
foregoing, and without limiting any other provision set forth in this Agreement,
at the Lessor's option, all amounts due and payable hereunder may be advanced by
Lessor (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.
6.2 AGREEMENTS TO PERFORM CERTAIN OBLIGATIONS.
(a) The Developer agrees faithfully to perform, pay and observe all
agreements,
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covenants, indebtedness, obligations and liabilities of the Developer 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
Developer's obligations under all of the Development Documents. The payment of
all obligations and the performance of all covenants of and agreements by the
Developer under the Development Documents shall be absolute and unconditional,
irrespective of any defense or any rights or set-off, recoupment or counterclaim
the Developer might otherwise have against the Lessor, and the Developer shall
pay absolutely net during the Term all payments to be made as prescribed in all
of the Development Documents, free of any deductions and without abatement,
diminution or set-off.
(b) 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.
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 and shall survive the expiration of the
Term.
6.4 CONSTRUCTION COVENANTS
6.4.1 COMMENCEMENT OF CONSTRUCTION.
The Developer shall commence construction of the Project immediately
upon the execution and delivery of this Agreement. The Developer 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 Developer 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,
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agreements and liabilities of the Developer 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
Developer shall not make any changes in, and shall not permit 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 the Project
Plans, copies of all change orders shall be submitted by the Developer to
the Lessor and the Lessee, and the Developer shall also deliver to the
Lessor and the Lessee 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. The Lessee acknowledges and agrees that
the Developer may make any changes in, and may permit the General
Contractor and the Architect to make any changes in, the quality of the
materials for the Project, the Project Plans or the Project Budget without
the Lessee's consent provided that (a) the Lessor's consent to any such
change is not required hereunder or (b) the Developer has obtained the
Lessor's consent to any such change.
6.4.3 PROJECT BUDGET.
Upon the request of the Lessor, the Developer shall furnish the Lessor
and the Lessee with revisions for the Project Budget to reflect (a) any
changes approved by the Lessor to the Project 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. The Lessee acknowledges that any such revisions to the Project
Budget that are provided to it pursuant to the terms hereof shall be
furnished to the Lessee for informational purposes only.
6.4.4 ARCHITECT CERTIFICATES.
The Developer agrees to cause the Architect to furnish to the Lessor
and the
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Lessee 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 or the
Lessee. The Lessee acknowledges that any such statements and certificates
that are provided to it pursuant to the terms hereof shall be furnished to
the Lessee for informational purposes only. The Developer 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 an Event of
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.
Within sixty (60) days after the date of the execution of this
Agreement, the Developer 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 acknowledges that the Lessee shall have no rights of approval with
respect to any subcontractor. The Developer further agrees that the
Developer 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 Developer agrees to pay, from the Project Funds to be advanced
hereunder, 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 (or, to pay the Lessor to perform the services
that would otherwise be performed by the Consultants), 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 Developer's then current requisition to determine
whether
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it is consistent with the obligations of the Developer under this
Agreement, and to advise the Lessor of the anticipated costs of,
and the time for, the 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 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 Developer agrees
promptly to make such changes or corrections, or to cause the General Contractor
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 Developer demonstrates to the Lessor's satisfaction that
such corrective work is inconsistent with the Project Plans.
6.4.7 TITLE TO MATERIALS AND SECURITY INTEREST GRANTED TO LESSOR.
Except as otherwise expressly provided herein, the Developer shall not
suffer or permit 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 Developer does not have absolute and unencumbered title. The Developer
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 Developer 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 Developer
hereby conveys to the Lessor a security interest in all of the Developer's
right, title and interest in materials on the Leased Property which are not at
any relevant time incorporated into the Project and materials, wherever located,
intended for incorporation into the
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Project. The Developer 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 Developer 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.
The undertakings of the Developer in this Section shall also be applicable
to any personal property owned by the Developer 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 Developer 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 Development Documents, and any and
all property of the Developer which, under applicable provisions of this
Agreement and/or any of the other Developer Documents, may or shall stand as
security for advances of Project Funds under this Agreement and for the complete
payment and performance of the Development Obligations.
6.4.8 COMPLIANCE WITH LEGAL REQUIREMENTS AND APPLICABLE AGREEMENTS.
The Developer, 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, (d) the Development Documents and (e) the Lease Documents.
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
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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 Developer shall not permit the recording of any
notice of contract or mechanic's or materialmen's lien relating to construction
of the Project. Notwithstanding the foregoing provisions of this Section 6.4.09,
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) an Event of
Default has not occurred and (c) the Developer 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 Developer 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 Developer (showing, without
limitation, all materials ordered and received and all disbursements, accounts
payable and accounts receivable in connection with the construction of the
Project 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
Developer 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 Developer 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
Developer.
6.4.12 NOTICE OF DELAY.
The Developer shall give to the Lessor and the Lessee prompt written notice
of any fire, explosion, accident, flood, storm, earthquake or other casualty or
strike, lock
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out, act of God or interruption of the construction of the Project which is
reasonably anticipated to interfere with the ability of the Developer to
complete the Project by the Completion Date.
6.4.13 BONDS.
Within thirty (30) days after the execution of this Agreement, 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
obtained by the Developer 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 and shall be furnished to the
Lessor.
6.4.14 USE OF PROJECT FUNDS.
The Developer 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 Developer 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 Developer and 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.
6.5 CONSTRUCTION CONTRACT.
The Construction Contract is binding upon the parties thereto in accordance
with the terms thereof and shall 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
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Prior to the first advance of Project Funds contemplated by this Agreement,
and as a condition of the Developer's right to receive any of the proceeds of
the Project Funds, the following items shall have been furnished to the Lessor
at the Developer's sole cost and expense (which may be paid from the initial
advance of the Project Funds as long as such costs are included in the Project
Budget):
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 and this Agreement;
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 Developer's
representations and warranties contained herein and in all of the
other Development Documents are true and correct in every material
respect and such evidence as the Lessor may require that the Lessee's
representations and warranties set forth in the Lease Documents are
true and correct in every material respect;
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
Development 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;
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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 and the
executed Construction Contract, as well as all receipted bills paid by
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. Certificates from engineers and an architect, registered as such in
the state where the Leased Property is located, substantially in the
forms 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), addressed to the Lessor and the Lessee from the
Developer's counsel, the Lessee's counsel and the Guarantor's counsel,
regarding (i) the due execution, authority and enforceability of the
Development Documents and the Lease Documents; (ii) the valid issuance
of all Permits required for the construction of the Project, the
continuing effectiveness of said Permits and the Developer's and
Project's compliance therewith and (iii) 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 3.1 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
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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. A fully-executed and authorized Architect's Assignment, in form and
substance satisfactory to the Lessor; and
R. A fully-executed and authorized Construction 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 Developer
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 Developer shall give notice to the Lessor, specifying the total
advance which will be desired, accompanied by:
A. Itemized requisitions for advances or, at the Developer's option, for
reimbursements to the Developer for prepaid items, signed by the
Developer, 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 and the General Contractor, jointly and
severally, to the extent such indemnification is available from the
General Contractor upon the Developer's best efforts to obtain such
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indemnification, against any and all claims of any subcontractors,
laborers and suppliers;
B. A certificate executed by the Developer 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 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 updated Engineer's/Architect's Certificates substantially in
the forms attached hereto as EXHIBIT I;
I. If and when reasonably requested by the Lessor, updated Opinions from
the Developer'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
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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 Developer 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 Developer, the
Developer 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 Developer, 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 Subcontractor 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 Developer 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 Developer 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 Developer.
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 Developer or an authorized agent of the
Developer.
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 Developer 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
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may be used to refund any part of expenditures from the Developer's
own resources on the Project, except to the extent that any Project
Funds are used to reimburse the Developer 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
in 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 Developer can furnish the
Lessor with evidence satisfactory to the Lessor of the Developer'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 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, an Event of
Default or a Lease Default shall have occurred and be continuing.
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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 (i)
the Developer and the Lessee, as the case may be, agree to accept any
advance which the Lessor may elect to make under this Agreement and
(ii) the Lessee agrees to be liable for the payment of Rent regarding
all such sums as the Lessor may elect to advance 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 Developer 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 Developer (or any other
member of the Leasing Group), 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 an
Event of Default, for which the Lessor shall have all rights herein
specified for an Event of 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.
In all events, the Developer agrees to notify the Lessor and the
Lessee forthwith upon learning of the assertion of any such claim or
the commencement of any such proceedings.
G. It is contemplated, except with respect to the Leasehold Improvement
Fee and
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advances made under Sections 6.1, 6.4.06, 8 and/or 11 hereof, that all
advances of the Project Funds will be made by the Lessor to the
Developer pursuant to this Agreement.
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 Developer
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 personal care home with seventy (70) licensed beds (located in
forty-four (44) units), (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.
7.7 CONDITION OF THE PROJECT
The Developer and the Lessee each acknowledge and agree that: (a) 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 and (b) 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 Development Obligations and are not for the benefit of the
Lessee or the benefit of any other Person.
WITHOUT LIMITING THE FOREGOING, THE LESSOR MAKES NO WARRANTY OR
REPRESENTATION TO THE LESSEE OR THE DEVELOPER, EXPRESS OR IMPLIED, WITH RESPECT
TO THE LEASED PROPERTY OR THE PROJECT, 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 NOW OR HEREAFTER, LATENT
OR PATENT; IT BEING AGREED BY AND BETWEEN THE LESSOR AND THE LESSEE, THAT ALL
RISKS RELATING TO THE DESIGN, CONDITION AND/OR USE OF THE LEASED PROPERTY AND
THE PROJECT ARE, AS BETWEEN THE LESSOR AND THE LESSEE, TO BE BORNE BY LESSEE. IN
ADDITION, AS BETWEEN THE LESSOR AND THE LESSEE, THE LESSEE
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HEREBY ASSUMES ALL RISK OF THE PHYSICAL CONDITION OF THE LEASED PROPERTY AND THE
PROJECT, THE SUITABILITY OF THE LEASED PROPERTY AND THE PROJECT FOR LESSEE'S
PURPOSES, AND THE COMPLIANCE OR NON-COMPLIANCE OF THE LEASED PROPERTY AND THE
PROJECT WITH ALL APPLICABLE REQUIREMENTS OF LAW, INCLUDING BUT NOT LIMITED TO
ENVIRONMENTAL LAWS AND ZONING OR LAND USE LAWS.
Nothing set forth in this Section 7.7 shall, however, limit in any manner
whatsoever (i) any of the Developer's obligations hereunder or any of the other
Development Documents, including, without limitation, the Developer's
obligations to construct the Project in accordance with the terms hereof and
(ii) any claims that the Lessor and/or the Lessee may now or hereafter have
against the Developer hereunder or at law or in equity as a result of any acts
or omissions by the Developer.
8. THE LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER ACTION
The Developer and the Lessee acknowledge and agree that the Lessor may,
after ten (10) Business Days' prior notice to the Developer and 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 the Development Documents and (C) the performance of all
obligations under the Lease Documents and the Development 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 Developer or may otherwise
collect such amounts from the Developer, and the Lessee agrees to be liable for
the payment of Rent regarding all such amounts advanced hereunder,
notwithstanding that the aggregate amount that may be advanced 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 Developer and, to the extent
permitted by applicable law, shall be added to the Development Obligations and
secured by the Liens created by the Development Documents, as fully and
effectively and with the same priority as every other obligation of the
Developer 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.
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If the Developer fails to observe or cause to be observed any of the
provisions of this Agreement 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 and 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, at the option of the
Lessor, which may be exercised from time to time (i) a demand obligation of the
Developer to the Lessor or such receiver, and, to the extent permitted by law,
shall be added to the Development Obligations and shall be secured by the Liens
created by the Development 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 or (ii) may be advanced hereunder (even if the aggregate amount of such
sums so advanced 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.
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 Developer shall give immediate written notice
thereof to the Lessor and the Lessee and the Lessee and the Developer shall
comply with the provisions of the Facility Lease governing Casualties and
Condemnations, mutatis, mutandis. Notwithstanding the foregoing, in no event
shall the Completion Date be extended as a result of any Casualty or
Condemnation.
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 Development Documents and/or Lease Documents:
-28-
<PAGE> 33
A. any failure of the Developer to pay any amount due hereunder or under
any of the other Development Documents or any failure of the Lessee to
pay any amount due under any of the 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, any of the
other Development Documents or any of the Lease Documents, other than
the payment of any monetary obligation and other than as specified in
subsections (C) through (G) below (referred to herein as a "Failure to
Perform"), continuing for thirty (30) days after the giving of notice
by the Lessor to the Developer and/or the Lessee, as the case may be,
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 Developer and/or the Lessee, as the
case may be, commences the cure thereof within thirty (30) days after
the giving of such notice by the Lessor to the Developer and/or the
Lessee, as the case may be, (ii) the Developer and/or the Lessee, as
the case may be, 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 Developer and/or the Lessee, as
the case may be, and (IV) such Failure to Perform does not impair the
Lessor's rights with respect to the Leased Property or otherwise
impair any of 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 Development Documents or any of the Lease Documents;
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 Development Documents
or the 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
-29-
<PAGE> 34
for a period in excess of ten (10) Business Days, irrespective of the
cause thereof, provided that the Developer 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 Development Documents and the 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 Developer and which are to be used in
connection with the completion of the Project shall be subject to the Liens
created by the Development Documents.
In addition to, and without limitation of, the foregoing, the Lessor is
authorized, at the Lessor's option, which may be exercised from time to time,
(a) to offset all amounts expended hereunder by the Lessor to complete the
construction of the Project and/or exercise any of its other remedies hereunder
against any portion of the Development Fee due hereunder and (b) 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 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 Developer 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 Developer, and the Developer hereby
-30-
<PAGE> 35
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 Development Obligations are
fully paid and performed and shall not be affected by any disability or
incapacity which the Developer 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. Notwithstanding the foregoing, the Lessee and the Developer
acknowledge and agree that, in the event that the Lessor takes possession of the
Leased Property and assumes control of the Project as aforesaid, the Lessor
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 Project, 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.
13. TERM
This Agreement shall remain in force and effect until such time as the
Project is constructed in accordance with the terms hereof and, without limiting
the foregoing, the obligations set forth under Section 7.6 have been satisfied.
The period from the date hereof until such time as the construction of the
Project shall have been completed as aforesaid shall be referred to herein as
the "Term."
[SIGNATURES BEGIN ON THE NEXT PAGE.]
-31-
<PAGE> 36
EXECUTED as a sealed instrument as of the day and year first above
mentioned.
WITNESS: LESSOR:
MEDITRUST ACQUISITION CORPORATION II,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
DEVELOPER:
WITNESS: BCC DEVELOPMENT AND MANAGEMENT CO.,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
WITNESS: LESSEE:
BLACK BOX OF LEWISBURG, INC.,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
<PAGE> 37
Schedule to Exhibit 10.47 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Leasehold Improvement Agreement
<TABLE>
<CAPTION>
Development Project Total Working Leasehold
Project Parties Date Land Cost Fee Budget Budget Capital Loan Imp Fee
- ------- ------- ---- --------- ----------- --------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chippewa, PA Meditrust Acquisition 1/7/98 300,000 350,000 4,613,345 5,130,810 517,464 51,308
Corporation II,
BCC Development
and Management Co.,
TC Realty of Chippewa,
Inc.
Berwick, PA Meditrust Acquisition 1/7/98 195,000 300,000 3,043,121 3,405,346 362,225 34,053
Corporation II,
BCC Development
and Management Co.,
TC Realty of Berwick, Inc.
Lewistown, Meditrust Acquisition 1/7/98 250,000 300,000 3,061,120 3,423,345 362,225 34,233
PA Corporation II,
BCC Development
and Management Co.,
TC Realty of Lewistown,
Inc.
Dillsburg, PA Meditrust Acquisition 12/31/97 340,000 350,000 4,412,975 4,930,439 517,564 49,305
Corporation II,
BCC Development
and Management Co.,
Black Box of Dillsburg,
Inc.
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
Development Project Total Working Leasehold
Project Parties Date Land Cost Fee Budget Budget Capital Loan Imp Fee
- ------- ------- ---- --------- ----------- --------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Martinsburg, Meditrust Acquisition 12/31/97 348,638 350,000 4,830,692 5,348,156 517,464 53,482
WV Corporation II,
BCC Development
and Management Co.,
Black Box of Martinsburg,
Inc.
Peckville, PA Meditrust Acquisition 12/31/97 120,000 300,000 2,493,099 2,648,338 155,239 26,483
Corporation II,
BCC Development
and Management Co.,
Black Box of Peckville,
Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.48
PROMISSORY NOTE
(LEWISBURG)
$362,225.00 Boston, Massachusetts
As of December 31, 1997
FOR VALUE RECEIVED, BLACK BOX HOLDING COMPANY, a Delaware corporation,
having an address at 65 Allerton Street, Boston, Massachusetts 02119 (the
"Maker") promises to pay to the order of MEDITRUST ACQUISITION CORPORATION II, a
Delaware corporation ("Lender") (the Lender together with each successor, owner,
endorsee, bearer and holder of this Note being hereinafter referred to as the
"Holder") at its principal place of business located at 197 First Avenue,
Needham Heights, Massachusetts, 02194, or at such other place as the Holder of
this Note may from time to time designate in writing, in lawful money of the
United States of America, in immediately available Federal funds or the
equivalent the principal sum of THREE HUNDRED SIXTY TWO THOUSAND TWO HUNDRED
TWENTY-FIVE DOLLARS ($362,225.00) or so much thereof as shall have been advanced
from time to time hereunder (the "Loan Proceeds"), with interest on so much
thereof as shall from time to time be outstanding at the applicable interest
rate set forth below.
This Note makes reference to that certain Facility Lease Agreement of
even date herewith by and among the Holder, as Lessor, and Black Box of
Lewisburg, Inc., a Delaware corporation (the "Lessee") and wholly-owned
subsidiary of the Maker, as Lessee (the "Facility Lease"). Capitalized terms
used herein and not otherwise defined herein shall have the meanings ascribed to
such terms in the Facility Lease.
1. ADVANCES. The Loan Proceeds are to be used solely for application
towards the payment of (a) any obligation incurred by or on behalf of the Lessee
in connection with the operation of the Leased Property, (b) Rent then due and
payable under the Facility Lease and/or (c) any other amounts due to the Holder
pursuant to the Lease Documents, all as set forth herein.
The Loan Proceeds may be advanced by the Holder (i) to the Holder, at
any time, whether or not a Lease Default, or a state of facts which, with the
giving of notice and/or the passage of time, would constitute a Lease Default,
shall exist, to be applied by the Holder toward the payment of (x) Rent then due
and payable under the Facility Lease and (y) any obligation incurred by or on
behalf of the Lessee in connection with the operation of the Leased Property,
(ii) to the Current Manager, upon the request of the Current Manager (made not
more than once in any calendar month), made on behalf of the Lessee and the
Maker, to be
<PAGE> 2
applied toward the payment of any obligation incurred by or on behalf of the
Lessee in connection with the operation of the Leased Property; provided,
however, that the Holder may withhold its approval of any such request in its
reasonable discretion, (iii) to the Holder, to be used by the Holder for any of
the purposes for which the Cash Collateral may be drawn upon pursuant to the
Deposit Pledge Agreement and (iv) to the Holder, to be used by the Holder for
any of the purposes for which the Holder may make advances pursuant to Sections
6.1, 6.4.06, 8 and/or 11 of the Leasehold Improvement Agreement. Notwithstanding
anything to the contrary set forth herein, the Holder may refuse to advance any
Loan Proceeds if a Lease Default or a state of facts which, with the giving of
notice and/or the passage of time, would constitute a Lease Default, exists. In
addition, as set forth above, the Holder may, from time to time, make any
advance of Loan Proceeds hereunder to itself to be utilized for the purposes set
forth in clauses (i), (iii) and/or (iv) above and the Holder shall notify the
Maker in writing of each such advance made hereunder. Requests for advances of
the Loan Proceeds to be made pursuant to clause (ii) above shall be accompanied
by the items set forth in Subsections E, F and N of Section 7.3 of the Leasehold
Improvement Agreement.
It is the intent of the Maker and the Holder that all advances of Loan
Proceeds made pursuant to clause (ii) above shall be made for the account of the
Maker and must be used by the Maker as an equity contribution to the Lessee so
that such Loan Proceeds are utilized by the Lessee (or the Current Manager, as
agent for the Lessee) for the specific purposes described in clause (ii) above
(i.e., to be applied toward the payment of any obligation incurred by or on
behalf of the Lessee in connection with the operation of the Leased Property).
The Maker hereby authorizes the Holder to make all advances of Loan Proceeds to
be made pursuant to clause (ii) above directly to the Current Manager, as the
agent of the Lessee, and hereby acknowledges that all such advances shall be
deemed to have been advanced to the Maker and then contributed by the Maker to
the Lessee as equity.
It is also the intent of the Maker and the Holder that all advances of
Loan Proceeds made pursuant to clause (i), (iii) and (iv) above shall be made
for the account of the Maker and shall be used by the Holder for the specific
purposes described in clauses (i), (iii) and (iv) above (i.e., to be applied
toward the payment of obligations of the Lessee under the Lease Documents,
obligations incurred by or on behalf of the Lessee in connection with the
operation of the Leased Property and/or advances which may be made by the Holder
under the Lease Documents); each of which such advances inures to the benefit of
the Lessee and thus to the benefit of the Maker. The Maker hereby authorizes the
Holder to make all advances of Loan Proceeds to be made pursuant to clause (i),
(iii) and (iv) above directly to the Holder and hereby acknowledges that all
such advances shall be deemed to have been advanced to the Maker and then
contributed by the Maker to the Lessee as equity.
In light of the benefits to be obtained by the Lessee from the advances
of Loan Proceeds, which shall be used for the direct benefit of the Lessee and
shall be deemed to be equity contributions in the Lessee from the Maker, the
Lessee has agreed to execute and deliver to the Holder a guaranty of even date
herewith guarantying the obligations of the
2
<PAGE> 3
Maker hereunder.
2. TERMS OF PAYMENT. The Maker covenants and agrees to make the
following payments to the Holder:
a. commencing on March 1, 1998 and on the first day of each
calendar month thereafter through and including the first day
of the calendar month in which the Maturity Date (as
hereinafter defined) occurs, the Maker shall pay to the Holder
interest, in arrears, with interest accruing on the
outstanding principal balance at the Interest Rate (as
hereinafter defined); and
b. on the Maturity Date, the Maker shall pay to the Holder the
entire principal balance then remaining unpaid, together with
accrued and unpaid interest and all costs, charges and other
amounts due under this Note.
As used herein, the term "Maturity Date" shall mean the earlier to
occur of (x) the date of the consummation of the Stock Transfer in accordance
with Section 19.4 of the Facility Lease or (y) January 30, 2001. The period from
the date hereof through the Maturity Date shall be referred to herein as the
"Loan Term."
The Maker acknowledges that, pursuant to Section 19.4 of the Facility
Lease, the Lessee has the option to request that the Lessor advance to the
Lessee such funds as may be required to satisfy all of the obligations of the
Maker due hereunder on the Maturity Date.
All payments hereunder received by the Holder shall be applied by the
Holder, without any marshalling of assets, towards payment of the items
immediately set forth below in the following order:
(i) interest due on any advances made by the Holder under the
provisions of any of the other Lease Documents;
(ii) the principal amount of any advances made by Holder under the
provisions of any of the other Lease Documents;
(iii) all Late Payment Charges (as hereinafter defined), attorneys'
fees and expenses, court costs and all other amounts due under this
Note, excluding the amounts described in subparagraphs (iv), (v) and
(vi) immediately below;
(iv) the Prepayment Fee (as hereinafter defined), if any;
(v) any and all accrued and unpaid interest due hereunder; and
(vi) the outstanding principal balance due under this Note (and in the
case of any prepayment allowed hereunder, in inverse order of
maturity);
3
<PAGE> 4
provided, however, that the foregoing shall not be construed as permitting any
prepayment of the outstanding principal balance (whether in whole or in part).
3. INTEREST RATE. For the period from the date hereof through and
including the day immediately preceding the Conversion Date, the "Interest Rate"
shall be defined as the variable rate per annum equal to one hundred ninety
(190) basis points over the Prime Rate. The Interest Rate shall be recalculated
on the Conversion Date, and from the Conversion Date through the day immediately
preceding the commencement of the second Lease Year, the "Interest Rate" shall
be defined as the rate per annum which is 340 basis points over the Index, using
the Index in effect on the Conversion Date. If the Index is no longer published
or announced or becomes unascertainable for any reason, the Holder shall
designate a comparable reference rate which shall be deemed to be the Index
hereunder. Interest hereunder shall be calculated on the basis of a 360-day
year, but charged for the actual days elapsed during each calendar year (or
portion thereof) that the indebtedness evidenced by this Note remains
outstanding.
In addition, on the first day of the second Lease Year and on the first
day of each Lease Year (or portion thereof) thereafter during the Loan Term
(each such date is hereinafter referred to as an "Interest Rate Adjustment
Date"), the Interest Rate shall be increased by multiplying (i) the Interest
Rate in effect as of the day immediately preceding the applicable Interest Rate
Adjustment Date by (ii) two percent (2%).
4. PREPAYMENT. If this Note is prepaid in whole or in part (or shall
become due and payable) at any time prior to the Maturity Date, a prepayment fee
(referred to herein as the "Prepayment Fee") shall be paid to the Holder,
whether such prepayment is voluntary or involuntary, including, without
limitation, any prepayment which results from any declaration by the Holder, as
a result of any Lease Default, that the entire unpaid principal amount of this
Note and all of the unpaid interest accrued thereon is due and payable. The
"Prepayment Fee" shall be equal to (and defined herein as) the greater of: (a)
the then present value discounted at the Current Rate (as hereinafter defined)
of the difference between (i) the product of the Interest Rate then in effect,
multiplied by the then outstanding principal balance, multiplied by the
remaining number of years (or fraction thereof) of the Loan Term and (ii) the
product of the annual rate of interest (as of the date of prepayment) of
actively traded marketable United States treasury securities bearing a fixed
rate of interest adjusted for a constant maturity equal to the remaining number
of years (rounded to the nearest whole year) of the Loan Term (the "Current
Rate"), multiplied by the then-outstanding principal balance, multiplied by the
remaining number of years (or fraction thereof) of the Term; or (b) one percent
(1%) of the then outstanding principal balance multiplied by the remaining
number of years (or fraction thereof) of the Loan Term. The Prepayment Fee shall
be paid without prejudice to the rights of the Holder to collect any amounts due
to the Holder hereunder or under any of the other Lease Documents. The Maker
shall not be entitled to make (x) any voluntary prepayment of the indebtedness
evidenced by this Note or (y) any partial prepayments of principal, at any
4
<PAGE> 5
time, during the Loan Term, without the prior written consent of the Holder, in
each instance, which consent may be withheld in the Holder's sole discretion.
5. [INTENTIONALLY DELETED].
6. ACCELERATION OF MATURITY. Any one or more of the following events
shall be defined as an "Event of Default":
(i) the failure to pay any installment of interest or of any
other sum due under this Note or any of the other Lease Documents within ten
(10) days following the date when such payment was due;
(ii) the occurrence of a default or breach of condition
continuing beyond the expiration of any applicable notice and grace periods, if
any, under any of the Lease Documents; and
(iii) the failure to pay, on the Maturity Date, the entire
principal balance then remaining unpaid, together with accrued and unpaid
interest and all costs, charges and other amounts due under this Note.
Upon the occurrence of an Event of Default, at the option of the
Holder, which may be exercised at any time after an Event of Default shall have
occurred, the entire outstanding principal balance, together with all interest,
costs, charges and other amounts outstanding under this Note, shall immediately
become due and payable and, upon such acceleration, all amounts due hereunder
shall bear interest at the Overdue Rate. Notwithstanding the foregoing, upon the
occurrence of an Event of Default described in clause (iii) above, the entire
principal balance then remaining unpaid, together with accrued and unpaid
interest and all costs, charges and other amounts outstanding under this Note
which were due and payable as of the Maturity Date, shall continue to be due and
payable, without further action by the Holder, and all such amounts shall bear
interest from and after the Maturity Date at the Overdue Rate.
Any and all deposits or other sums at any time or times credited by or
due from the Holder to, and all securities or other property in the possession
of the Holder for safekeeping or otherwise and belonging to, the Maker or any
endorser, surety or guarantor of this Note or the obligations represented hereby
are and shall be subject to a security interest in favor of the Holder to secure
payment of this Note. Upon the occurrence of any Event of Default and at any
time or times thereafter, without any demand or notice, except to such extent as
notice may be required by applicable law, the Holder may sell or dispose of any
or all of such securities or other property and may exercise any and all of the
rights accorded the Holder by the Massachusetts Uniform Commercial Code or other
applicable state's Uniform Commercial Code. The Holder at any time and from time
to time may apply or set off such deposits or other sums against the liability
of the Maker or any such endorser, surety or guarantor whether
5
<PAGE> 6
or not such liability is then due. The provisions of this Paragraph 6 are
cumulative and are not exclusive of any other rights that the Holder has with
respect to such deposits, sums, securities or other property under other
agreements or applicable principles of law. The Holder shall have no duty to
take steps to preserve rights against prior parties as to such securities or
other property.
7. LATE CHARGES; INTEREST FOLLOWING CERTAIN EVENTS. In the event of any
delinquency in the payment of any installment of interest or in the payment of
any other monetary obligation under this Note continuing for ten (10) days
(hereinafter referred to as a "Late Payment"), the Maker shall pay the Holder a
late payment charge of Two Hundred Fifty Dollars ($250) (referred to herein as a
"Late Payment Charge") for the month during which such delinquency occurs and
for each month (or portion of the month) thereafter that the Late Payment
remains unpaid, for the purpose of defraying the expenses incurred by the Holder
in handling and processing such Late Payments. In addition to any Late Payment
Charges which may become due hereunder, the Maker shall pay interest on any Late
Payment, calculated at the Overdue Rate, from the date upon which the Late
Payment was originally due until the date that the Holder actually receives such
Late Payment. It is understood that nothing contained in this Paragraph 7 shall
be deemed to relieve the Maker of its obligations to make any and all payments
due and payable to the Holder pursuant to the provisions of this Note upon the
dates set forth therein, it being acknowledged that time is of the essence.
8. COLLECTION AND ENFORCEMENT COSTS. Upon demand, the Maker shall
reimburse the Holder for all costs and expenses, including, without limitation,
attorneys' fees and expenses and court costs, paid or incurred by the Holder in
connection with the collection of any sum due hereunder, or in connection with
the enforcement of any of the Holder's rights or the Maker's obligations under
this Note or any of the other Lease Documents. Any amount due and payable to the
Holder pursuant to the provisions of this Paragraph 8 shall bear interest at the
Overdue Rate.
9. CONTINUING LIABILITY. The obligation of the Maker to pay the
outstanding principal balance, interest and all other 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 Holder. Without limiting any of the provisions of the other Lease
Documents, in the event of (i) a sale, conveyance, transfer or other disposition
of the Maker's leasehold interest in the Leasehold Property, (ii) any further
agreement given to secure the payment of this Note or (iii) any agreement or
stipulation extending the time or modifying the terms of payment set forth
herein; the Maker shall nevertheless remain obligated to pay the indebtedness
evidenced by this Note, as extended or modified by any such agreement or
stipulation, unless the Maker is released and discharged from such obligation by
a written agreement executed by the Holder.
10. JOINT AND SEVERAL LIABILITY. If more than one Person shall execute
this Note, then each such Person shall be fully liable for all obligations of
the Maker hereunder, and all
6
<PAGE> 7
such obligations shall be joint and several.
11. WAIVERS. The Maker and each endorser, surety and guarantor hereof,
jointly and severally, waive presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, suretyship defenses,
notice of protest and protest of this Note, and all other notices in connection
with the delivery, acceptance, performance, default (except notice of default as
specifically elsewhere herein required), or enforcement of the payment of this
Note, and agree that the liability of each of them 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 Holder; and the Maker and all
endorsers, sureties and guarantors hereof consent to any and all extensions of
time, renewals, waivers or modifications that may be granted or consented to by
the Holder with respect to the payment or performance of any obligations under
this Note and to the release of the Collateral, or any part thereof, with or
without substitution, and agree that additional makers, endorsers, guarantors or
sureties may become parties hereto without notice to them or affecting their
liability hereunder.
12. CONTRIBUTION. No Person obligated on account of this Note may seek
contribution from any other Person also obligated unless and until all
liabilities, obligations and indebtedness to the Holder of the Person from whom
contribution is sought have been satisfied in full.
13. INVALIDITY. If any provision of this Note or the application thereof
to any Person or circumstance shall, for any reason and to any extent, be
invalid or unenforceable, neither the remainder of this Note, nor the
application of such provision to any other Person or circumstance shall be
affected thereby, but rather the same shall be enforced to the maximum extent
permitted by law. Notwithstanding the foregoing, if such provision relates to
the payment of a monetary sum, then the Holder may, at its option, declare the
entire indebtedness evidenced hereby due and payable upon sixty (60) days' prior
written notice to the Maker. Upon such acceleration, provided that a Lease
Default has not occurred, the Maker shall not be required to pay a Prepayment
Fee to the Holder.
Notwithstanding the foregoing, it is the intention of the Maker and the
Holder that if any provision of this Note 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.
14. USURY. In the event that fulfillment of any provision of this Note, at
the time performance of such provision shall be due and as a result of any
circumstance, shall involve transcending the limit of validity presently or
hereinafter prescribed by any applicable usury statute or any other 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 Note that is in
excess of the limit of such validity. In no event shall the Maker be bound to
pay for the use, forbearance or detention of
7
<PAGE> 8
the money loaned pursuant hereto, interest of more than the maximum rate, if
any, permitted by law to be charged by the Holder; the right to demand any such
excess being hereby expressly waived by the Holder.
15. GOVERNING LAW. THIS NOTE AND THE OBLIGATIONS OF THE MAKER HEREUNDER
SHALL BE GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS
OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS
OR CHOICE OF LAW).
16. GENERAL PROVISIONS; RULES OF CONSTRUCTION. The provisions set forth in
(i) Articles 22 and 23 and Sections 2.2, 16.8 through 16.10, 24.2 through 24.5,
Sections 24.7 through 24.10 and Section 24.12 of the Facility Lease and (ii)
Section 13 of the Pledge Agreement are hereby incorporated herein by reference,
mutatis, mutandis and shall be applicable to this Note as if set forth in full
herein.
IN WITNESS WHEREOF, the Maker has caused this Promissory Note to be
signed in its corporate name as an instrument under seal by its duly authorized
officer as of the date and in the year first above written.
WITNESS: MAKER:
BLACK BOX HOLDING COMPANY,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
<PAGE> 9
Schedule to Exhibit 10.48 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Promissory Note
<TABLE>
<CAPTION>
Project Amount Date
- ------- ------ ----
<S> <C> <C>
Blytheville, AR $615,993 12/19/97
Maumelle, AR $616,343 12/19/97
Mountain Home, AR $580,002 12/19/97
Pocahontas, AR $507,513 12/19/97
Sherwood, AR $564,533 12/19/97
Altoona, PA $825,477 12/19/97
Reading, PA $817,060 12/19/97
Berwick, PA $362,225 1/7/98
Chippewa, PA $517,464 1/7/98
Lewistown, PA $362,225 1/7/98
Dillsburg, PA $517,564 12/31/97
Martinsburg, WV $517,464 12/31/97
Peckville, PA $155,239 12/31/97
</TABLE>
<PAGE> 1
EXHIBIT 10.49
(LEWISBURG)
GUARANTY
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
"Lender") to: (a) enter into that certain lease transaction with BLACK BOX OF
LEWISBURG, INC., a Delaware corporation, having its principal place of business
at 65 Allerton Street, Boston, Massachusetts 02119, (hereinafter referred to as
the "Guarantor") evidenced by a Facility Lease Agreement of even date by and
between the Guarantor, as Lessee, and the Lender, as Lessor (the "Facility
Lease") relating to certain real property located in East Buffalo Township,
Union County, Pennsylvania and the improvements to be constructed thereon,
including, without limitation, the personal care home to be known as Balanced
Care at Lewisburg, (b) enter into a loan transaction with BLACK BOX HOLDING
COMPANY, a Delaware corporation, having its principal place of business at 65
Allerton Street, Boston, Massachusetts 02119 (the "Borrower"), which loan
transaction is evidenced, in part, by a Promissory Note of even date made by the
Borrower to the order of the Lender, in the original principal amount of THREE
HUNDRED SIXTY TWO THOUSAND TWO HUNDRED TWENTY-FIVE DOLLARS ($362,225.00) (the
"Note"), the advances under which Note are to be used by the Borrower to make
equity contributions to the Guarantor in order to enable the Guarantor to
fulfill its working capital obligations, [the Note, this Guaranty, the Facility
Lease and all other documents and instruments now or hereafter evidencing or
securing repayment of, or otherwise pertaining to and executed and delivered in
connection with, the lease transaction evidenced by the Facility Lease as each
may be modified and amended from time to time are hereinafter collectively
referred to as the "Lease Documents"] and (c) make present and future loans,
advances and extensions of credit to, for the account of or on behalf of the
Borrower; the Guarantor, being a wholly-owned subsidiary of the Borrower, will
receive, from the Borrower as equity contributions, amounts equal to the
advances made under the Note, and, as such, will derive a substantial benefit
from the consummation of the loan transaction evidenced by the Note, and hereby
unconditionally guarantees to the Lender the full payment and performance of the
Borrower's obligations under the Note (the "Note Obligations").
This Guaranty is an absolute, unconditional and continuing guaranty of
the full and punctual payment and performance of the Note Obligations and not
merely of their collectibility, and is in no way conditioned upon any
requirement that the Lender first collect
<PAGE> 2
or attempt to collect the Note Obligations or any portion thereof from the
Borrower or from any endorser, surety or other guarantor of any of the same or
resort to any security or other means of obtaining the payment and/or
performance of any of the Note Obligations that the Lender now has or may
acquire after the date hereof, or upon any other contingency whatsoever. Upon
any Lease Default (as defined in the Facility Lease), the Note Obligations and
all liabilities and obligations of the Guarantor to the Lender, hereunder or
otherwise, shall, at the option of the Lender, become immediately due and
payable to the Lender 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 Lender on any number of occasions. This Guaranty shall
continue in full force and effect until the complete payment and performance of
all of the Note Obligations.
All payments hereunder received by the Lender shall be applied by the
Lender, without any marshalling of assets, towards the payment and/or
performance of the Note Obligations and any other indebtedness of the Guarantor
hereunder in such order as the Lender, 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 Facility 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 Lender
forthwith upon demand, in funds immediately available to the Lender, all costs
and expenses, including without limitation, court costs and attorneys' fees and
expenses and court costs, reasonably incurred or expended by the Lender in
connection with the collection or enforcement of the Note Obligations and the
enforcement of all of the other obligations hereunder. Any amounts owed to the
Lender 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
applicable law, bear interest at the Advances Rate (as hereinafter defined)
until the date of payment. As used herein, the term "Advances Rate" shall be the
rate of interest per annum equal to the greater of (a) eighteen percent (18%)
per annum or (b) a variable rate of interest per annum equal to one hundred
twenty percent (120%) of the Prime Rate; but in no event in excess of the
maximum rate of interest permitted by applicable law to be charged by the
Lender.
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 Note Obligations and the continuation of
this Guaranty shall not be affected by the termination, discontinuance, release
or modification of any agreement from any such endorser, surety or guarantor;
provided, however, in no event shall the directors or officers of the Guarantor
ever be personally liable to the Lender for the payment and/or performance of
the Note Obligations or any obligation set forth under this Guaranty. Nothing
contained herein or otherwise shall require the Lender to make demand upon or
join the Borrower or any such endorser, surety or guarantor or other party in
any suit brought upon this Guaranty; and the
-2-
<PAGE> 3
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 LENDER'S FREEDOM TO DEAL WITH THE BORROWER AND OTHER PARTIES.
The Lender 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 Borrower and with each other Person who now is or after the
date hereof becomes liable in any manner for any of the Note Obligations in such
manner as the Lender, in its sole and absolute discretion, deems fit. The Lender
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 Borrower and/or any of the Related Parties at such times, in such amounts
and on such terms as the Lender may approve;
(b) modify, amend, vary the terms and grant extensions or renewals of
any present or future indebtedness or of any of the Note Obligations or any
instrument relating to or securing the same;
(c) grant time, waivers and other indulgences in respect of any of the
Note 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 Note Obligations which the Lender 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 Note 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 Lender or any of the other Meditrust Entities in this
Guaranty or in any other instrument evidencing, securing or relating to any of
the Note Obligations or take or refrain from taking any other action;
(g) accept partial payments from the Borrower, any other member of the
Leasing Group, any of the Related Parties or any other Person;
(h) release or discharge, wholly or partially, the Borrower, 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 Note Obligations (or
any portion thereof) or accept additional collateral for the payment of any Note
Obligations;
-3-
<PAGE> 4
(i) compromise or make any settlement or other arrangement with the
Borrower, 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 NOTE 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 Borrower, any other
member of the Leasing Group or any of the Related Parties, by reason of any
disability of the Borrower, any other member of the Leasing Group or any Related
Party or by any other circumstance (other than the complete payment and
performance of the Note Obligations) which might constitute a defense available
to, or a discharge of, the Borrower, any other member of the Leasing Group or
any of the Related Parties in respect of any of the Note Obligations. If for any
reason now or hereafter the Borrower, 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 Note Obligations undertaken or purported to
be undertaken by it or on its behalf, or if any of the moneys included in the
Note Obligations have become irrecoverable from the Borrower, 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 Note Obligations. This Guaranty shall be in addition to any
other guaranty or other security for the Note Obligations, and 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 any of the Note
Obligations is rescinded or must otherwise be returned by the Lender or any of
the other Meditrust Entities, upon the insolvency, bankruptcy or reorganization
of the Borrower or any of the Related Parties or otherwise, all as though such
payment had not been made. The Guarantor covenants to cause the Borrower to
maintain and preserve the enforceability of any instruments now or hereafter
executed in favor of the Lender, 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 Note Obligations.
7. NO CONTEST WITH THE LENDER. 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 Borrower, any other member of
the Leasing Group, any of the Related Parties or the Lender 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 Borrower, any other
endorser, surety or guarantor of any of the Note Obligations or any other Person
now or
-4-
<PAGE> 5
hereafter primarily or secondarily liable for any of the Note Obligations. The
Guarantor shall not, in any proceedings under the Bankruptcy Code or insolvency
proceedings of any nature, prove in competition with the Lender 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 Borrower, any other
member of the Leasing Group or any of the Related Parties or the benefit of any
other security for any Note Obligation which, now or hereafter, the Guarantor
may hold in competition with the Lender.
8. 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 Lender 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 Lender (or any of the other Meditrust Entities) to or for the
credit or the account of the Guarantor against and on account of the Note
Obligations and liabilities of the Guarantor to the Lender or any of the other
Meditrust Entities under this Guaranty or otherwise, irrespective of whether or
not the Lender or any of the other Meditrust Entities shall have made any demand
hereunder or under any Related Party Agreement and although said Note
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 Lender (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
Lender (or any of the other Meditrust Entities) and, upon the occurrence of any
Lease Default, the Lender and the other Meditrust Entities may exercise all
rights and remedies of a secured party under the Massachusetts Uniform
Commercial Code. The Lender 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 Lender and/or
the other Meditrust Entities shall be deemed to be additional collateral
securing this Guaranty and the Note Obligations.
9. 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
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 Lender; and the Guarantor consents to any and
-5-
<PAGE> 6
all extensions of time, renewals, waivers or modifications that may be granted
or consented to by the Lender 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.
10. 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: Black Box of Lewisburg, Inc.
65 Allerton Street
Boston, MA 02119
Attn: Walter K. McDonough
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, Massachusetts 02110-2699
Attn: Marianne Ajemian, Esq.
or at such other place as any of the parties hereto may from time to time
hereunder designate to the others in writing. Any notice given to the Guarantor
by the Lender at any time shall not imply that such notice or any further or
similar notice was or is required.
-6-
<PAGE> 7
11. GOVERNING LAW. This Guaranty shall be construed, and the rights and
obligations of the Lender 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 Lender's relationship with 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.
12. GENERAL PROVISIONS; RULES OF CONSTRUCTION. The provisions set forth
in Article 23 and Sections 2.2, 11.5.4, 16.8 through 16.10, 24.2 through 24.10
and 24.12 of the Facility 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 31st day of December, 1997.
WITNESS: GUARANTOR:
BLACK BOX OF LEWISBURG, INC.,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
<PAGE> 8
Schedule to Exhibit 10.49 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Guaranty to Meditrust Acquisition Corporation II
<TABLE>
<CAPTION>
Project Guarantor Original Principal Amount Date
- ------- --------- ------------------------- ----
<S> <C> <C> <C>
Blytheville, AR TC Realty of Blytheville, Inc. $615,993 12/19/97
Maumelle, AR TC Realty of Maumelle, Inc. $616,343 12/19/97
Mountain Home, TC Realty of Mountain $580,002 12/19/97
AR Home, Inc.
Pocahontas, AR TC Realty of Pocahontas, Inc. $507,513 12/19/97
Sherwood, AR TC Realty of Sherwood, Inc. $564,533 12/19/97
Altoona, PA TC Realty of Altoona, Inc. $825,477 12/19/97
Reading, PA TC Realty of Reading, Inc. $817,060 12/19/97
Dillsburg, PA Black Box of Dillsburg, Inc. $517,564 12/31/97
Martinsburg, WV Black Box of Martinsburg, Inc. $517,464 12/31/97
Peckville, PA Black Box of Peckville, Inc. $155,239 12//31/97
Berwick, PA TC Realty of Berwick, Inc. $362,225 1/7/98
Chippewa, PA TC Realty of Chippewa, Inc. $517,464 1/7/98
Lewistown, PA TC Realty of Lewistown, Inc. $362,225 1/7/98
</TABLE>
<PAGE> 1
EXHIBIT 10.50
SECURITY AGREEMENT
(LEWISBURG)
THIS AGREEMENT entered into as of the 31st day of December, 1997, by
and between BLACK BOX OF LEWISBURG, INC., a Delaware corporation (hereinafter
referred to as the "Debtor"), and MEDITRUST ACQUISITION CORPORATION II, a
Delaware corporation with its principal place of business at 197 First Avenue,
Needham Heights, Massachusetts 02194 (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 East Buffalo Township, Union County, Pennsylvania and
all of the improvements now or hereafter located thereon, including, without
limitation, the personal care home to be known as "Balanced Care at Lewisburg",
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 maintained; (j) all Instruments, Documents of Title, Documents, policies and
certificates of insurance, Securities,
<PAGE> 2
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) all proceeds of the foregoing, (iii)
General Intangibles arising out of the Debtor's rights in any Goods, the sale of
which gave rise thereto, (iv) any property received in payment, settlement or
compromise of any Account or Receivable, (v) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (vi) all rights, remedies and
privileges pertaining to any of the foregoing, (vii) all powers of attorney for
the execution of any evidence of indebtedness or security or other writing in
connection therewith, (viii) all evidences of the filing of financing statements
and other statements and the registration of other instruments in connection
therewith and amendments thereto and (ix) all of the Debtor's rights to use, in
perpetuity, in connection with the operation of the Leased Property, the name
"Balanced Care at Lewisburg" and any other names similar thereto 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 and shall include, without limitation, all payments to be made
under (and the rights to receive payments under) Patient Admission Agreements
and Residence Agreements.
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
-2-
<PAGE> 3
Section 1.1.
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
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<PAGE> 4
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.
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
-4-
<PAGE> 5
relating to any Accounts and Receivables), and to verify the Collateral or any
portion thereof (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.
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<PAGE> 6
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 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
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<PAGE> 7
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 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
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<PAGE> 8
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, 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
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<PAGE> 9
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.
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
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<PAGE> 10
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
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
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<PAGE> 11
this Agreement and to the extent necessary to obtain the benefit of the rights
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 Secured Party's relationship with 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.
7.12 The provisions set forth in Articles 22 and 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.
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<PAGE> 12
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:
BLACK BOX OF LEWISBURG, INC., a
Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
WITNESS: SECURED PARTY:
MEDITRUST ACQUISITION CORPORATION II,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
<PAGE> 13
Schedule to Exhibit 10.50 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Security Agreement
<TABLE>
<CAPTION>
Date of
Project Parties Facility Agreement
- ------- ------- --------- --------
<S> <C> <C> <C>
Blytheville, AR Meditrust Acquisition II Outlook Pointe at 12/19/97
(Secured Party), Blytheville
TC Realty of Blytheville,
Inc. (Debtor)
Maumelle, AR Meditrust Acquisition II Outlook Pointe at 12/19/97
(Secured Party), Maumelle
TC Realty of Maumelle,
Inc. (Debtor)
Mountain Home, AR Meditrust Acquisition II Outlook Pointe at 12/19/97
(Secured Party), Mountain Home
TC Realty of Mountain
Home, Inc. (Debtor)
Pocahontas, AR Meditrust Acquisition II Outlook Pointe at 12/19/97
(Secured Party), Pocahontas
TC Realty of Pocahontas,
Inc. (Debtor)
Sherwood, AR Meditrust Acquisition II Outlook Pointe at 12/19/97
(Secured Party), Sherwood
TC Realty of Sherwood,
Inc. (Debtor)
Altoona, PA Meditrust Acquisition II Outlook Pointe at 12/19/97
(Secured Party), Altoona
TC Realty of Altoona,
Inc. (Debtor)
Reading, PA Meditrust Acquisition II Outlook Pointe at 12/19/97
(Secured Party), Reading
TC Realty of Reading,
Inc. (Debtor)
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
Date of
Project Parties Facility Agreement
- ------- ------- --------- --------
<S> <C> <C> <C>
Dillsburg, PA Meditrust Acquisition II Outlook Pointe at 12/31/97
(Secured Party), Logan Meadows
Black Box of Dillsburg,
Inc. (Debtor)
Martinsburg, WV Meditrust Acquisition II Outlook Pointe at 12/31/97
(Secured Party), Martinsburg
Black Box of Martinsburg,
Inc. (Debtor)
Peckville, PA Meditrust Acquisition II Balanced Care at 12/31/97
(Secured Party), Peckville
Black Box of Peckville,
Inc. (Debtor)
Berwick, PA Meditrust Acquisition II Berwick Manor 1/7/98
(Secured Party),
TC Realty of Berwick,
Inc. (Debtor)
Chippewa, PA Meditrust Acquisition II Outlook Pointe at 1/7/98
(Secured Party), Chippewa
TC Realty of Chippewa,
Inc. (Debtor)
Lewistown, PA Meditrust Acquisition II Balanced Care, 1/7/98
(Secured Party), Lewistown
TC Realty of Lewistown,
Inc. (Debtor)
</TABLE>
<PAGE> 1
EXHIBIT 10.51
Prepared by and when recorded return to:
Marianne Ajemian, Esq.
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110-2699
ASSIGNMENT OF SUBLEASES AND RENTS
(LEWISBURG)
BLACK BOX OF LEWISBURG, INC., a Delaware corporation (the "Assignor"),
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, in accordance with the terms and conditions set forth
below, bargains, sells, conveys, assigns, transfers, sets over, pledges and, if
applicable, delivers, to MEDITRUST ACQUISITION CORPORATION II, a Delaware
corporation, having its principal address at 197 First Avenue, Needham Heights,
Massachusetts 02194 (the "Assignee") all of the Assignor's right, title and
interest in and to the "Subleases" (as hereinafter defined) to secure the
"Obligations" as such term is defined in the Facility Lease (as hereinafter
defined).
1. FACILITY LEASE; DEFINED TERMS. The Assignee is the Lessor and the
Assignor is the Lessee under that certain Facility Lease Agreement (the
"Facility Lease"), of even date herewith, relating to certain real property
located in East Buffalo Township, Union County, Pennsylvania, 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").
Capitalized terms used herein and not otherwise specifically defined
herein shall have the same meanings ascribed to such terms in the Facility
Lease.
2. ASSIGNMENT OF SUBLEASES. The Assignor hereby presently and
irrevocably assigns and transfers to the Assignee all of the Assignor's right,
title, and interest in and to all subleases, license agreements, concession
agreements, tenancy at will agreements, room rentals and 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 the Assignor, encumbering or affecting all or any portion of the
Leased Property (hereinafter collectively referred to as the "Subleases"),
including, but not limited to, all Residence Agreements and the Subleases listed
on the EXHIBIT B attached hereto and incorporated herein by reference
(hereinafter referred to as the "Schedule of Subleases"), together with all
extensions, renewals, modifications and replacements thereof, and together with
any and all guaranties (hereinafter collectively referred to as the
"Guaranties") of the obligations of the sublessees, licensees, concessionaires
and occupants (hereinafter collectively referred to as the "Sublessees"), under
all of the Subleases.
<PAGE> 2
3. ASSIGNMENT ABSOLUTE. This Assignment shall be a present, absolute
and unconditional assignment, and immediately upon the execution and delivery
hereof, this Assignment shall give the Assignee the right to collect all rents,
revenues, royalties, issues, profits, insurance proceeds, condemnation awards,
license fees, concession fees and all other income and security of every kind
and nature due by virtue of the Subleases and the Guaranties (hereinafter
collectively referred to as the "Rents").
4. ASSIGNMENT OF SECURITY DEPOSIT. If any of the Subleases provides for
a security deposit to be paid by any Sublessee to the Assignor, the Assignor
hereby assigns its right, title and interest in and to such security deposit to
the Assignee. Notwithstanding the foregoing, the Assignor shall have the right
to retain such security deposits as long as no Lease Default has occurred and
the Assignee shall not be obligated to any Sublessee to account for any such
security deposit unless and until the Assignee obtains actual possession or
control of such security deposit after a Lease Default.
5. LICENSE TO COLLECT. The Assignee hereby grants to the Assignor a
license to collect the Rents as such Rents respectively become due and to
enforce the Subleases and the Guaranties, so long as no Lease Default exists
(the "License"). The Assignor shall hold the Rents, or such portion of the Rents
as is sufficient to discharge all sums currently due under the Lease Documents,
in trust for use in satisfaction of the Obligations. The Assignor hereby
irrevocably authorizes and directs each of the Sublessees under the Subleases
and the guarantors under the Guaranties, upon receipt of a written notice from
the Assignee so demanding, to pay all Rents due or which become due under the
Subleases or the Guaranties to the Assignee and to continue to do so until
otherwise notified by the Assignee. Neither the Sublessees, nor any of the
guarantors under the Guaranties shall have any obligation to determine whether
or not a Lease Default does in fact exist.
Notwithstanding anything contained herein to the contrary, the Assignor
agrees that the Assignee, and not the Assignor, shall be and is deemed to be the
creditor of each Sublessee under each Sublease and each guarantor under each
Guaranty with respect to any and all of the Rents which may be payable by any
Sublessee under any Sublease and by any guarantor under any of the Guaranties on
account of a default by the Sublessee under such Sublease, including, without
limitation, any damages or further rentals payable by such Sublessee or such
guarantor on account of or after such default, and in respect of all assignments
for the benefit of creditors and bankruptcy, reorganization, insolvency,
dissolution or receivership proceedings affecting any Sublessee under any
Sublease or any guarantor under any of the Guaranties (without any obligation on
the part of the Assignee, however, to file or make timely filings of claims in
such proceedings or otherwise to pursue creditor's rights thereon), and the
Assignee shall have the option to apply any money received or receivable by the
Assignee as such creditor in reduction of the Obligations, whether or not a
Lease Default shall then exist.
-2-
<PAGE> 3
6. WARRANTIES OF THE ASSIGNOR. The Assignor hereby warrants and
represents that:
(a) the Assignor is the sole holder of the landlord's interest in
and under the Subleases and the Guaranties and has the right
to sell, assign, transfer and set over the Subleases, the
Guaranties and the Rents to the Assignee;
(b) the Assignor has made no assignment (other than this
Assignment) of any of the Assignor's rights in any of the
Subleases, the Guaranties or the Rents;
(c) there is no default by the Assignor or any Sublessee under any
of the Subleases or by any guarantor under any of the
Guaranties, or any state of facts which, with the passing of
time or the giving of notice or both, would constitute a
default by the Assignor or any Sublessee under any of the
Subleases or by any guarantor under any of the Guaranties;
(d) all of the Subleases provide for Rents to be paid monthly in
advance, all of the Rents due to date have been collected and
no Rents have been collected more than one (1) month in
advance;
(e) no Sublessee under any of the Subleases nor any guarantor
under any of the Guaranties has any defense, setoff or
counterclaim against the Assignor;
(f) the Schedule of Subleases lists all of the Subleases, other
than the Residence Agreements, currently in effect for the
Leased Property and the Schedule of Guaranties attached hereto
as EXHIBIT C and incorporated herein by reference lists all of
the Guaranties currently in effect for the Leased Property and
true and correct copies of such Subleases and Guaranties have
been provided to the Assignee;
(g) each of the Subleases and the Guaranties (including any
amendments and modifications thereof) submitted by the
Assignor to the Assignee constitutes the entire agreement
between the parties thereto, and there are no agreements,
amendments, modifications, undertakings, representations or
warranties, either oral or written, which have not been
submitted to the Assignee;
(h) each of the Subleases and the Guaranties listed on EXHIBIT B
and EXHIBIT C, respectively, is valid, in full force and
effect, and enforceable in accordance with its terms;
(i) neither the Assignor, nor any Sublessee has commenced any
action or given or served any notice for the purpose of
terminating any Sublease; and
(j) no rental concession in the form of any period of free Rent or
any other waiver,
-3-
<PAGE> 4
release, reduction, discount or other alteration of the Rents
due or to become due has been granted to any Sublessee under
the Subleases or any guarantor under the Guaranties for any
period subsequent to the effective date of this Assignment.
7. COVENANTS OF THE ASSIGNOR. The Assignor hereby covenants and
agrees that the Assignor:
(a) shall fulfill, perform and observe (or cause to be fulfilled,
observed and performed), in all material respects, all of the
duties, covenants and obligations of the landlord under the
Subleases;
(b) shall give prompt written notice to the Assignee of any
default or claim of default by the Assignor or any Sublessee
under any of the Subleases other than any of the Residence
Agreements or by any guarantor under any of the Guaranties,
along with a complete copy of any written notice of such
default or claim of default;
(c) shall enforce (in a manner satisfactory to the Assignee and
short of termination of either the Subleases (excluding the
Residence Agreements) or the Guaranties), the performance, in
all material respects, by the Sublessees and the guarantors
under the Guaranties of all of their duties, covenants and
obligations under the Subleases and the Guaranties, as the
case may be;
(d) shall appear in and defend any action or proceeding arising
under or in any manner connected with (i) any of the
Subleases, (ii) the obligations and undertakings of the
landlord or any Sublessee under the Subleases and (iii) the
obligations and undertakings of the guarantors under the
Guaranties;
(e) shall not (i) alter, modify or amend, in any material respect
any of the Subleases (excluding the Residence Agreements),
(ii) replace, terminate or cancel any of the Subleases
(excluding Residence Agreements) or any of the Guaranties,
(iii) accept a surrender of any of the Subleases (excluding
Residence Agreements) or (iv) waive any material term or
condition of any of the Subleases (excluding Residence
Agreements) or any of the Guaranties, without the prior
written consent of the Assignee, in each instance, which
consent may be withheld in the Assignee's sole and absolute
discretion;
(f) shall not (i) dispose or delegate any right to receive any of
the Rents, (ii) collect nor accept any Rents more than one (1)
month in advance of the time any such Rents becomes due
without forthwith depositing the same with the Assignee in a
special account or (iii) withdraw or disburse any such funds
except for immediate application towards the Lease Obligations
or the obligations of the
-4-
<PAGE> 5
Assignor under the Subleases;
(g) shall not execute any future Subleases (excluding Residence
Agreements), nor consent to the assignment of any Sublessee's
interest under any of the Subleases (excluding Residence
Agreements), nor consent to any further subletting thereunder,
without the prior written consent of the Assignee, in each
instance, which consent may be withheld in the Assignee's sole
and absolute discretion;
(h) shall not consent to the assignment of any guarantor's
obligations under any of the Guaranties without prior written
consent of the Assignee, in each instance, which consent may
be withheld in the Assignee's sole and absolute discretion;
(i) shall not execute any assignment of the landlord's interest
under any of the Subleases, nor any assignment of the Rents or
any interest therein and shall not suffer or permit any such
assignment to occur by operation of law;
(j) shall not consent to the direct or indirect creation of any
Lien upon or against the Leased Property or any Sublessee's
interest therein;
(k) shall not take any action which may cause or permit the estate
of any of the Sublessees under the Subleases to merge with the
Assignor's interest in the Leased Property;
(l) shall not take any action (or allow any action to be taken
either by the Assignor's agents or by any other Person, but
only to the extent that such action may be prevented by the
Assignor) that may impair, in any material respect, the
security of the Subleases;
(m) shall not commit or suffer any violation of law in connection
with the Subleases; and
(n) shall not allow the premises demised under any Sublease
(excluding Residence Agreements) to be abandoned or vacated.
8. COVENANT OF THE ASSIGNEE. Upon the complete payment and performance
of the Lease Obligations, provided, that no Related Party Default has occurred
nor any event which, with the giving of notice and/or the passage of time, would
constitute a Related Party Default, this Assignment shall be deemed terminated
and released by the Assignee without further action and shall thereupon be of no
further force or effect. The Assignor agrees that an affidavit, certificate,
letter or statement of any officer, agent or attorney of the Assignee indicating
that any part of the Obligations remains outstanding shall be deemed prima facie
evidence of the validity, effectiveness and continuing force of this Assignment
and any Person, including, without limitation, any Sublessee or any guarantor
under any of the Guaranties may
-5-
<PAGE> 6
and is hereby authorized to rely thereon. Notwithstanding the foregoing, the
recording with the applicable recording office of a duly authorized and executed
notice or memorandum of termination of the Facility Lease shall terminate this
Assignment.
9. EVENTS OF DEFAULT. Each of the following shall constitute an Event
of Default hereunder:
(a) the occurrence of a Lease Default; and
(b) if any representation or warranty by the Assignor contained in
this Assignment proves to be false or misleading in any
material respect.
10. REMEDIES. Upon the occurrence of an Event of Default hereunder and
at any time thereafter (without in any way waiving such Event of Default), at
the Assignee's option and without notice or demand of any kind, and without
regard to the adequacy of security for the complete payment and performance of
the Obligations, the Assignee may exercise any or all of the following remedies,
either in person or by agent, with or without bringing any action or proceeding,
or by a receiver appointed by a court:
(a) terminate the Facility Lease and/or exercise any or all of the
other rights and remedies under the Facility Lease and/or the
other Lease Documents;
(b) take physical possession of the Leased Property and of all
books, records, documents and accounts relating to the Leased
Property and the Assignor's business thereon, and, at the
Assignor's sole cost and expense, hold, lease, manage,
maintain and operate the Leased Property and the Assignor's
business thereon (on such terms and for such period of time as
the Assignee, in its sole and absolute discretion, may deem
proper) without any interference whatsoever from the Assignor;
(c) with or without taking possession of the Leased Property,
terminate the Assignor's License, and collect the Rents
(including those past due and unpaid) and any other sums owing
under any of the Subleases and Guaranties and, in the
Assignee's sole and absolute discretion, apply such Rents to
the payment of (i) all expenses of managing the Leased
Property, including, without limitation, the salaries, fees
and wages of a managing agent and such other employees as the
Assignee, in its sole and absolute discretion, may deem
necessary or desirable, and all expenses of operating and
maintaining the Leased Property, including, without
limitation, all taxes, charges, claims, assessments, water
rents, sewer rents and any other liens, and premiums for all
insurance which the Assignee, in its sole and absolute
discretion, may deem necessary or desirable, and the cost of
all alterations, renovations, repairs or replacements, and all
expenses incident to taking and retaining possession of the
Leased Property and (ii) the
-6-
<PAGE> 7
Obligations;
(d) institute any legal or equitable action (in either the
Assignor's or the Assignee's name) which the Assignee, in its
sole and absolute discretion, deems desirable to collect any
or all of the Rents;
(e) perform any or all obligations of the Assignor under any of
the Subleases or this Assignment and to take such actions as
the Assignee deems appropriate to protect its security,
including, without limitation:
(1) appearing in any action or proceeding affecting any
of the Subleases, any of the Guaranties or the
Leased Property;
(2) executing new Subleases, and modifying, terminating
or cancelling any of the then existing Subleases or
Guaranties;
(3) collecting, modifying and compromising any Rents
payable under the Subleases and the Guaranties; and
(4) enforcing any of the Subleases and the Guaranties,
including, if necessary, evicting any Sublessees; and
(f) exercise any other rights and remedies permitted to the Assignee
under applicable law.
All costs and expenses reasonably incurred by the Assignee in
connection with any actions taken pursuant to this Section, including, without
limitation, attorneys' fees and expenses and court costs, shall be a demand
obligation of the Assignor to the Assignee, and, to the extent permitted under
applicable law, shall be added to the Obligations and shall be secured hereby as
fully and effectively and with the same priority as every other obligation of
the Assignor hereunder 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 foregoing rights and remedies are in addition to all other rights
and remedies afforded to the Assignee under any of the other Lease Documents or
at law or in equity, by statute or otherwise, all of which are hereby reserved
by the Assignee, and this Assignment is made and accepted without prejudice to
any such rights and remedies. The exercise by the Assignee of any of the rights
or remedies granted to it in this Assignment, including, without limitation, the
collection of the Rents and the application thereof as herein provided, shall
not be considered a waiver of any default hereunder or under any of the Lease
Documents. All of the rights and remedies of the Assignee under the Lease
Documents shall be separate and cumulative and may be exercised concurrently or
successively in the Assignee's sole and
-7-
<PAGE> 8
absolute discretion. The exercise of any right or remedy by the Assignee
hereunder shall not be considered to be a waiver of any of the Assignee's other
rights or remedies hereunder or under any of the other Lease Documents; in
particular, but without limitation, the Assignee's exercise of its rights to
collect and receive Rents shall not preclude the Assignee from simultaneously or
subsequently electing to take possession of the Leased Property, nor shall the
Assignee's exercise of its rights or remedies with respect to any particular
Sublease, any of the Guaranties or any portion of the Leased Property (which
exercise shall be expressly permitted, at the Assignee's option) preclude the
Assignee from simultaneously or subsequently electing to exercise any of its
rights or remedies with respect to any other Sublease, any of the Guaranties or
any other portion of the Leased Property subject hereto. No failure or delay on
the part of the Assignee to exercise any such right or remedy shall operate as a
waiver thereof.
The Assignor does hereby make, constitute and appoint the Assignee or
any officer or agent designated by the Assignee, the Assignor's true and lawful
attorney-in-fact, with power of substitution, at any time after a Lease Default,
to
(a) endorse the name of the Assignor upon any notes, checks,
drafts, money orders, or other instruments of payment with
respect to the Subleases and Guaranties and with respect to
all Rents in connection therewith;
(b) give such notice and directions, in writing or otherwise, to
the United States Post Office as may be necessary to effect
delivery to the Assignee or any of its designated agents of
all mail addressed to the Assignor; and
(c) take possession of the Leased Property, and to have, hold,
manage, lease and operate the same, all to the extent
permitted by applicable law; hereby granting unto the
Assignor's said attorney full power to do any and all things
necessary to be done in and about the Leased Property as fully
and effectually as the Assignor might or could do, and hereby
ratifying all that said attorney shall do or cause to be done
by virtue hereof.
The power of attorney conferred on the Assignee pursuant to the
provisions of this Section, 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 Assignor may suffer and shall
survive the same. Such power of attorney is provided solely to protect the
interests of the Assignee and shall not impose any duty on the Assignee to
exercise any such power, and neither the Assignee 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.
11. APPLICATION OF PROCEEDS. Any amounts collected by the Assignee
hereunder shall be applied by the Assignee, without marshalling of assets,
towards the payment of the
-8-
<PAGE> 9
Obligations in such order as the Assignee shall determine in its sole and
absolute discretion.
12. NO LIABILITY. Nothing in this Assignment shall be construed to
impose any obligation on or responsibility from the Assignee to the Assignor,
nor from the Assignee to any Sublessee under any of the Subleases, any guarantor
under any of the Guaranties or any other third party, for:
(a) the control, care, management or repair of the Leased
Property, unless expressly assumed, in writing, by the
Assignee;
(b) the performance of any of the landlord's obligations under any
of the Subleases, unless expressly assumed, in writing, by the
Assignee;
(c) for any waste committed on the Leased Property;
(d) for any dangerous or defective condition on or under the
Leased Property;
(e) the Assignee's failure to let the Leased Property after the
occurrence of an Event of Default hereunder;
(f) any act or omission of the Assignee in managing the Leased
Property after an Event of Default hereunder; or
(g) for any negligence in the management, upkeep, repair or
control of the Leased Property resulting in loss or injury or
death to any Sublessee, licensee, employee or other party.
13. INDEMNIFICATION. The Assignor shall and hereby agrees to indemnify
and hold the Assignee harmless from and against all obligations, liabilities,
losses, costs, claims, expenses, fines, penalties and damages (including,
without limitation, attorneys' fees and expenses and court costs) which the
Assignee may incur:
(a) by reason of this Assignment including without limitation the
exercise of any right or remedy hereunder;
(b) in connection with any of the Subleases (including, without
limitation, all claims and demands which may be asserted
against the Assignee by reason of any alleged obligation or
undertaking on its part to perform or discharge any of the
terms, covenants or agreements contained in any Sublease); and
(c) with regard to the Leased Property;
provided, however, that the foregoing shall not be deemed to exculpate the
Assignee from any
-9-
<PAGE> 10
liability resulting solely from the gross negligence or willful misconduct of
the Assignee.
The Assignor shall defend the Assignee against any claim or litigation
involving the Assignee for the same, with counsel approved by the Assignee, and
should the Assignee incur any such obligation, liability, loss, cost, expense,
fine, penalty or damage, then the Assignor shall reimburse the Assignee for such
amounts upon demand, and upon the failure of the Assignor so to do, the Assignee
may, at its option, terminate the Facility Lease and/or exercise any or all of
the other rights and remedies under the Facility Lease and/or the other Lease
Documents. Notwithstanding anything to the contrary contained herein, the
Assignee shall have the option of conducting its own defense with counsel of the
Assignee's selection, but at the expense of the Assignor. The foregoing
indemnification agreement shall also include all costs reasonably incurred by
the Assignee in connection with the enforcement of said indemnification
agreement.
Any amounts owed to the Assignee under this Section shall be a demand
obligation and, to the extent permitted by applicable law, shall be added to the
Lease Obligations and shall be secured hereby as fully and effectively and with
the same priority as every other obligation of the Assignor secured hereby 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 provisions of this Section shall survive the complete payment and
performance of the Obligations and the expiration or earlier termination of the
Facility Lease.
14. GENERAL PROVISIONS; RULES OF CONSTRUCTION. The provisions set forth
in Articles 22 and 23 and Sections 2.2, 16.8 through 16.10, 24.2 through 24.12
of the Facility Lease are hereby incorporated herein by reference, mutatis,
mutandis and shall be applicable to this Assignment as if set forth in full
herein.
IN WITNESS WHEREOF, the Assignor has duly executed this Assignment as a
sealed instrument as of the 31st day of December, 1997.
WITNESS: ASSIGNOR:
BLACK BOX OF LEWISBURG, INC., a
Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
-10-
<PAGE> 11
Schedule to Exhibit 10.51 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Assignment of Subleases and Rents
<TABLE>
<CAPTION>
Project Parties Date
- ------- ------- ----
<S> <C> <C>
Blyethville, AR TC Realty of Blytheville, Inc. (Assignor) 12/19/97
Meditrust Acquisition Corporation II
(Assignee)
Maumelle, AR TC Realty of Maumelle, Inc. (Assignor) 12/19/97
Meditrust Acquisition Corporation II
(Assignee)
Mountain Home, AR TC Realty of Mountain Home, Inc. 12/19/97
(Assignor)
Meditrust Acquisition Corporation II
(Assignee)
Pocahontas, AR TC Realty of Pocahontas, Inc. 12/19/97
(Assignor)
Meditrust Acquisition Corporation II
(Assignee)
Sherwood, AR TC Realty of Sherwood, Inc. (Assignor) 12/19/97
Meditrust Acquisition Corporation II
(Assignee)
Altoona, PA TC Realty of Altoona, Inc. (Assignor) 12/19/97
Meditrust Acquisition Corporation II
(Assignee)
Reading, PA TC Realty of Reading, Inc. (Assignor) 12/19/97
Meditrust Acquisition Corporation II
(Assignee)
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
Project Parties Date
- ------- ------- ----
<S> <C> <C>
Dillsburg, PA Black Box of Dillsburg, Inc. (Assignor) 12/31/97
Meditrust Acquisition Corporation II
(Assignee)
Martinsburg, WV Black Box of Martinsburg, Inc. (Assignor) 12/31/97
Meditrust Acquisition Corporation II
(Assignee)
Peckville, PA Black Box of Peckville, Inc. (Assignor) 12/31/97
Meditrust Acquisition Corporation II
(Assignee)
Berwick, PA TC Realty of Berwick, Inc. (Assignor) 1/7/98
Meditrust Acquisition Corporation II
(Assignee)
Chippewa, PA TC Realty of Chippewa, Inc. (Assignor) 1/7/98
Meditrust Acquisition Corporation II
(Assignee)
Lewistown, PA TC Realty of Lewistown, Inc. (Assignor) 1/7/98
Meditrust Acquisition Corporation II
(Assignee)
</TABLE>
<PAGE> 1
EXHIBIT 10.52
ENVIRONMENTAL INDEMNITY AGREEMENT
(LEWISBURG)
THIS AGREEMENT is made as of the 31st day of December, 1997, by and
between BLACK BOX OF LEWISBURG, INC., 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 East Buffalo Township, Union County, Pennsylvania, 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 Pennsylvania Surface Mining Conservation and
Reclamation Act, 52 P.S. Sections 1396.1 through Sections 1396.31, the
Pennsylvania Clean Streams Law, 35 P.S. Sections 691.1 through Sections
691.1001, the Pennsylvania Coal Refuse Disposal Contract Act, 52 P.S. Sections
30.51 through Sections 30.206, the Pennsylvania Dam Safety and Encroachments
Act, 32 P.S. Sections 693.1 through Sections 693.27, the Pennsylvania Solid
Waste Management Act, 35 P.S. Sections 6018.101 through Sections 6018.1003, the
Pennsylvania Air Pollution Control Act, 35 P.S. Sections 4001 through Sections
4106, the Pennsylvania Hazardous Sites Cleanup Act, 35 P.S. Sections 6020.101
through Sections 6020.1305, the Pennsylvania Storage Tank and Spill Prevention
Act, 35 P.S. Sections 6021.101 through Sections 6021.2105, the Pennsylvania Safe
Drinking Water Act, 35 P.S. Sections 721.1 through Sections 721.17, the
Pennsylvania Infectious and Chemotherapeutic Waste Disposal Act, 35 P.S.
Sections 6019.1 through Sections 6019.6, the Pennsylvania Radiation Protection
Act, 35 P.S. Sections 7110.101 through Sections 7110.703, the Pennsylvania Low
Level Radioactive Waste Disposal Act, 35 P.S. Sections 7130.101 through Sections
7130.906, the Pennsylvania Fish and Boat Code, 30 P.S. Sections 2501 through
Sections 2506, the Pennsylvania Land Recycling and Environmental Remediation
Standards Act, 35 P.S. Section 6026.101 et seq., the Pennsylvania Economic
Development Agency, Fiduciary and Lender Environmental Liability Act, 35 P.S.
Sections 6027.1 et seq., 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,
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<PAGE> 3
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 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
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<PAGE> 4
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 Commonwealth of
Pennsylvania, 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;
(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,"
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<PAGE> 5
"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.
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
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<PAGE> 6
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 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
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<PAGE> 7
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 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
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<PAGE> 8
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. In no event shall the shareholders, directors or
officers of the Guarantor ever be personally liable to the Lessor for the
payment and/or performance of any obligation set forth in this Agreement.
The matters covered by the foregoing indemnity with respect to any
property other than 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:
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<PAGE> 9
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 Kortland, Esq.
IF TO THE LESSEE: Black Box of Lewisburg, Inc.
65 Allerton Street
Boston, MA 02119
Attn: Walter K. McDonough
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.
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<PAGE> 10
11. GENERAL PROVISIONS; RULES OF CONSTRUCTION: The provisions set forth in
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.
[SIGNATURES BEGIN ON THE NEXT PAGE.]
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<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as a sealed instrument on the date first above-mentioned.
WITNESS: LESSEE:
BLACK BOX OF LEWISBURG, INC.,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
WITNESS: DEVELOPER:
BCC DEVELOPMENT AND MANAGEMENT CO.,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
WITNESS: LESSOR:
MEDITRUST ACQUISITION CORPORATION II,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
<PAGE> 12
Schedule to Exhibit 10.52 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Environmental Indemnity Agreement
<TABLE>
<CAPTION>
Project Parties Property Location Date
- ------- ------- ----------------- ----
<S> <C> <C> <C>
Blytheville, AR TC Realty of Blytheville, Inc. (Indemnitor) Blytheville, 12/19/97
Meditrust Acquisition Corporation II Mississippi County
(Lessor) AR
Maumelle, AR TC Realty of Maumelle, Inc. (Indemnitor) Maumelle 12/19/97
Meditrust Acquisition Corporation II Pulaski County
(Lessor) AR
Mountain Home, AR TC Realty of Mountain Home, Inc. Mountain Home, 12/19/97
(Indemnitor) Baxter County
Meditrust Acquisition Corporation II AR
(Lessor)
Pocahontas, AR TC Realty of Pocahontas, Inc. (Indemnitor) Pocahontas 12/19/97
Meditrust Acquisition Corporation II Randolph County
(Lessor) AR
Sherwood, AR TC Realty of Sherwood, Inc. (Indemnitor) Sherwood 12/19/97
Meditrust Acquisition Corporation II Pulaski County
(Lessor) AR
Altoona, PA TC Realty of Altoona, Inc. (Indemnitor) Altoona 12/19/97
Meditrust Acquisition Corporation II Blair County
(Lessor) PA
Reading, PA TC Realty of Reading, Inc. (Indemnitor) Reading 12/19/97
Meditrust Acquisition Corporation II Berks County
(Lessor) PA
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
Project Parties Property Location Date
- ------- ------- ----------------- ----
<S> <C> <C> <C>
Dillsburg, PA Black Box of Dillsburg, Inc. (Indemnitor) Carroll Township 12/31/97
BCC Development and Management Co. York County
(Indemnitor) PA
Meditrust Acquisition Corporation II
(Lessor)
Martinsburg, WV Black Box of Martinsburg, Inc. (Indemnitor) Martinsburg 12/31/97
BCC Development and Management Co. Berkeley County
(Indemnitor) WV
Meditrust Acquisition Corporation II
(Lessor)
Peckville, PA Black Box of Peckville, Inc. (Indemnitor) Borough of Blakely 12/31/97
BCC Development and Management Co. Lackawanna County
(Indemnitor) PA
Meditrust Acquisition Corporation II
(Lessor)
Berwick, PA TC Realty of Berwick, Inc. (Indemnitor) Briar Creek Borough 1/7/98
BCC Development and Management Co. Columbia County
(Indemnitor) PA
Meditrust Acquisition Corporation II
(Lessor)
Chippewa, PA TC Realty of Chippewa, Inc. (Indemnitor) Chippewa Township 1/7/98
BCC Development and Management Co. Beaver County
(Indemnitor) PA
Meditrust Acquisition Corporation II
(Lessor)
Lewistown, PA TC Realty of Lewistown, Inc. (Indemnitor) Brown Township 1/7/98
BCC Development and Management Co. Mifflin County
(Indemnitor) PA
Meditrust Acquisition Corporation II
(Lessor)
</TABLE>
<PAGE> 1
EXHIBIT 10.53
COLLATERAL ASSIGNMENT OF PERMITS,
LICENSES, APPROVALS AND CONTRACTS
(LEWISBURG)
BLACK BOX OF LEWISBURG, INC., a Delaware corporation (the "Assignor"),
hereby assigns, transfers, sets over, pledges and, if applicable, delivers, to
MEDITRUST ACQUISITION CORPORATION II, a Delaware corporation, having its
principal address at 197 First Avenue, Needham Heights, Massachusetts 02194 (the
"Assignee") and hereby, in accordance with the terms and conditions set forth
below, grants to the Assignee a continuing security interest in the "Permits"
and "Contracts" (as each such term is hereinafter defined) to secure the
"Obligations" as such term is defined in the Lease (as hereinafter defined).
1. LEASE; DEFINED TERMS. This Assignment is given pursuant to the terms of
the Facility Lease Agreement of even date between the Assignor, as Lessee, and
the Assignee, as Lessor (the "Lease"), relating to certain real property located
in East Buffalo Township, Union County, Pennsylvania, as more particularly
described in EXHIBIT A attached hereto and incorporated herein by reference and
the improvements now or hereafter situated thereon (such real property and
improvements are hereinafter collectively referred to as the "Leased Property").
Included in the Leased Property is the personal care home to be constructed
pursuant to the Leasehold Improvement Agreement (as defined in the Lease) and
known as "Balanced Care at Lewisburg" (the "Facility"). Capitalized terms used
herein and not otherwise specifically defined herein shall have the same
meanings ascribed to such terms in the Lease.
2. PERMITS AND CONTRACTS. As security for the due and punctual payment and
performance of all of the Obligations, the Assignor, to the extent now or
hereafter permitted by applicable law, hereby assigns, transfers and sets over
unto the Assignee, subject expressly to the terms, conditions and provisions of
the Permits (as hereinafter defined) and Contracts (as hereinafter defined) and
to all applicable Legal Requirements, 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, all of the
Assignor's right, title and interest in and to (a) all licenses, approvals,
qualifications, rights, variances, permissive uses, certificates of need,
franchises, accreditations, certificates, certifications, consents, permits and
other authorizations (including, without limitation, building permits,
subdivision approvals and subdivision plans) (hereinafter collectively referred
to as the "Permits") and (b) all agreements (including, without limitation, all
Provider Agreements and Patient Admission Agreements), contracts (including,
without limitation, construction contracts, subcontracts and architects'
contracts), contract rights, warranties and representations, franchises, and
records and books of account (hereinafter collectively referred to as the
"Contracts"); benefiting, relating to or affecting the Leased Property or the
ownership, construction, development, maintenance,
<PAGE> 2
management, repair, use, occupancy, possession or operation thereof or the
operation of any programs or services at or in conjunction with the Leased
Property and all renewals, replacements 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 the Assignor or
entered into by the Assignor or with any third Person. To the extent that any of
the Permits or Contracts now or hereafter in effect requires the consent of any
other Person to this Assignment, upon the request of the Assignee, the Assignor
shall use its best efforts to obtain such consent.
3. TERM. This Assignment shall remain in full force and effect so long as
the Lease Obligations remain undischarged or unsatisfied in any respect.
4. REPRESENTATIONS AND WARRANTIES. The Assignor represents and warrants to
the Assignee that:
(a) the Assignor is the sole owner of the interest in each of the Permits
and Contracts being assigned hereunder;
(b) no material obligation or liability has been incurred in connection
with any of the Permits and Contracts which is not set forth on the
face thereof or otherwise required by applicable law;
(c) there are no existing material defaults by the Assignor under any of
the Permits and Contracts and there exists no state of facts, which
with the giving of notice or the passage of time, or both, would
constitute such a material default;
(d) there is no action pending, or to the best knowledge and belief of the
Assignor threatened, to (i) revoke, repeal, suspend, terminate,
transfer, relocate or withdraw any Permit or Contract or (ii) modify,
restrict or limit, in any material respect, any Permit or Contract;
(e) all conditions precedent to the effectiveness of each of the Permits
and Contracts have been or shall be satisfied, in all material
respects, by the operation of the Leased Property in accordance with
its Primary Intended Use;
(f) each of the Permits and Contracts (to the extent applicable) is
validly issued in the name of the Assignor and is binding and in full
force and effect and is not subject to any unexpired appeal periods on
any appeals or challenges which have not been conclusively resolved in
favor of the Assignor;
(g) the Assignor has not executed any prior assignment of or granted any
other security interest in any of the Permits and Contracts (other
than those which have been previously discharged or terminated), nor
has the Assignor performed
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<PAGE> 3
any act or executed any other instrument which might prevent the
Assignee from exercising its rights with respect to the Permits and
Contracts as set forth under the term of this Assignment; and
(h) all payments required to be made by the Assignor under each of the
Permits and Contracts have been or shall be made in full, subject to
the Assignor's right to contest the same pursuant to the provisions of
the Lease.
5. CERTIFICATION. Without charge and within ten (10) days after any request
therefor by the Assignee, the Assignor shall execute, acknowledge, and deliver
to the Assignee its certification with respect to any or all of the Permits and
Contracts, which certification shall include a copy of the applicable Permits or
Contracts and contain the following information:
(a) the date of issuance of each of the Permits and Contracts or the
anticipated date thereof, the effective date of each of the Permits
and Contracts (if a different date from the date of issuance), and the
respective amounts and payment dates of all sums due or to become due
under each of the Permits and Contracts;
(b) a statement that each of the Permits and Contracts is unmodified and
in full force and effect; or, if there have been any modifications
(which modifications shall not be effective without the prior written
consent of the Assignee if required pursuant to the provisions
hereof), a statement that each of the Permits and Contracts is in full
force and effect as modified and stating the modifications and the
dates thereof;
(c) a statement that, to the best of the Assignor's knowledge and belief,
there are no defenses against the enforcement of any of the terms or
conditions of any of the Permits or Contracts upon the part of the
relevant issuer thereof; and
(d) the date of expiration of the term of any Permit or Contract.
6. LIMITATIONS ON RIGHT OF THE ASSIGNOR TO DEAL WITH THE PERMITS OR
CONTRACTS. The following are additional conditions of this Assignment:
(a) except as may otherwise be required in the ordinary course of business
or as may be permitted by the Lease, the Assignor shall not amend,
cancel, abridge, surrender, terminate, change, alter, revise, replace,
rescind or otherwise modify any of the Permits or Contracts or release
any of the issuers thereof or parties thereto from liability or
withhold payment of charges, without the prior written consent of the
Assignee, in each instance, which consent shall not be unreasonably
withheld;
(b) the Assignor shall not execute any other assignment of its interest
in, to or
-3-
<PAGE> 4
under any of the Permits or Contracts assigned hereby, or consent to
any assignment thereof; provided, however that the Assignor may assign
the Permits and Contracts, subject to the terms of this Agreement and
the liens and security interests created hereby, to any Sublessee
permitted under the terms of the Lease, as long as, concurrently with
any such assignment, any such transferee executes and delivers to the
Assignee any documents and instruments reasonably requested by the
Assignee to evidence such transferee's agreement to comply with the
terms hereof and to perfect or continue and preserve the Assignee's
liens and security interest in the Permits and Contracts;
(c) the Assignor shall not attempt to transfer or relocate any of the
Permits to any location other than the Leased Property;
(d) the Assignor shall not grant or suffer any lien, charge, encumbrance
or judgment, whether voluntary or involuntary, against all or any part
of the interest of the Assignor in any of the Permits or Contracts;
(e) the Assignor shall perform or cause to be performed all of its
material covenants and agreements under each of the Permits and
Contracts so as to cause the same to remain in full force and effect.
Without limiting the foregoing, the Assignor shall continue to make or
cause to be made all payments necessary to maintain the effectiveness
and validity of all Permits and Contracts, subject to the right of the
Assignor to contest the same pursuant to the provisions of the Lease.
The Assignor shall give prompt notice to the Assignee of any notice
alleging the Assignor's default of any obligation under any Permit or
Contract received from any issuer thereof or from any other Person
that is a party thereto and shall furnish the Assignee with complete
copies of said notice; and
(f) if requested by the Assignee, the Assignor shall enforce each Permit
and Contract and all rights and remedies available to the Assignor
against the issuer of or any party to any Permit or Contract in the
event that the Assignee determines, in the Assignee's reasonable
discretion, that any action taken by the issuer of or any party to any
Permit or Contract threatens the validity or effectiveness thereof.
7. EFFECT OF ASSIGNMENT. This Assignment constitutes the granting by the
Assignor of a security interest under the Uniform Commercial Code as enacted in
the state where the Leased Property is located of the right, title, and interest
of the Assignor in and to the Permits and Contracts. This Assignment is subject
expressly to the terms, conditions and provisions of the Permits and Contracts
and all applicable Legal Requirements, 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. To the extent
the Assignee is not permitted by
-4-
<PAGE> 5
applicable law or the terms, conditions or provisions of any of the Permits or
Contracts to take a security interest in any of the Permits or Contracts, the
Assignor hereby agrees to execute any and all other documents deemed necessary
or advisable by the Assignee to give the Assignee such interest in such Permit
or Contract as is allowed or allowable under law or the terms, conditions or
provisions of such Permit or Contract. In addition to and not in limitation of
the other rights of the Assignee hereunder, upon the occurrence of a Lease
Default, the Assignee shall have, to the extent permitted by applicable law, and
the terms, conditions and provisions of the Permits and Contracts, with respect
to the right, title and interest of the Assignor in the Permits and Contracts,
all of the rights of a secured party under the Uniform Commercial Code as
enacted in the state where the Leased Property is located, including, without
limitation, a right to sell the same at public or private sale. The Assignee
shall give the Assignor reasonable notice of the time and place of any public
sale thereof or of the time after which any private sale or other intended
dispositions thereof is to be made. The requirement of reasonable notice shall
be met if such notice is mailed to the Assignor, by certified mail, postage
prepaid, return receipt requested, at least ten (10) days before the time of the
sale or disposition.
8. EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default hereunder:
(a) the occurrence of any Lease Default; and
(b) if any representation or warranty by the Assignor contained in this
Assignment proves to be false or misleading in any material respect as
of the date hereof.
9. RIGHTS OF THE ASSIGNEE UPON DEFAULT. Upon the occurrence of any Event of
Default and at any time thereafter (without in any way waiving such Event of
Default), at the Assignee's option and without notice or demand of any kind, and
without regard to the adequacy of security for the complete payment or
performance of the Obligations, the Assignee may exercise any or all of the
following remedies, either in person or by agent, with or without bringing any
action or proceeding, or by a receiver appointed by a court:
(a) declare all of the Lease Obligations immediately due and payable;
(b) to the extent permitted by applicable law and the terms, conditions
and provisions of the applicable Permits and Contracts, with or
without taking possession of the Leased Property, exercise any and all
rights or privileges granted by or permitted under, and enjoy all
benefits of, the Permits and Contracts and to otherwise exercise any
and all rights assigned to the Assignee hereunder;
(c) to the extent permitted by applicable law and the terms, conditions
and provisions of the applicable Permits and Contracts, institute any
legal or
-5-
<PAGE> 6
equitable action (in either the Assignor's or the Assignee's name)
which the Assignee, in its sole and absolute discretion, deems
desirable to collect any income or proceeds from any of the Permits or
Contracts; and
(d) exercise any other rights and remedies permitted to the Assignee under
applicable law.
Any amounts advanced by the Assignee in connection with the Permits and
Contracts and all costs and expenses, including, without limitation, attorneys'
fees and expenses and court costs reasonably incurred in connection therewith,
shall be a demand obligation and, to the extent permitted under applicable law,
shall be added to the Lease Obligations and shall be secured hereby as fully and
effectively and with the same priority as every other obligation of the Assignor
secured hereby and, if not paid within ten (10) days after demand, shall
thereafter, to the extent then permitted by applicable law, bear interest at the
Overdue Rate until the date of payment. Notwithstanding the foregoing, so long
as there shall exist no Event of Default hereunder, the Assignor shall have the
right, subject to the terms and conditions of this Assignment, to exercise any
and all rights and privileges granted by or permitted under, and enjoy all
benefits of, the Permits and Contracts.
10. EFFECT OF NOTICE. A written notice made upon the issuer of or any party
to any Permit or Contract by the Assignee stating that a Lease Default exists
and that the Assignee has succeeded to all of the Assignor's right, title and
interest in and to such Permit or Contract shall be sufficient notice to such
issuer or other party of such circumstances without the necessity for any
consent by the Assignor. The Assignor hereby waives any claim whatsoever against
any such issuer or contracting party for any action taken by any such issuer or
contracting party at the written request of the Assignee pursuant to the terms
of this Assignment.
11. LIABILITY. This Assignment shall not operate to place responsibility
upon the Assignee for the care, control, maintenance, management, operation or
repair of the Leased Property, nor for the carrying out of any of the terms and
conditions of any of the Permits or Contracts unless such responsibility is
specifically assumed by the Assignee in writing; nor shall it operate to make
the Assignee responsible or liable for any waste committed on or at the Leased
Property, any dangerous or defective condition of or relating to the Leased
Property, or for any negligence in the management, upkeep, repair or control of
the Leased Property resulting in loss, injury or death to any licensee, employee
or any other Person, whether or not such Person is connected with the Leased
Property; provided, however that the foregoing shall not be deemed to exculpate
the Assignee from any liability resulting from the Assignee's gross negligence
or willful misconduct. Nothing herein contained shall be construed to bind the
Assignee to the performance of any of the terms and provisions contained in any
of the Permits or Contracts or to otherwise impose any obligation whatsoever on
the Assignee.
12. COVENANT OF THE ASSIGNEE. Upon the complete payment and performance of
the Lease Obligations, provided that no Related Party Default has occurred nor
any event
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<PAGE> 7
which with the giving of notice or the passage of time or both would constitute
a Related Party Default, this Assignment shall be deemed terminated and released
by the Assignee without further action and shall thereupon be of no further
force or effect. The Assignor agrees that an affidavit, certificate, letter or
statement of any officer, agent or attorney of the Assignee indicating that any
part of the Lease Obligations remains outstanding shall be deemed prima facie
evidence of the validity, effectiveness and continuing force of this Assignment
and any Person may and is hereby authorized to rely thereon.
13. GENERAL PROVISIONS; RULES OF CONSTRUCTION. The provisions set forth in
Articles 22 and 23 and Sections 2.2, 16.8 through 16.10 and 24.2 through 24.12
of the Lease are hereby incorporated herein by reference, mutatis, mutandis and
shall be applicable to this Assignment as if set forth in full herein.
IN WITNESS WHEREOF, the Assignor has duly executed this Assignment as a
sealed instrument as of the 31st day of December, 1997.
WITNESS: ASSIGNOR:
BLACK BOX OF LEWISBURG, INC., a
Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
<PAGE> 8
Schedule to Exhibit 10.53 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Collateral Assignments of Permits
Licenses, Approvals and Contracts
<TABLE>
<CAPTION>
Date of
Project Parties Facility Agreement
- ------- ------- --------- --------
<S> <C> <C> <C>
Blytheville, AR TC Realty of Blytheville, Outlook Pointe 12/19/97
Inc. (Assignor) at Blytheville
Meditrust Acquisition
Corporation II
(Assignee)
Maumelle, AR TC Realty of Maumelle, Outlook Pointe 12/19/97
Inc. (Assignor) at Maumelle
Meditrust Acquisition
Corporation II (Assignee)
Mountain Home, AR TC Realty of Mountain Outlook Point 12/19/97
Home, Inc. (Assignor) at Mountain Home
Meditrust Acquisition
Corporation II
(Assignee)
Pocahontas, AR TC Realty of Pocahontas, Outlook Pointe 12/19/97
Inc. (Assignor) at Pocahontas
Meditrust Acquisition
Corporation II
(Assignee)
Sherwood, AR TC Realty of Sherwood, Outlook Pointe 12/19/97
Inc. (Assignor) at Sherwood
Meditrust Acquisition
Corporation II
(Assignee)
Altoona, PA TC Realty of Altoona, Outlook Pointe 12/19/97
Inc. (Assignor) at Altoona
Meditrust Acquisition
Corporation II
(Assignee)
Reading, PA TC Realty of Reading, Outlook Pointe 12/19/97
Inc. (Assignor) at Reading
Meditrust Acquisition
Corporation II (Assignee)
</TABLE>
<PAGE> 9
Collateral Assignments of Permits
Licenses, Approvals and Contracts(1)
<TABLE>
<CAPTION>
Date of
Project Parties Facility Agreement
- ------- ------- --------- --------
<S> <C> <C> <C>
Dillsburg, PA Black Box of Dillsburg, Outlook Pointe at 12/31/97
Inc. (Assignor) Logan Meadows
BCC Development and
Management Co. (Assignor)
Meditrust Acquisition
Corporation II
(Assignee)
Martinsburg, WV Black Box of Martinsburg, Outlook Pointe at 12/31/97
Inc. (Assignor) Martinsburg
BCC Development and
Management Co. (Assignor)
Meditrust Acquisition
Corporation II
(Assignee)
Peckville, PA Black Box of Peckville, Balanced Care at 12/31/97
Inc. (Assignor) Peckville
BCC Development and
Management Co. (Assignor)
Meditrust Acquisition
Corporation II
(Assignee)
Berwick, PA TC Realty of Berwick, Berwick Manor 1/7/98
Inc. (Assignor)
BCC Development and
Management Co. (Assignor)
Meditrust Acquisition
Corporation II
(Assignee)
</TABLE>
- --------
(1) Each of the Assignors in the documents listed on this schedule assigns its
interests pursuant to a separate assignment agreement.
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Chippewa, PA TC Realty of Chippewa, Outlook Pointe at 1/7/98
Inc. (Assignor) Chippewa
BCC Development and
Management Co. (Assignor)
Meditrust Acquisition
Corporation II
(Assignee)
Lewistown, PA TC Realty of Lewistown, Balanced Care, 1/7/98
Inc. (Assignor) Lewistown
BCC Development and
Management Co. (Assignor)
Meditrust Acquisition
Corporation II
(Assignee)
</TABLE>
<PAGE> 1
EXHIBIT 10.54
OPTION AGREEMENT
THIS OPTION AGREEMENT (THE "AGREEMENT") is made and entered into as of the
19th day of December, 1997 by and between TC Realty Holding Company, a Delaware
Corporation ("OPTIONOR") and Balanced Care Corporation, a Delaware corporation,
or its successors and assigns ("BCC").
WITNESSETH:
WHEREAS, Optionor is the owner of 100 shares (THE "EQUITY INTERESTS") of TC
Realty of Altoona, Inc., a Delaware corporation (THE "COMPANY"), which Equity
Interests are evidenced by stock certificate number 1 of the Company, and
represent 100% of the equity ownership in the Company; and
WHEREAS, the Company is the Lessee under that certain First Amended and
Restated Facility Lease Agreement dated as of December 19, 1997 (THE "LEASE")
between MEDITRUST ACQUISITION CORPORATION II, a Delaware corporation (THE
"LESSOR") and the Company for property located in Blair County, Pennsylvania, as
more fully described in the Lease (THE "PROPERTY"); and
WHEREAS, the Company has entered into that certain Management Agreement
dated as of December 19, 1997 (THE "MANAGEMENT AGREEMENT") with BCC at Altoona,
Inc., a Delaware Corporation (THE "MANAGER") whereby the Manager shall operate
for the benefit of the Company a personal care home/assisted living facility on
the Property (THE "PROJECT"); and
WHEREAS, the Optionor, the Lessor and the Company have entered into that
certain Stock Pledge Agreement dated as of December 19, 1997 (the "STOCK PLEDGE
AGREEMENT"), whereby Optionor has pledged to the Lessor a first lien security
interest in the Equity Interests; and, if and when the Equity Interests are
purchased from Optionor pursuant to this Agreement, such purchaser shall
expressly assume all obligations of Optionor under the Stock Pledge Agreement;
and
WHEREAS, the Company, the Lessor, the Optionor and BCC have entered into
that certain Working Capital Assurance Agreement dated as of December 19, 1997
(THE "WORKING CAPITAL AGREEMENT") whereby, among other matters, BCC has agreed
to fund certain Shortfalls (as defined in the Working Capital Agreement) by
making loans to the Company, as more fully described in the Working Capital
Agreement; and
WHEREAS, BCC and the Company have entered into a Shortfall Funding
Agreement dated as of December 19, 1997 (THE "SHORTFALL AGREEMENT") whereby,
among other matters, BCC has agreed to fund certain Shortfalls by making loans
to the Company, as more fully provided in the Shortfall Agreement; and
WHEREAS, BCC, the Lessor and the Company have entered into that certain
Subordination and Standstill Agreement dated as of December 19, 1997 (the
"SUBORDINATION AGREEMENT") whereby BCC has agreed, on the terms and conditions
provided in the Subordination Agreement, to subordinate certain interests of BCC
to the interests of the Lessor; and
WHEREAS, pursuant to the Management Agreement, Notes (as defined in the
<PAGE> 2
Shortfall Agreement) and Shortfall Agreement, in no event shall the directors or
officers of the Lessee or the shareholders, directors or officers of the Parent
ever be personally liable to BCC or any affiliate of BCC or any third party for
the payment and/or performance of any obligations or liabilities thereunder.
WHEREAS, BCC is willing to enter into the Shortfall Agreement, and all
other Transaction Documents (as defined in the Shortfall Agreement) of which BCC
is a party, only if Optionor executes and delivers an option agreement whereby
BCC or its successors and assigns may acquire all of the Equity Interests of the
Optionor, on the terms and conditions provided herein.
NOW, THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, and intending to be legally bound, the parties hereto do hereby
agree as follows:
1. DEFINED TERMS/INTERPRETATIONS. As used herein, unless the context
otherwise requires: (a) the terms defined herein shall have the meaning set
forth herein for all purposes; (b) references to "Section" are to a section
hereof; (c) "include", "includes" and "including" are deemed to be followed by
"without limitation" whether or not they are in fact followed by such word or
words of like import; (d) "writing", "written" and comparable terms refer to
printing, typing, lithography and other means of reproducing words in a visible
form; (e) "hereof", "herein", "hereunder" and comparable terms refer to the
entirety of this Agreement and not to any particular section hereof; (f)
references to any gender include references to all genders; (g) references to an
agreement or other instrument or statute or regulation are referred to as
amended and supplemented from time to time and, in the case of a statute or
regulation, any successor provisions thereof; (h) the headings of the various
Sections hereof are for convenience of reference only and shall not modify,
define or limit any of the terms or provisions hereof; and (i) initially
capitalized terms not otherwise defined herein shall have the meanings ascribed
to such terms in the Shortfall Agreement.
2 GRANT OF OPTION/CONSIDERATION. (a) Subject to the terms of the Stock
Pledge Agreement and Section 19.4 of the Lease, Optionor hereby grants to BCC an
option (the "OPTION") to purchase all of Optionor's right, title and interest in
and to the Equity Interests on the terms and conditions provided herein. The
Purchase Price (as defined below) for the Equity Interests shall be paid to
Optionor on the Closing Date (as hereinafter defined) in immediately available
funds. The Option shall be exercisable by providing written notice to Optionor
on or before the tenth anniversary after the date of this Agreement (the "OPTION
TERM"); PROVIDED, HOWEVER, IN NO EVENT SHALL BCC BE ENTITLED TO EXERCISE ITS
OPTION SO LONG AS ANY AMOUNTS ARE OUTSTANDING UNDER THAT CERTAIN DEMAND
PROMISSORY NOTE OF EVEN DATE HEREWITH IN THE ORIGINAL PRINCIPAL AMOUNT OF
$123,822 MADE BY BRUCE A. RENDINA TO THE ORDER OF LESSOR.
(b) In consideration of the grant of the Option, BCC shall pay to Optionor
the following sums (the "OPTION PAYMENTS"), as follows: (i) on or before July 1,
1998, BCC shall pay the sum of $75,000 to Optionor, (ii) on or before January 1,
1999, BCC shall pay the sum of $25,000 to Optionor and (iii) on or before
January 1, 2000 and on or before January 1 of each successive year thereafter
until the expiration of the Option Term, BCC shall pay to Optionor the sum of
$50,000 per annum. Option Payments shall be made to Optionor without demand or
notice.
(c) Until BCC provides written notice of its exercise of the Option, BCC
shall be under no obligation whatsoever to purchase the Equity Interests or
exercise the Option, and shall not otherwise have any liability whatsoever
hereunder in connection with the purchase of the Equity Interests.
(d) The "Purchase Price" as used herein shall mean an amount equal to (A)
the total amount funded into the Working Capital Reserve as Borrowings (as
defined in Section 3(b)
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<PAGE> 3
below), plus (B) an amount which, when combined with all
Option Payments made under Section 2(b) above, equals $250,000, plus (C) the
outstanding principal balance, together with all accrued but unpaid interest,
with respect to Advances made under the Shortfall Agreement, together with all
other sums then due and owing to BCC or an affiliate of BCC under the Shortfall
Agreement and the other Transaction Documents (such amounts stated in Subsection
(C) being referred to herein as the "BCC PAY-OFF AMOUNT"). It is the intent of
the parties hereto that the Purchase Price shall include all amounts referred to
in (B) of this Section 2(d), all amounts owing to BCC in connection with the BCC
Pay-Off Amount and all amounts owing in connection with Borrowings.
3. CLOSING . (a) Subject to the satisfaction of the conditions set forth in
Section 19.4 of the Lease, the closing of the purchase of the Equity Interests
(the "Closing") shall take place at such time and location in Pennsylvania as
shall be designated by BCC upon three (3) days prior written notice to Optionor
(the "Closing Date"). At the Closing (i) BCC shall deliver (A) the Purchase
Price and (B) an agreement in form and substance reasonably satisfactory to
Optionor and Lessor whereby the purchaser of the Equity Interests expressly
assumes all obligations of Optionor under the Stock Pledge Agreement and (ii)
Optionor shall deliver to BCC (A) the certificate representing the original
Equity Interests, together with such powers and other instruments as BCC may
request, (B) such pay-off letters or other evidence of the outstanding amounts
due the Lessor in connection with Borrowings and (C) the certificate of an
appropriate officer of the Company stating that the transfer of the Equity
Interests to BCC has been recorded on the books and records of the Company, and
affirming to BCC such additional matters as BCC may reasonably request.
Additionally, both BCC and Optionor shall take such further actions and execute
and deliver such further documents and instruments as either party may
reasonably request. At the Closing, BCC and Optionor shall deliver a mutual
release agreement in form and substance acceptable to Optionor and BCC, pursuant
to which Optionor and BCC shall release each other from claims under the
Transaction Documents (the "MUTUAL RELEASE"). Provided, however, that BCC shall
provide such Mutual Release only in the event that (w) the Equity Interests are
conveyed to BCC free and clear of all liens, encumbrances and restrictions
(except Permitted Liens and the security interest granted to the Lessor pursuant
to the Stock Pledge Agreement), (x) the Company has not incurred other
liabilities or indebtedness except as otherwise expressly contemplated in the
Transaction Documents, (y) no default on the part of Optionor or Company under
this or any other Transaction Document shall have occurred, nor any event which,
with the giving of notice and/or the passage of time, could result in a default
under this or any other Transaction Document, and (z) the Mutual Release shall
not encompass those matters described in subsections (w), (x) and (y) hereof.
(b) Notwithstanding anything to the contrary contained herein or in the
other Transaction Documents, if and to the extent that the Working Capital
Reserve is borrowed by the Optionor (such borrowings, together with all
interest, penalties and other costs and fees assessed or incurred in connection
therewith, are referred to herein as the "BORROWINGS"), the Borrowings shall be
repaid in full from the Purchase Price at the Closing. Optionor shall give BCC
prior written notice before making any Borrowings, detailing the amount thereof.
BCC shall have the right at the Closing to pay from the Purchase Price the total
amount outstanding with respect to the Borrowings. Such Borrowings shall be
contributed by Optionor to Lessee as an equity contribution of Optionor to
Lessee and in no event shall the Borrowings be deemed in any manner indebtedness
of Lessee to Optionor. Without limiting the generality of the foregoing, in
connection with the exercise of the Option, BCC and Optionor agree that, at the
time the Stock Transfer (as defined in the Lease) is consummated, any amounts
then due under the Note (as defined in the Lease) shall be paid in accordance
with the terms thereof from the Purchase Price.
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<PAGE> 4
(c) Notwithstanding anything to the contrary contained herein, in the other
Transaction Documents or in the Lease Documents, in addition to the repayment of
Borrowings from the Purchase Price as provided in Section 3(b) above, the BCC
Pay-off Amount shall be paid in full by Optionor to BCC at the Closing from the
Purchase Price.
4. COVENANTS OF OPTIONOR/LEGEND. (a) Optionor shall not (i) sell, assign,
convey, pledge, encumber or otherwise transfer (by operation of law or
otherwise) any of Optionor's rights, title or interest under, in or to the
Equity Interests, other than as set forth herein or as expressly provided in the
Transaction Documents, the Lease or the Stock Pledge Agreement in favor of
Lessor, (ii) cause or permit the Company to merge, consolidate, dissolve,
liquidate, change its capital structure, issue new or substitute equity
interests (including the issuance of warrants) or sell all or any portion of the
Company's assets, (iii) cause or permit the Company to otherwise take any action
that with the passage of time and/or the giving of notice would constitute a
default under or a breach of any covenant or provision of the Shortfall
Agreement, the Lease Documents or the other Transaction Documents, or (iv)
challenge or disaffirm the validity or perfection of the lien held by BCC in the
Equity Interests.
(b) Optionor shall cause the Company to place the following legend on all
certificates representing Equity Interests:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION TO PURCHASE IN FAVOR OF BALANCED CARE CORPORATION AND
ITS SUCCESSORS AND ASSIGNS, AS MORE FULLY SET FORTH IN THAT
CERTAIN OPTION AGREEMENT DATED AS OF DECEMBER 19, 1997.
(c) To secure the obligations of the Optionor hereunder, Optionor hereby
grants and pledges to BCC a lien in the Equity Interests, subject to the lien of
the Lessor as provided in the Stock Pledge Agreement. Notwithstanding the
foregoing, BCC acknowledges and agrees that BCC may not exercise any rights or
remedies with respect to such lien in the Equity Interests without the prior
written consent of the Lessor, which consent maybe withheld in the Lessor's sole
and absolute discretion. The Lessor may enforce the provisions of the foregoing
sentence as a third party beneficiary.
(d) Optionor shall permit the Manager to request Loan Proceeds from the
Lender (as such terms are defined in the Note) in accordance with the Note to
fund operating deficits with respect to the Facility (as defined in the Lease).
5. REPRESENTATIONS AND WARRANTIES. Optionor represents and warrants to BCC
that (i) Optionor is the sole and exclusive owner of the Equity Interests free
and clear of all liens, encumbrances and restrictions (except Permitted Liens
and the security interest granted to the Lessor pursuant to the Stock Pledge
Agreement), and Optionor's ownership interest in the Equity Interests is
appropriately noted and documented on the books and records of the Company, (ii)
all shareholders of the Optionor are accredited investors as that term is
defined in Regulation D promulgated under the 1933 Act, (iii) no other person or
entity holds any equity interests in the Company, (iv) the Equity Interests have
been duly issued to Optionor, are fully paid and nonassessable, (vi) Optionor
has the full right and power to transfer and convey the Equity Interests, enter
into this Option Agreement and sell the Equity Interests to BCC without
-4-
<PAGE> 5
the need to obtain the consent or joinder of any party (other than the Lessor),
(vi) each shareholder of Optionor has had the opportunity to ask all questions
of BCC, the Company and any other person or entity necessary or desirable
concerning Optionor's investment in the Equity Interests, (vii) each shareholder
of Optionor has the requisite knowledge and sophistication to make an informed
decision regarding the risks and merits of an investment in the Optionor and the
Company, and has not relied on any oral or written statements of BCC or any
party affiliated with BCC in connection with Optionor's investment in the
Company, (viii) each shareholder of Optionor understands that the Equity
Interests will be deemed restricted securities within the meaning of the 1933
Act (and state securities laws), the Equity Interests are non-transferable and
each shareholder of Optionor must be able to bear the economic risks of
ownership of the Equity Interests for an indefinite period of time, and (ix) the
representations and warranties contained in Article III of the Shortfall
Agreement are true and correct to the best knowledge of Optionor in every
material respect. The provisions of this Section shall survive the Closing and
purchase of the Equity Interests.
6. NO WAIVER. No failure or delay on the part of BCC in exercising any
right, remedy, power or privilege hereunder shall operate as a waiver thereof or
of any other right, remedy, power or privilege of BCC hereunder or under any
other Transaction Document; nor shall any single or partial exercise of any such
right, remedy, power or privilege preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or privilege.
7. GOVERNING LAW/BINDING EFFECT. This Agreement shall be deemed to be a
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed in accordance with the laws of said
Commonwealth, excepting its rules and laws relating to conflicts of law. The
rights and obligations of the parties hereunder shall be binding upon and inure
to the benefit of the parties hereto and their heirs, personal representatives,
successors and assigns.
8. ASSIGNMENT. Except for the pledge of the Equity Interests to the Lessor
pursuant to the Stock Pledge Agreement, Optionor may not assign, pledge,
hypothecate or otherwise transfer its rights, obligations and duties hereunder
without the prior written consent of BCC. Subject to the terms of the Working
Capital Agreement and the Subordination Agreement, BCC shall have the right to
transfer and assign its rights, obligations and duties hereunder to any
affiliate or third party without the consent of the Optionor.
9. DEFAULT. (a) In the case of default by Optionor hereunder, BCC shall be
entitled, after ten (10) days prior written notice to Optionor, to (a) seek an
action in specific performance and/or (b) seek such other relief, including
without limitation an action at law for damages, as may be available. Optionor
shall pay all reasonable counsel fees of BCC in connection with enforcing any
rights or benefits of BCC hereunder or under the other Transaction Documents.
The rights and remedies of BCC under this Option Agreement are cumulative and
not exclusive of any rights or remedies which it may otherwise have.
(b) In the case of default by BCC hereunder, Optionor shall be entitled,
after ten (10) days prior written notice to BCC, to seek such relief, including
without limitation an action at law for damages, as may be available to
Optionor. Without limiting the foregoing, in the event that BCC fails to pay any
Option Payment to the Optionor within ten (10) days after the date that such
Option Payment is due, BCC agrees, upon behalf of itself and its subsidiaries,
that the Optionor shall have the right, at any time thereafter, to exercise any
or all of the following remedies upon written notice to BCC: (i) to cause the
Company to terminate the Management Agreement and (ii) terminate this Agreement;
all without recourse to the Optionor or the Company. In addition, in the event
of any such termination of this Agreement, to the extent any Advances have been
made under the Shortfall Agreement or any other sums are then due and owing to
BCC or an affiliate of BCC under the Shortfall Agreement and/or any of the other
Transaction Documents, the then outstanding BCC Pay-Off Amount shall be
forgiven. BCC shall pay all reasonable counsel fees of Optionor in connection
with enforcing any rights or benefits of Optionor hereunder. The rights and
remedies of Optionor under this Option Agreement are cumulative and not
exclusive of any rights or remedies which it may otherwise have.
-5-
<PAGE> 6
10. MISCELLANEOUS.
(a) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in person,
Federal Express or other recognized overnight courier or sent by registered or
certified U.S. mail, return receipt requested or sent by facsimile or telecopy
transmission and addressed:
(i) If to the Optionor, at:
3801 PGA Boulevard
Suite 1000
Palm Beach Gardens, Florida 33410
(ii) If to BCC, at
5021 Louise Drive
Suite 200
Mechanicsburg, PA 17055
or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.
A notice or other communication shall be deemed to be duly received:
(a) if sent by hand or telegram or express service, when left at the
address of the recipient;
(b) if sent by registered or certified U.S. mail, return receipt
requested, the second day after mailing; and
(c) if sent by facsimile, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine
from which the facsimile was sent indicating that the facsimile
was sent in its entirety to the recipient's facsimile number;
PROVIDED THAT if a notice or other communication is served by hand or by
telegram, or is received by telex or facsimile on a day which is not a business
day, or after 5:00 P.M. on any business day at the addressee's location, such
notice or communication shall be deemed to be duly received by the recipient at
9:00 A.M. on the first business day thereafter.
(b) Entire Agreement. This Agreement, together with all other Transaction
Documents and Lease Documents, contains the entire understanding among the
parties hereto with respect to its subject matter and supersedes any prior
understandings or agreements between the parties with respect to such subject
matter.
(c) Amendments. Subject to the terms of the Lease Documents, this Agreement
may be modified or amended only by a written instrument executed by the Company,
BCC and Optionor.
-6-
<PAGE> 7
(d) Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute but a single instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the day and year first above written.
WITNESS/ATTEST: TC REALTY HOLDING COMPANY
By: /s/ Signature Illegible
- --------------------------- -----------------------------
Title:
- --------------------------- ---------------------------
WITNESS/ATTEST: BALANCED CARE CORPORATION
By: /s/ Signature Illegible
- --------------------------- -----------------------------
Title:
- --------------------------- ---------------------------
Subject to the terms and conditions contained herein, in the Lease, in the
Stock Pledge Agreement and all other Lease Documents, the Lessor hereby consents
to the terms and provisions of this Option Agreement and agrees, upon the
consummation of the Stock Transfer (as defined in the Lease) in accordance with
the terms of Section 19.4 of the Lease, to enter into a mutual release agreement
in form and substance acceptable to Optionor and Lessor, pursuant to which the
Optionor and the Lessor shall release each other from claims under the
Transaction Documents.
WITNESS/ATTEST: MEDITRUST ACQUISITION CORPORATION II
By: /s/ Signature Illegible
- --------------------------- -----------------------------
Title:
- --------------------------- ---------------------------
- ---------------------------
- ---------------------------
- 8 -
<PAGE> 9
The undersigned hereby acknowledges and consents to the provisions of
Section 9(b) of the Option Agreement specifically set forth in Section 9(b).
BALANCED CARE AT ALTOONA, INC.
By:
-------------------------------
Title:
----------------------------
-9-
<PAGE> 10
Schedule to Exhibit 10.54 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Option Agreement
<TABLE>
<CAPTION>
Project Parties Property Location Date
- ------- ------- ----------------- ----
<S> <C> <C> <C>
Blytheville, AR TC Realty Holding Co. Mississippi County 12/19/97
(Optionor) AR
Balanced Care Corp.
Maumelle, AR TC Realty Holding Co. Pulaski County 12/19/97
(Optionor) AR
Balanced Care Corp.
Mountain Home, AR TC Realty Holding Co. Baxter County 12/19/97
(Optionor) AR
Balanced Care Corp.
Pocahontas, AR TC Realty Holding Co. Randolph County 12/19/97
(Optionor) AR
Balanced Care Corp.
Sherwood, AR TC Realty Holding Co. Pulaski County 12/19/97
(Optionor) AR
Balanced Care Corp.
Reading, PA TC Realty Holding Co. Berks County 12/19/97
(Optionor) PA
Balanced Care Corp.
Martinsburg, WV Black Box Holding Co. Berkely County 12/31/97
(Optionor) WV
Balanced Care Corp.
Dillsburg, PA Black Box Holding Co. York County 12/31/97
(Optionor) PA
Balanced Care Corp.
Peckville, PA Black Box Holding Co. Lackawanna County 12/31/97
(Optionor) PA
Balanced Care Corp.
Lewisburg, PA Black Box Holding Co. Union County 12/31/97
(Optionor) PA
Balanced Care Corp.
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Berwick, PA TC Realty Holding Co. Columbia County 1/7/98
(Optionor) PA
Balanced Care Corp.
Chippewa, PA TC Realty Holding Co. Beaver County 1/7/98
(Optionor) PA
Balanced Care Corp.
Lewistown, PA TC Realty Holding Co Mifflin County 1/7/98
(Optionor) PA
Balanced Care Corp.
</TABLE>
<PAGE> 1
EXHIBIT 10.55
SHORTFALL FUNDING AGREEMENT
DATED AS OF DECEMBER 19, 1997
TC Realty of Altoona, Inc., a Delaware corporation ("LESSEE") and Balanced
Care Corporation, a Delaware corporation ("BCC"), agree as follows:
Witnesseth:
WHEREAS, Lessee executed and delivered that certain First Amended and
Restated Facility Lease Agreement dated as of December 19, 1997 (the "LEASE")
whereby Lessee leased from MEDITRUST ACQUISITION CORPORATION II, a Delaware
corporation (the "LESSOR") property, together with all improvements built or to
be built thereon, located in Blair County, Pennsylvania, as more fully described
in the Lease (the "PROPERTY"); and
WHEREAS, the Lessee and BCC at Altoona, Inc., a Delaware corporation (the
"MANAGEMENT FIRM") have entered into a Management Agreement dated as of December
19, 1997 (the "MANAGEMENT AGREEMENT") whereby Lessee has appointed the
Management Firm as the exclusive manager and operator of a personal care
home/assisted living facility on the Property (the "PROJECT"); and
WHEREAS, BCC, the Lessee, TC Realty Holding Company, a Delaware corporation
(the "PARENT") and the Lessor have entered into that certain Working Capital
Assurance Agreement dated as of December 19, 1997 (the "WORKING CAPITAL
AGREEMENT"), whereby, among other matters, BCC has agreed to provide credit
support to Lessor by funding loans to Lessee to cover certain Shortfalls (as
defined in the Working Capital Agreement); and
WHEREAS, Lessor, Lessee and BCC have entered into a Subordination and
Standstill Agreement dated as of December 19, 1997 (the "SUBORDINATION
AGREEMENT") whereby BCC has agreed to subordinate all loans advanced hereunder
and under the Working Capital Agreement to the obligations of Lessee to Lessor
under the Lease and the other Lease Documents (as defined under the Lease); and
WHEREAS, BCC is willing to fund loans to Lessee covering Shortfalls only on
the terms and conditions provided in this Agreement, subject to the terms of the
Working Capital Agreement and the Subordination Agreement; and
WHEREAS, Lessee has granted to Lessor that certain Open End Leasehold
Mortgage and Security Agreement dated as of December 19, 1997 (the "FIRST
LEASEHOLD MORTGAGE"), whereby Lessee has granted to Lessor a first priority
security interest in Lessee's leasehold interest in the Lease as more fully
provided in the First Leasehold Mortgage.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, the
Lessee and BCC agree as follows:
<PAGE> 2
ARTICLE I
LOANS
SECTION 1.01 ADVANCES. Upon complete depletion of the Working Capital
Reserve (as defined under the Working Capital Agreement), and to the extent
thereafter of any Shortfall, BCC agrees to advance from time to time funds to
the Lessee or the Lessor on behalf of the Lessee, as the case may be, in
increments of no less than an aggregate of $25,000 and no more frequently than
monthly, upon the terms and conditions provided herein (each advance being an
"ADVANCE" and collectively, the "ADVANCES"). Advances shall be evidenced by one
or more promissory notes in the form attached hereto as Exhibit A (the "NOTES").
The Notes shall be payable upon demand. Interest shall accrue on the Notes at
the rate of 2% over the Prime Rate as announced from time to time in the Wall
Street Journal (or, in the event of the discontinuance of the publishing of the
Prime Rate in the Wall Street Journal, such other source as the parties may
agree), and shall be payable in arrears on the first day of each calendar
quarter. All sums owed under the Notes and hereunder to BCC, and all other
obligations and covenants of the Lessee and the Parent under the Transaction
Documents (as hereinafter defined) which are owed to BCC or any affiliate of
BCC, together with all interest payable under the Transaction Documents and all
other costs and expenses payable by Lessee or Parent to or for the benefit of
BCC or any affiliate of BCC (including without limitation indemnification and
defense obligations) are referred to herein as the "OBLIGATIONS".
SECTION 1.02 TRANSACTION DOCUMENTS. In addition to the Notes, and to better
secure the performance of Lessee hereunder and prompt payment under the Notes
and other sums which may become due and owing from Lessee to BCC, Lessee has
executed and delivered the following:
(i) the Working Capital Agreement;
(ii) Open-End Leasehold Mortgage and Security Agreement in the form
attached hereto as Exhibit B encumbering the Lessee's leasehold
interest in the Property in favor of BCC (the "SECOND LEASEHOLD
MORTGAGE"); and
(iii) such other documents, certificates, affidavits and instrument as
BCC may reasonably request.
In addition to the foregoing documents, the Parent, the sole
shareholder of the Lessee, has executed and delivered to BCC an Option
Agreement (the "OPTION AGREEMENT") substantially in the form attached
hereto as Exhibit C, whereby such equity owner has agreed that BCC
shall have an option to purchase the equity interest of such equity
owner in Lessee, on the terms and conditions provided therein.
This Agreement, together with the Notes, the Working Capital Agreement, the
Second Leasehold Mortgage, the Management Agreement, the Option Agreement and
the other documents, certificates, financing statements, affidavits and
instruments executed by Lessee in connection with this Agreement, as any of the
same may be amended, modified or supplemented from time to time, are
collectively referred to herein as "Transaction Documents". Initially
capitalized terms used herein that are not otherwise defined shall have the
meanings ascribed to such terms in the Lease.
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<PAGE> 3
SECTION 1.03 PAYMENTS AND COMPUTATIONS. In no event shall the amount of
interest due or payable pursuant to any Transaction Document exceed the maximum
rate of interest allowed by applicable law and, in the event any such payment is
inadvertently paid by the Lessee or inadvertently received by BCC, then such
excess sum shall be credited as a payment of principal due under the Notes. It
is the express intention of the parties hereto that the Lessee not pay to BCC,
directly or indirectly, in any manner whatsoever, interest in excess of that
which may be lawfully paid by the Lessee.
SECTION 1.04 INTENTION. It is the intention of BCC and Lessee that, subject
to the provisions of applicable law: (i) the Management Firm operate the Project
pursuant to the Management Agreement and that Lessee act as a passive investor
with respect to the Project, (ii) Lessee include on its financial statements all
revenue and losses with respect to the Project during the term of this Agreement
for accounting purposes, and (iii) Advances made hereunder and all other
Obligations be secured, pursuant to the Second Leasehold Mortgage, solely by the
assets of Lessee (including without limitation the Lessee's leasehold interest
in the Lease) and the Option, but subject to the rights of Lessor under the
Lease and the other Lease Documents (as defined in the Lease), regardless of any
bankruptcy, insolvency, receivership or similar proceedings instituted by or
against Lessee or the Parent. In no event shall the directors or officers of the
Lessee or the shareholders, directors or officers of the Parent ever be
personally liable to BCC or any affiliate of BCC or any third party for the
payment and/or performance of any obligations or liabilities under this
Agreement or the Transaction Documents; provided, however, no provision
contained herein or in any other Transaction Document shall diminish in any
manner the obligations of Parent (as shareholder of Lessee) under the Option
Agreement.
ARTICLE II
CONDITIONS TO ACCEPTANCE OF TRANSACTION DOCUMENTS
SECTION 2.01 CONDITIONS PRECEDENT TO ADVANCES. The obligations of BCC to
accept delivery of the Transaction Documents are subject to the condition
precedent that BCC receives the following, in form and substance satisfactory to
BCC:
(a) the Note(s);
(b) the Working Capital Agreement;
(c) the Second Leasehold Mortgage;
(d) the Option Agreement;
(e) the Management Agreement;
(f) a certificate of the Secretary of State of the State of Delaware
stating that the Lessee is duly organized, validly existing and in good standing
in such State;
(g) a certified copy of the by-laws of the Lessee, together with certified
resolutions of the Lessee granting the power to Lessee to enter into and perform
the
3
<PAGE> 4
Transaction Documents;
(h) all other Transaction Documents; and
(i) such other affidavits, documents, certificates, statements and
instruments as BCC may reasonably request.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE LESSEE. The Lessee
represents and warrants to BCC as follows, which representations and warrants
shall be true and correct to the best knowledge of Lessee as of the date hereof,
as of the date of each Advance and as of each date thereafter until all
Obligations are satisfied in full:
(a) ORGANIZATION; QUALIFICATION. Each of the Parent and the Lessee is a
corporation, duly formed, validly existing and in good standing under the laws
of the State of Delaware; and each of the Parent and the Lessee has the power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted.
(b) POWER; AUTHORITY. The execution, delivery and performance by each of
the Parent and the Lessee of the Transaction Documents to which it is a party
are within each of the Parent's and the Lessee's power and have been duly
authorized by all necessary action, and this Agreement and the other Transaction
Documents to which it is a party have been duly executed and delivered by the
duly authorized officer or member of each of the Lessee and the Parent.
(c) APPROVAL OR CONSENTS. No approval or consent of any foreign, domestic,
federal, state or local authority is required for the due execution, delivery
and performance by each of the Parent and the Lessee of any Transaction Document
to which it is a party and the execution, delivery and performance by each of
the Parent and the Lessee of the Transaction Documents to which it is a party do
not conflict with, and will not result in the breach of or default under any
contract, agreement or other document or instrument to which the Parent and/or
the Lessee is a party or by which its or their properties are bound.
(d) BINDING OBLIGATIONS. This Agreement and the other Transaction Documents
to which the Lessee and/or the Parent are a party are legal, valid and binding
obligations of the Lessee and/or the Parent (as applicable) enforceable against
the Lessee and/or the Parent (as applicable) in accordance with their respective
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting generally the enforcement of
creditors' rights.
(e) LITIGATION. There is no pending or, to the best of Lessee's knowledge,
threatened action, suit or proceeding against or affecting the Lessee or the
Parent before any court, governmental agency or arbitrator.
(f) APPLICABLE LAW. The execution, delivery and performance of this
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<PAGE> 5
Agreement and the other Transaction Documents to which the Lessee and/or the
Parent are a party, and the borrowings hereunder, do not and will not, by the
passage of time, the giving of notice or otherwise, violate any law, rule or
regulation of any governmental body applicable to the Lessee and/or the Parent.
(g) TITLE AND CONDITION OF ASSETS. The Lessee has good, marketable and
legal title to, or a valid leasehold interest in, its properties and assets.
(h) LIENS. None of the properties and assets of the Lessee or the Parent
are subject to any lien, security interest or other charge or encumbrance, other
than Permitted Encumbrances, the First Leasehold Mortgage, security interests,
pledges and assignments granted by the Lessee or the Parent to the Lessor
pursuant to the express provisions of the Lease and other Lease Documents, and
liens and encumbrances in favor of BCC as provided herein (collectively,
"Permitted Liens"), and the execution, delivery and performance by each of the
Parent and the Lessee of the Transaction Documents to which it is a party will
neither result in the creation of any lien, security interest or other charge or
encumbrance upon any of the Lessee's and/or the Parent's properties or assets
(other than the Permitted Liens), nor cause a default under any agreements to
which Lessee and/or the Parent are a party.
(i) SECURITY. Upon the consummation of this transaction, BCC will have a
mortgage lien in the Lessee's leasehold interest in the Lease and a lien in the
stock of the Lessee owned by the Parent pursuant to the Option Agreement which
liens BCC may perfect.
(j) TAX RETURNS AND PAYMENTS. All federal, state and other tax returns of
each of the Parent and the Lessee required by law to be filed have been duly
filed, and all federal, state and other taxes, assessments and other
governmental charges or levies upon the Lessee and its properties, income,
profits and assets which are due and payable have been paid.
(k) NO EMPLOYEES. Neither the Parent nor the Lessee has employees for which
either are required to comply with the Employment Retirement Income Security Act
of 1974.
(l) ABSENCE OF DEFAULTS. No event has occurred, which has not been
remedied, cured or waived, which constitutes, or which with the passage of time
or giving of notice or both would constitute, an event of default under any
Transaction Document or which constitutes or which with the passage of time or
giving of notice or both would constitute a default or event of default by
either the Parent or the Lessee under any agreement or judgment, decree or
order, to which either the Parent or the Lessee are a party or by which either
the Parent or the Lessee or any of their respective properties may be bound.
(m) ACCURACY AND COMPLETENESS OF INFORMATION. All written information,
reports and other papers and data furnished to BCC were, at the time the same
were so furnished, complete and correct in all material respects, to the extent
necessary to give BCC a true and accurate knowledge of the subject matter, or,
in the case of financial statements, present fairly, in accordance with GAAP
consistently applied throughout the periods involved, the financial position of
the persons involved as at the date thereof and the results of operations for
such periods. No document furnished or
5
<PAGE> 6
written statement made to BCC in connection with the execution of this Agreement
or any of the other Transaction Documents contains or will contain any untrue
statement of a fact material to the credit worthiness of the Lessee or fails to
state a material fact necessary in order to make the statements contained
therein not materially misleading.
(n) SUBSIDIARIES. The Lessee does not own, directly or indirectly, of
record or beneficially, any of the voting stock of any class or classes of, or
any other voting interests of, any corporation, partnership, limited
partnership, limited liability company, trust or other entity.
(o) INVESTMENT COMPANY. Neither the Parent nor the Lessee is an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(p) PUBLIC UTILITY COMPANY. Neither the Parent nor the Lessee is a "holding
company" or a "subsidiary company", or an "affiliate" of a "holding company",
within the meaning of the Public Holding Company Act of 1935, as amended.
(q) SECURITIES REPRESENTATIONS. Neither Parent, Lessee nor any agent,
broker, dealer or other person or entity has offered or sold any equity
interests in Parent or Lessee in violation of the Securities Act of 1933, as
amended ("1933 ACT") or any state securities laws. All owners of equity
interests in Parent are accredited investors as defined in Regulation D
promulgated under the 1933 Act.
ARTICLE IV
COVENANTS OF THE LESSEE
SECTION 4.01 AFFIRMATIVE COVENANTS. (a) Subject in all respects to Section
4.01(b) below, and so long as this Agreement shall remain in effect, the Lessee
will:
(i) COMPLIANCE WITH LAWS; ETC. Comply, in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property.
(ii) MAINTENANCE OF INSURANCE. Maintain or contract to be maintained, with
premiums fully paid, with responsible and reputable insurance companies or
associations, such insurance in such amounts and covering such risks as is
required to be carried under the Lease, and all such policies evidencing such
insurance shall name BCC and Lessor as additional insureds thereunder. Lessee
shall also maintain insurance of sufficient types and amounts to comply with all
other laws, regulations and rules, of any government entity exercising
jurisdiction over Lessee. All insurance policies shall provide for notice of
nonrenewal and notice of extension to BCC and Lessor, and shall not be
terminated, amended or modified without 30 days prior written notice to BCC and
Lessor. Lessee shall provide BCC with evidence of all insurance, including
renewals or extensions of such insurance, promptly after receiving such
insurance.
6
<PAGE> 7
(iii) NOTICE OF LITIGATION AND OTHER MATTERS. Promptly give notice to BCC
of the following: (A) any actions, suits or proceedings instituted against the
Lessee; (B) any change in the chief executive office, principal place of
business or location of the books and records of the Lessee and (C) the
occurrence of a default or an event of default under this Agreement or the other
Transaction Documents.
(iv) MAINTENANCE OF PROPERTY. In addition to, and not in derogation of, the
requirements of any of the other Transaction Documents, (A) protect and preserve
all of its properties, (B) maintain in good repair, working order and condition
all of its tangible properties, and (C) from time to time make or cause to be
made all needed and appropriate repairs, renewals, replacements and additions to
such properties so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, as reasonably may be
determined by BCC.
(v) PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. Preserve and maintain
its existence under the laws of the state of its formation, and preserve and
maintain its rights, franchises, licenses and privileges in such state as a
corporation and shall qualify and remain qualified and authorized to do business
in such state.
(vi) BUSINESS. At all times endeavor to carry on its business in the most
efficient manner possible under the circumstances and engage only in the Primary
Intended Use (as defined in the Lease).
(vii) FURTHER ASSURANCES. At BCC's request, from time to time, execute,
acknowledge or take such further action as BCC may reasonably require to
effectuate the purposes of this Agreement and the purposes of the other
Transaction Documents.
(b) Notwithstanding anything to the contrary contained in Section 4.01(a),
Lessee shall not be in default hereunder to the extent that the obligations
described in this Section 4.01(a) are required to be performed by the Management
Firm under the Management Agreement. Pursuant to the Management Agreement, the
Management Firm (as defined in the Management Agreement) has agreed to fulfill
Lessee's obligations as set forth in Section 4.01(a)(i), 4.01(a)(ii),
4.01(a)(iv) and 4.01(a)(vi) of this Agreement, as well as all other obligations
of the Lessee applicable to the operation of the Facility as provided in the
Lease Documents.
SECTION 4.02 NEGATIVE COVENANTS. So long as BCC shall have any commitment
or Obligation hereunder or under the other Transaction Documents owed to it, the
Lessee will not, without the prior written consent of BCC:
(a) LIENS CREATED BY LESSEE. Create or suffer to exist any lien, security
interest or other charge or encumbrance, or any other type of preferential
arrangement, upon or with respect to any of its properties, whether now owned or
hereafter acquired, or assign any right to receive income, other than Permitted
Liens.
(b) DISTRIBUTIONS. Except as otherwise expressly provided in the Working
Capital Assurance Agreement or any of the other Lease Documents, make any
distribution of cash or other property to any equity holder, or declare or pay
any dividend or distribution on any securities of the Lessee.
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<PAGE> 8
(c) OTHER BUSINESS. Engage in any business venture or enter into any
agreement with respect to any business venture, except as expressly provided in
the Transaction Documents with respect to the Project.
(d) TRANSFER OF ASSETS. Convey, transfer, lease, sublease, assign or
otherwise dispose of (whether in one transaction or in a series of transactions)
any of its assets (whether now owned or hereafter acquired) to, or acquire all
or substantially all of the assets of, any person, business venture or entity.
(e) INDEBTEDNESS FOR BORROWED MONEY. Create, assume, guaranty or otherwise
become or remain obligated in respect of, or permit or suffer to exist or to be
created, assumed or incurred or to be outstanding, any indebtedness, except
indebtedness incurred to the Lessor or BCC under the Lease Documents or the
Transaction Documents, and indebtedness otherwise permitted under the Lease.
(f) CREATION OF AFFILIATES. Form, organize or participate in the formation
or organization of any entity, or make any investment in any newly formed or
existing entity, person or business venture.
(g) LOANS. Extend credit to or make any advance, loan or contribution to
any person, business venture or entity.
(h) GOVERNANCE DOCUMENTS. Amend, supplement or otherwise modify the terms
of the Articles of Incorporation or the by-laws of the Lessee in any way without
the prior written consent of BCC, which consent shall not be unreasonably
withheld or delayed.
(i) OTHER TRANSACTIONS WITH LESSOR. Enter into any transaction with Lessor
or any affiliate or related party to or with Lessor, other than those
transactions contemplated by the Lease Documents; provided, however, this
provision shall in no manner prevent the directors or officers of the Lessee or
officers, directors or shareholders of the Parent from entering into
transactions and agreements with affiliates of the shareholder of the Lessor.
(j) TRANSFERS OF EQUITY INTERESTS. Except as otherwise may be provided in
the Stock Pledge Agreement, permit any equity holder in Lessee to transfer all
or any portion of such person's equity interest in Lessee to a party that does
not as of the date hereof hold an equity interest in the Lessee.
(k) AMEND LEASE DOCUMENTS. (i) Amend, terminate, supplement or otherwise
modify any Lease Document, (ii) waive any default or potential event of default
by Lessor under any Lease Document, (iii) declare a default or event of default
under any Lease Document, (iv) exercise any right to acquire the Property or
extend the term of the Lease or (v) exercise any right to cancel the Lease as a
result of a casualty or condemnation with respect to the Project, or otherwise.
(l) MERGERS AND CONSOLIDATIONS. Merge or consolidate with, purchase all or
any substantial part of the assets of, or otherwise acquire any business or any
firm, association, corporation or other business organization or division
thereof.
(m) ISSUANCE OF SECURITIES. Except for the common stock of the
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<PAGE> 9
Lessee that has been issued and outstanding as of the date hereof, issue any
capital stock or options, warrants or other rights to purchase any capital stock
or any securities convertible or exchangeable for shares of such stock, or
commit to do any of the foregoing.
(n) MORTGAGE LIEN. Challenge or disaffirm the validity or perfection of the
mortgage lien held by BCC in Lessee's leasehold interest in the Lease.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.01 EVENTS OF DEFAULT. Each of the following events shall
constitute an event of default hereunder, whatever the reason for such event and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment or order of any court or any order, rule or
regulation of any governmental or nongovernmental body:
(a) The Lessee shall fail to make any payment of principal or interest, as
stated in the Notes, when due ("Monetary Default"); or
(b) Any representation or warranty made by either of the Parent or the
Lessee under or in connection with any Transaction Document shall prove to have
been incorrect or misleading in any material respect when made; or
(c) Either of the Lessee or the Parent shall fail to perform or observe any
term, covenant or agreement contained in the Lease Documents or in any
Transaction Document, on its or their part to be performed or observed beyond
the applicable cure period; or
(d) Either of the Lessee or the Parent shall generally not pay its or their
debts when due; or
(e) Either of the Parent or the Lessee shall admit in writing its or their
inability to pay its or their debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against either of the Parent or the Lessee seeking to adjudicate it or
them a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
either of the Parent or the Lessee of any of its or their debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for either of the Parent or the Lessee or for
any substantial part of its or their property; or either of the Parent or the
Lessee shall take any action to authorize any of the actions set forth above in
this subsection; or
(f) Any nonappealable judgment or order for the payment of money in excess
of $100,000 shall be rendered against either the Parent or the Lessee and the
same shall not be discharged within 30 days after entry; or
(g) A warrant or writ of attachment or execution or similar process shall
be issued against any property of the Lessee which exceeds $100,000 in value and
such warrant or process shall continue undischarged or unstayed for ten
consecutive days; or
9
<PAGE> 10
(h) Any material provision of any Transaction Document to which either of
the Parent or the Lessee is a party shall for any reason cease to be valid and
binding on the Lessee or the Parent (as applicable), or the Lessee or the Parent
shall so state in writing; or
(i) The Second Leasehold Mortgage shall for any reason cease to create a
valid and perfected security interest in any of the collateral covered thereby,
subject in priority only to the Permitted Liens.
ARTICLE VI
REMEDIES
SECTION 6.01 APPLICABLE PROVISIONS UPON OCCURRENCE OF AN EVENT OF DEFAULT.
Upon the occurrence of an event of default, but subject to the terms of the
Working Capital Agreement and the Subordination Agreement, the following
provisions shall apply:
(a) ACCELERATOR AND TERMINATION:
(i) Automatic. Upon the occurrence of an event of default specified in
Section 5.01(e), the principal of, and the interest on, the Notes at the
time outstanding, and all other amounts owed to BCC under this Agreement
and any of the other Transaction Documents, shall become automatically due
and payable without presentment, demand, protest, or other notice of any
kind all of which are expressly waived, anything in this Agreement or the
other Transaction Documents to the contrary notwithstanding.
(ii) Optional. If any other event of default shall have occurred, and
in every such event, BCC may do the following: declare the principal of,
and interest on, the Notes at the time outstanding, and all other amounts
owed to BCC under this Agreement and the other Transaction Documents, to be
forthwith due and payable, whereupon the same shall immediately become due
and payable without presentment, demand, protest or other notice of any
kind, all of which are expressly waived, anything in this Agreement or the
other Transaction Documents to the contrary notwithstanding.
(b) BCC'S RIGHT TO ENTER PROPERTY. Subject to applicable laws and rights of
the residents, BCC may enter upon the Property and any premises on which
collateral may be located and, without resistance or interference by the Lessee,
take physical possession of any or all thereof and maintain such possession on
such premises or move the same or any part thereof to such other place or places
as BCC shall choose, without being liable to the Lessee on account of any loss,
damage or depreciation that may occur as a result thereof.
(c) ASSEMBLY. The Lessee shall, upon request of and without charge to BCC,
assemble the collateral and maintain or deliver it into the possession of BCC or
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<PAGE> 11
any agent or representative of BCC at such place or places as BCC may designate.
(d) COLLATERAL PLACEMENT. BCC may, at the expense of the Lessee, cause any
of the collateral to be placed in a public or field warehouse, and BCC shall not
be liable to the Lessee on account of any loss, damage or depreciation that may
occur as a result thereof.
(e) USE OF PREMISES. BCC may, without payment of any rent or any other
charge, enter the Property and, without breach of peace, until BCC completes the
enforcement of its rights in the collateral, take possession of the Property or
place custodians in exclusive control thereof, remain on such premises and use
the same and any of the Lessee's equipment, for the purpose of (i) operating the
Project and (ii) collecting any accounts receivable.
(f) OTHER RIGHTS. BCC may exercise any and all of its rights and remedies
available under the other Transaction Documents, as well as those available in
law or in equity.
(g) CASH COLLATERAL. BCC may apply any cash collateral to the payment of
any obligations owing by the Lessee to BCC in any order in which BCC may elect
or use such cash in connection with the exercise of any of its other rights
hereunder or under any of the other Transaction Documents.
(h) RIGHTS AS A SECURED CREDITOR. BCC may exercise all of the rights and
remedies of a secured party under the Uniform Commercial Code as in effect in
the Commonwealth of Pennsylvania, and under any other applicable law, including,
without limitation, the right without notice except as specified and with or
without taking possession thereof, to sell the Collateral or any part thereof in
one or more parcels at public or private sale at any location chosen by BCC, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as BCC may deem commercially reasonable. The Lessee agrees
that, to the extent notice of sale shall be required by law, at least 20 days
notice to the Lessee of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification,
but notice given in any other reasonable manner or at any other reasonable time
shall constitute reasonable notification. BCC shall not be obligated to make any
sale of collateral regardless of notice of sale having been given. BCC may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(i) RIGHT TO FORECLOSE. BCC may foreclose upon the Lease, take immediate
possession of the Project and Property and operate the Property, all in
accordance with the terms and conditions of the Second Leasehold Mortgage.
Provided, however, BCC shall exercise its rights hereunder only in conformance
with the Working Capital Agreement and the Subordination Agreement.
SECTION 6.02 APPLICATION OF PROCEEDS. All proceeds from each sale of, or
other realization upon, all or any part of the Collateral following an event of
default shall be applied or paid over as follows:
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<PAGE> 12
(a) First: to the payment of all costs and expenses incurred in connection
with such sale or other realization, including, without limitation, the expenses
described in Section 8.07 herein;
(b) Second: to the payment of the interest due upon the Notes;
(c) Third: to the payment of the principal due upon the Notes or any other
payments owed to BCC under the Transaction Documents; and
(d) Fourth: the balance (if any) of such proceeds shall be paid to the
Lessee subject to any duty imposed by law or otherwise to the holder of any
subordinate lien in the Collateral known to BCC and subject to the direction of
a court of competent jurisdiction.
The Lessee shall remain liable and will pay, on demand, any deficiency
remaining in respect of the Obligations owing by the Lessee to BCC after the
application of proceeds set forth above together with interest thereon at a rate
per annum equal to the highest rate then payable hereunder.
SECTION 6.03 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
(a) RIGHTS CUMULATIVE. The rights and remedies of BCC under this Agreement
and each of the other Transaction Documents shall be cumulative and not
exclusive of any rights or remedies which it would otherwise have. In exercising
its rights and remedies BCC may be selective and no failure or delay by BCC in
exercising any right shall operate as a waiver of it, nor shall any single or
partial exercise of any power or right preclude its other or further exercise of
any other power or right.
(b) WAIVER OF MARSHALLING. The Lessee hereby waives any right to require
any marshalling of assets and any similar right.
(c) LIMITATION OF LIABILITY. Nothing contained in this Article VI or
elsewhere in this Agreement or in any other Transaction Documents shall be
construed as requiring or obligating BCC or any agent or designee thereof to
make any demand, or to make any inquiry as to the nature or sufficiency of any
payment received by it, or to present or file any claim or notice or take any
action, with respect to any account or any other Collateral or the moneys due or
to become due under the Notes or any other Transaction Documents or in
connection therewith, or to take any steps necessary to preserve any rights
against prior parties and neither BCC nor any of its agents or designees shall
have any liability to the Lessee for actions taken pursuant to this Article VI,
any other provision of this Agreement or any other Transaction Documents, except
as otherwise provided by law.
(d) WAIVER OF DEFENSES. Lessee hereby waives any and all defenses, either
by way of set-off as to matters arising prior to the date hereof or any other
defenses, which Lessee presently believes it has or which Lessee may have in the
future relating to monetary defaults under this Agreement or any other
Transaction Document.
12
<PAGE> 13
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 RIGHT TO CURE DEFAULTS UNDER LEASE DOCUMENTS. Lessee shall
give BCC immediate notice of a default or an event of default under any Lease
Document received from Lessor. BCC shall have the right, but not the obligation,
to cure such default or event of default. To the extent that BCC shall expend
sums to cure any such default or event of default, such sums shall be deemed
Advances hereunder, payable upon demand.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 AMENDMENTS, ETC. No amendment or waiver of any provision of
any Transaction Document, nor consent to any departure by the Lessee therefrom,
shall in any event be effective unless the same shall be in writing and signed
by BCC and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 8.02 NOTICES, ETC. All notices and other communications provided
for under this Agreement or any other Transaction Document shall be in writing
and mailed or delivered, if to the Lessee, at its address of: 3801 PGA
Boulevard, Suite 1000, Palm Beach Gardens, FL 33410; Attn: Bruce A. Rendina, or,
if to BCC, at its address of: 5021 Louise Drive, Suite 200, Mechanicsburg, PA
17055, or at such other address as shall be designated by such party in a
written notice to the other party from time to time. All such notices and
communications shall, when mailed, be effective two days after being deposited
in the mail, and when sent by telecopy shall be effective upon receipt of
confirmation.
SECTION 8.03 NO WAIVER; REMEDIES. No failure on the part of BCC to
exercise, and no delay in exercising, any right under this Agreement or any
other Transaction Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any right under this Agreement or any other
Transaction Document preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided in this Agreement and the
other Transaction Documents are cumulative and not exclusive of any remedies
provided by law.
SECTION 8.04 CERTAIN TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, except
as otherwise stated herein. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection or exhibit is a reference to that
section, subsection or exhibit of this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and plural, and pronouns stated in the masculine, feminine
or neuter gender shall include the masculine, the feminine and the neuter.
SECTION 8.05 JURISDICTION. SUBJECT TO THE TERMS OF THE WORKING CAPITAL
AGREEMENT, THE LESSEE HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF ANY PENNSYLVANIA COURT OR FEDERAL COURT SITTING IN PENNSYLVANIA IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
TRANSACTION DOCUMENTS TO WHICH THE LESSEE IS
13
<PAGE> 14
A PARTY, AND THE LESSEE HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH PENNSYLVANIA
COURT OR IN SUCH FEDERAL COURT. THE LESSEE HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. THE LESSEE IRREVOCABLY CONSENTS TO
THE SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH
MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS TO THE LESSEE AT ITS ADDRESS SPECIFIED IN SECTION 8.02. THE LESSEE
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION SHALL AFFECT THE
RIGHT OF BCC TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
AFFECT THE RIGHT OF BCC TO BRING ANY ACTION OR PROCEEDING AGAINST THE LESSEE OR
ITS PROPERTY IN THE COURTS OF OTHER JURISDICTIONS.
SECTION 8.06 PERFORMANCE OF LESSEE'S DUTIES. The Lessee's obligations under
this Agreement and the other Transaction Documents to which it is a party shall
be performed by the Lessee at its sole cost and expense. If the Lessee shall
fail to do any act or thing which it has covenanted to do under this Agreement
or any of the other Transaction Documents to which it is a party, BCC may, but
shall not be obligated to, do the same or cause it to be done either in the name
of BCC or in the name and on behalf of the Lessee, and the Lessee hereby
irrevocably authorizes BCC so to act. BCC hereby acknowledges that under the
Management Agreement, the Management Firm, an affiliate of BCC, has agreed to
perform, on behalf of Lessee, all obligations and duties of Lessee under the
Lease Documents and the Transaction Documents related to the operation of the
Facility.
SECTION 8.07 INDEMNIFICATION. The Lessee agrees to reimburse BCC for all
costs and expenses, including reasonable counsel fees and disbursements,
incurred, and to indemnify and hold BCC harmless from and against all losses
suffered by BCC in connection with:
(a) any claim, and the prosecution or defense thereof arising out of or in
any way connected with this Agreement or any of the other Transaction Documents
or any action or inaction on the part of BCC in connection with this Agreement
and the other Transaction Documents,
(b) any and all uncollected items, including without limitation, all checks
or other negotiable instruments returned to BCC for insufficient funds, returned
to BCC after the date of this Agreement, and
(c) any claim, debt, demand, loss, damage, action, cause of action,
liability, cost and expense or suit of any kind or nature whatsoever, brought
against or incurred by BCC, in any manner arising out of or, directly or
indirectly, related to or connected with the operation of the Lessee's business
or sale thereto.
The Lessee shall indemnify BCC as provided herein upon demand and in
14
<PAGE> 15
immediately available funds.
Notwithstanding anything to the contrary contained in this Section 8.07,
the Lessee shall have no indemnification obligation under this Section 8.07 in
the event that the claim for which the indemnification has arisen results from a
breach of a duty or obligation of the Lessee under the Lease Documents or the
Transaction Documents that has been delegated to the Management Firm (as defined
in the Management Agreement) under the terms and conditions of the Management
Agreement.
SECTION 8.08 INJUNCTIVE RELIEF. The Lessee recognizes that, in the event
the Lessee fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement or any of the other Transaction Documents to
which it is a party, any remedy of law may prove to be inadequate relief to BCC;
therefore, the Lessee agrees that BCC shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
SECTION 8.09. ENTIRE AGREEMENT. This Agreement, and the other documents,
instruments and certificates executed and delivered in connection herewith and
explicitly contemplated hereby, including, without limitation, the Transaction
Documents constitute the entire agreement and understanding between the parties
hereto with respect to the transactions set forth herein, and supersede all
prior written or oral agreements or understandings between the parties with
respect to such matters.
SECTION 8.10 TITLES AND CAPTIONS. Titles and captions of Articles, sections
and subsections in this Agreement are for convenience only, and neither limit
nor amplify the provisions of this Agreement.
SECTION 8.11 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Lessee and BCC and their respective successors and
assigns, except that no Lessee shall have the right to assign its rights
hereunder or any interest herein.
SECTION 8.12 GOVERNING LAW. SUBJECT TO THE WORKING CAPITAL AGREEMENT, THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE COMMONWEALTH OF PENNSYLVANIA EXCLUDING ITS CONFLICTS OF LAWS.
SECTION 8.13 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which when so executed, shall be deemed to
be an original and all of which, when taken together, shall constitute but one
and the same agreement.
SECTION 8.14 WAIVERS.
(a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN
THE LESSEE AND BCC WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND
FACT. ACCORDINGLY THE LESSEE AND BCC HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY
BE COMMENCED BY OR AGAINST THE LESSEE ARISING OUT OF THIS AGREEMENT OR ANY OTHER
15
<PAGE> 16
TRANSACTION DOCUMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER
BETWEEN THE LESSEE AND BCC OF ANY KIND OR NATURE, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE, AND WHETHER NOW EXISTING OR HEREAFTER ARISING, AND LESSEE
AND BCC HEREBY AGREE AND CONSENT THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
DECIDED BY A COURT TRIAL, IF BCC SO CHOOSES, WITHOUT JURY AND BCC OR LESSEE MAY
FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE LESSEE TO THE WAIVER OF THE RIGHT TO TRIAL BY
JURY.
(b) FURTHER, THE LESSEE WAIVES THE BENEFIT OF ALL VALUATION, APPRAISEMENT
AND EXEMPTION LAWS.
(c) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND
WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF.
SECTION 8.15 ENFORCEABILITY. If any provision of this Agreement or any
other Transaction Document is held to be unenforceable for any reason, all other
provisions of this Agreement and the other Transaction Documents shall be deemed
valid and enforceable to the fullest extent possible. To the extent permitted by
applicable law, the parties hereto hereby waive any provision of law that
renders any term or provision hereof invalid or unenforceable in any respect.
SECTION 8.16 INCONSISTENCIES BETWEEN TRANSACTION DOCUMENTS. To the extent
any terms or conditions of the Transaction Documents are inconsistent with or
more restrictive than the terms of this Agreement, the terms of this Agreement
shall control.
SECTION 8.17 THIRD PARTY BENEFICIARY. Without limiting any of the terms of
the Working Capital Agreement, BCC and the Lessee acknowledge and agree that the
Lessor is intended to be a third party beneficiary of the terms and conditions
set forth in Section 6.01, Section 8.05, Section 8.12, and Section 8.18 of this
Agreement and any other terms and/or conditions relating to the Lessor, the
Working Capital Agreement and/or the Subordination Agreement set forth herein.
Accordingly, the Lessor shall be entitled to enforce the same to the fullest
extent, and in all respects, as if the Lessor were a party hereto.
SECTION 8.18 WORKING CAPITAL AGREEMENT AND SUBORDINATION AGREEMENT. The
provisions of this Agreement shall be subject to the provisions of the Working
Capital Agreement and the Subordination Agreement. In the event that any terms
or conditions of this Agreement or any of the other Transaction Documents are
inconsistent with or more restrictive than the terms of the Working Capital
Agreement or the Subordination Agreement, the terms of the Working Capital
Agreement and Subordination Agreement shall control.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have caused this Agreement to be executed by their respective officers or
authorized agents as of the date first above written.
WITNESS/ATTEST: TC REALTY OF ALTOONA, INC.
By: /s/ Signature Illegible
- ------------------------------ --------------------------------
Title:
-----------------------------
WITNESS/ATTEST: BALANCED CARE CORPORATION
By: /s/ Signature Illegible
- ------------------------------ --------------------------------
Title:
-----------------------------
17
<PAGE> 18
EXHIBIT A
FORM OF NOTE ATTACHED
<PAGE> 19
PROMISSORY NOTE
_____________, 199_
FOR VALUE RECEIVED, and intending to be legally bound hereby, TC REALTY OF
ALTOONA, INC., a Delaware Corporation ("MAKER"), promises to pay to the order of
Balanced Care Corporation, a Delaware corporation ("Payee"), in lawful money of
the United States of America, the principal sum of ____________ Dollars and
__/100 ($_______.__), together with interest thereon from and after the date
hereof at the rate specified herein.
If not sooner paid, Maker shall pay the entire principal amount outstanding
hereunder upon demand. If not sooner paid, the accrued interest on the principal
amount outstanding under this Note shall be immediately due and payable in
arrears on the first day of each calendar quarter.
This Note is made in connection with advances made by Payee to Maker
pursuant to the provisions of that certain Shortfall Funding Agreement by and
between Maker and Payee dated as of December 19, 1997 (the "SHORTFALL
AGREEMENT"), the terms of which are incorporated herein by reference, including
without limitation the limitations of liability set forth in Section 1.04 of
such Shortfall Agreement providing that in no event shall the directors or
officers of the Maker or the shareholders, directors or officers of the TC
Realty Holding Company, a Delaware corporation (the "Parent") ever be personally
liable to BCC or any affiliate of BCC or any third party for the payment and/or
performance of any obligations or liabilities under this Note; provided,
however, no provision contained herein or in any other Transaction Document
shall diminish in any manner the obligations of Parent (as shareholder of
Lessee) under the Option Agreement (as defined in the Shortfall Agreement).
Certain of the advances to be made hereunder shall be advanced directly to
Meditrust Acquisition Corporation II (the "Lessor") in accordance with the
provisions of the Working Capital Agreement (as defined in the Shortfall
Agreement).
Interest on the outstanding principal balance hereunder shall accrue at a
rate of 2% over the Prime Rate as announced from time to time in the Wall Street
Journal (or, in the event of the discontinuance of the publishing of the Prime
Rate in the Wall Street Journal, such other source as the holder may determine)
(the "CONTRACTUAL RATE"); provided, however, that upon an Event of Default (as
defined in the Shortfall Agreement), whether by acceleration or otherwise,
interest shall accrue at the Contractual Rate plus two percent (2%) per annum
(the "DEFAULT RATE") until all sums due hereunder are paid. Interest shall
continue to accrue after the entry of judgment at the Default Rate until all
sums due hereunder and/or under the judgment are paid.
Maker waives presentment, demand, notice, protest, all rights of set-off or
counterclaim, and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note and the Shortfall
Agreement.
So long as Payee is the holder hereof, Payee's books and records shall be
presumed, except in the case of manifest error, to accurately evidence at all
times all amounts outstanding under this Note and the date and amount of each
payment made pursuant hereto.
<PAGE> 20
The prompt and faithful performance of all of Maker's obligations
hereunder, including without limitation time of payment, is of the essence of
this Note.
Payee shall be entitled to exercise any right notwithstanding any prior
exercise, failure to exercise or delay in exercising any such right.
Payee shall retain the lien of any judgment entered on account of the
indebtedness evidenced hereby, as well as any security interest previously
granted to secure repayment of the indebtedness evidenced hereby, and Maker
warrants that Maker has no defense whatsoever to any action or proceeding that
may be brought to enforce or realize on such judgment or security interest.
If any provision hereof shall for any reason be held invalid or
unenforceable, no other provision shall be affected thereby, and this Note shall
be construed as if the invalid or unenforceable provision had never been a part
of it.
The rights and privileges of Payee contained in this Note shall inure to
the benefit of its successors and assigns, and the duties of Maker shall bind
all heirs, personal representatives, successors and assigns.
This Note shall in all respects be governed by the laws of the Commonwealth
of Pennsylvania.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF A SUBORDINATION AND
STANDSTILL AGREEMENT DATED AS OF DECEMBER 19, 1997 BY AND AMONG THE PAYEE, MAKER
AND MEDITRUST ACQUISITION CORPORATION II. A COPY OF SAID SUBORDINATION AND
STANDSTILL AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST OF ANY HOLDER OF THIS
NOTE FROM MEDITRUST ACQUISITION CORPORATION II, 197 FIRST AVENUE, NEEDHAM
HEIGHTS, MA 02194.
Witness the due execution hereof.
WITNESS/ATTEST: TC REALTY OF ALTOONA, INC.
By:
- ------------------------------- ---------------------------------
Title:
- ------------------------------- ------------------------------
-2-
<PAGE> 21
Schedule to Exhibit 10.55 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Shortfall Funding Agreement
<TABLE>
<CAPTION>
Project Lease Property Location Date
- ------- ------- ----------------- ----
<S> <C> <C> <C>
Blytheville, AR TC Realty of Blytheville, Mississippi County 12/19/97
Inc. AR
Maumelle, AR TC Realty of Maumelle, Pulaski County, 12/19/97
Inc. AR
Mountain Home, AR TC Realty of Mountain Baxter County, 12/19/97
Home Inc. AR
Pocahontas, AR TC Realty of Pocahontas, Randolph County, 12/19/97
Inc. AR
Sherwood, AR TC Realty of Sherwood, Pulaski County, 12/19/97
Inc. AR
Reading, PA TC Realty of Reading Berks County 12/19/97
Inc. PA
Martinsburg, WV Black Box of Martinsburg, Berkeley County 12/31/97
Inc. WV
Dillsburg, PA Black Box of Dillsburg, York County 12/31/97
Inc. PA
Peckville, PA Black Box of Peckville, Lackawanna County 12/31/97
Inc. PA
Lewisburg, PA Black Box of Lewisburg, Union County 12/19/97
Inc. PA
Berwick, PA TC Realty of Berwick, Columbia County 1/7/98
Inc. PA
Chippewa, PA TC Realty of Chippewa, Beaver County 1/7/98
Inc. PA
Lewistown, PA TC Realty of Lewistown, Mifflin County 1/7/98
Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.56
MANAGEMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of the 19th day of December,
1997 between BCC at Altoona, Inc., a Delaware corporation (the "MANAGEMENT
FIRM") and TC Realty of Altoona, Inc., a Delaware corporation (the "OPERATOR").
Witnesseth:
WHEREAS, the Operator executed and delivered that certain First Amended and
Restated Facility Lease Agreement dated as of December 19, 1997 (the "LEASE")
whereby the Operator leased from MEDITRUST ACQUISITION CORPORATION II, a
Delaware corporation (the "LESSOR") certain property, together with all
improvements built or to be built thereon, located in Blair County,
Pennsylvania, as more fully described in the Lease (the "Property"); and
WHEREAS, Operator is or will be the sole operator of a personal care
home/assisted living facility with 60 licensed beds (located in 48 units) on the
Property (the "FACILITY"); and
WHEREAS, Balanced Care Corporation, a Delaware corporation ("BCC") and the
Operator have entered into that certain Shortfall Funding Agreement dated as of
December 19, 1997 (the "SHORTFALL AGREEMENT"), whereby, among other matters, BCC
has agreed to fund certain Shortfalls (as defined in the Shortfall Agreement) by
making loans to the Operator, as more fully provided in the Shortfall Agreement;
and
WHEREAS, the Management Firm is experienced in operating such facilities
and is willing to be the exclusive manager and operator of the Facility on
behalf of the Operator, as an independent contractor pursuant to the terms and
conditions set forth herein; and
WHEREAS, Operator wishes to engage Management Firm as the sole and
exclusive operator and manager of the Facility; and
WHEREAS, during the term of this Agreement, the Management Firm shall be
the exclusive manager and operator of the Facility on behalf of and in the name
of the Operator.
NOW, THEREFORE, in consideration of the promises and covenants contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. SCOPE OF WORK. Operator hereby appoints Management Firm as the exclusive
operator and manager of the Facility during the term of this Agreement. The
Management Firm shall have full responsibility and authority in the name and on
behalf of Operator to operate and manage the Facility and take all actions
necessary or desirable to operate and manage the Facility and to fulfill its
duties hereunder, including without limitation to: (i) operate and maintain the
Facility on behalf
<PAGE> 2
of the Operator as a 60 bed personal care home/assisted living facility; (ii)
collect all room and board revenue, as well as other revenue, and timely pay all
debts and other obligations relating to the Facility, including operating
expenses, fixed expenses and taxes; (iii) ensure the Facility complies with
applicable Federal, state and local laws and regulations, and with the terms and
conditions of the Lease and the other Lease Documents (as defined in the Lease);
(iv) provide all necessary services to ensure that the Facility provides quality
care to its residents; (v) recruit, hire and train personnel as needed for the
operation of all departments and services of the Facility; (vi) maintain such
bank accounts as may be necessary or desirable for the operation of the Facility
(the "OPERATING ACCOUNTS"); (vii) establish salary levels, performance
standards, personnel policies and employee benefits; and (viii) take all other
actions necessary or desirable to operate and manage the Facility in accordance
with prudent practice and industry standards.
Notwithstanding anything to the contrary contained herein, in any Lease
Document (as defined in the Lease) or in any Transaction Document (as defined in
the Shortfall Agreement), the Management Firm and the Operator agree that all
obligations and duties of the Operator under the Lease Documents and the
Transaction Documents related to the operation of the Facility (including
without limitation obligations relating to maintenance of insurance for the
Facility and repairs to and maintenance of the Facility) are hereby delegated to
the Management Firm.
In performing its duties, the Management Firm (through its in-house
corporate staff or independent contractors) shall perform the following with
respect to the Facility, as well as any other matters reasonably related thereto
commencing upon the date of this Agreement:
(a) MANAGEMENT INFORMATION SYSTEMS (MIS)
Support centralized Facility information system which provides systems
management for the following areas:
-- Accounts Payable
-- Payroll
-- Financial Reporting
-- Marketing
-- General Ledger
The Management Firm shall be responsible for billing and collection of
Accounts Receivable.
(b) LEGAL COUNSEL
(i) Prepare or coordinate with outside legal counsel for preparation
of documents for operation of the Facility, including resident agreements,
supplier/vendor contracts, service contracts, equipment leases and other
ancillary contracts; (ii) prepare or coordinate licensure and other
regulatory
2
<PAGE> 3
applications; (iii) coordinate all litigation involving the Facility with
local counsel or the insurance company; (iv) coordinate with local counsel
on local law issues affecting the Facility; (v) process working capital
requests and apply for, negotiate and obtain letters of credit; and (vi)
provide legal counsel or coordinate with local counsel to provide counsel
to the Facility's Human Resources Department.
The parties acknowledge that all outside counsel expenses under the
foregoing paragraph shall be an expense of the Operator.
(c) ACCOUNTING/TAX
(i) Provide an accountant to supervise all accounting activities; (ii)
implement accounting policies and guidelines; (iii) provide a centralized
cash management system; (iv) deposit in Operating Accounts established in
the Facility's name all funds received from the operations of the Facility,
satisfy obligations of the Facility from such Operating Accounts, and not
commingle funds in the Operating Accounts with any other funds; (v)
negotiate and administer working capital line of credit available to the
Facility; (vi) supervise the Facility's internal control structure; (vii)
provide payroll, income and real estate tax support as follows: prepare or
supervise preparation of all tax returns, assist the Facility in the event
of a tax audit, assist the Facility with technical issues relating to
payroll, excise and other taxes, and monitor pending and final Federal,
State and local tax law changes; (viii) perform periodic site visits to
review the Facility's accounting and tax records; (ix) provide operations
expertise through site visits and strategies to maximize fiscal
performance; and (x) develop and implement a budget for operations, capital
outlay and cash requirements. All checks or other documents for withdrawal
of funds shall be signed by the appropriate officer of the Management Firm
or its designee. Deposits may be made by the appropriate officer of the
Management Firm or its designee.
(d) HUMAN RESOURCES
(i) Implement all personnel policies and guidelines; (ii) recruit
management personnel of the Facility, including the community director of
the Facility, which recruitment and the salaries related thereto shall be
an expense of the Operator; (iii) provide on-going training for the
Facility's Human Resources Director; (iv) negotiate and administer all
employee benefit plans including health insurance, dental insurance, life
insurance, long-term disability insurance, and retirement/401K; (v)
negotiate and administer general and professional liability, workers'
compensation, property, and vehicular insurance plans; (vi) monitor the
Facility's
3
<PAGE> 4
compliance with Federal, State and local employment laws; (vii) respond to
all government compliance agencies and legal proceedings as necessary;
(viii) implement and monitor safety/loss control programs; (ix) develop and
implement career planning and manpower development strategies; (x) recruit,
employ and train personnel as needed for the operation of all departments
and services of the Facility; and (xi) establish salary levels, performance
standards, personnel policies and employee benefits for all employees
within applicable budgetary and regulatory limits. All persons engaged to
work at the Facility shall be the employees of the Management Firm, but
each such employee's salary and benefits shall be considered an operating
expense of the Facility.
(e) PROGRAM DEVELOPMENT
(i) Provide ongoing program development and management consultation;
(ii) supply select program manuals for local modification and
implementation; and (iii) provide program development/management training.
(f) QUALITY MANAGEMENT
(i) Provide model quality management systems and implement such
including risk management, resident/family satisfaction, licensing and
accreditation, and program evaluation; and (ii) provide ongoing monitoring
of the Facility resident outcomes, compare with regional and national
norms, and make program modifications.
(g) MARKETING/COMMUNICATION
(i) Hire, direct and supervise marketing department staff; (ii) train
staff (program managers, rehabilitation liaisons, marketing
representatives, etc.) in marketing skills; (iii) organize strong sales
efforts within the target area, develop program mix strategies, and develop
marketing plans for the Facility; (iv) establish an intake/admission system
and continuously review the admission process; (v) develop image building
advertising strategies for the Facility; and (vi) develop and produce
Facility selected promotional literature.
(h) CONTRACTING
Negotiate and execute contracts and agreements related to the Facility
with third parties and parties affiliated with the Management Firm;
provided that all contracts and agreements with parties affiliated with the
Management Firm shall be on terms no less
4
<PAGE> 5
favorable than terms for comparable contracts and agreements with
unaffiliated parties.
(i) MISCELLANEOUS
(1) Obtain and maintain all licenses and certifications required for
operation of the Facility and use reasonable efforts to procure
eligibility for participation in other applicable referral or
payor programs.
(2) Purchase supplies, using procurement practices in accordance with
industry standards, and lease equipment under national and
regional agreements or purchase contracts of the Management Firm
or its affiliated companies and provide to the Operator all
benefits resulting therefrom to the extent permitted by their
terms and by law. All such supplies so purchased shall become
property of the Operator. Once leases are completed, equipment
shall become property of the Operator.
(3) Review and analyze the performance of ancillary services under
contract and negotiate contractual arrangements therefor.
(4) Maintain books and records for the Facility at the Management
Firm's home office for the purpose of providing services under
this Agreement. The Management Firm shall make available to the
Operator and the Lessor, and their respective agents,
accountants, and attorneys during normal business hours all books
and records pertaining to the Facility, and the Management Firm
shall promptly respond to any questions of the Operator with
respect to such books and records and shall confer with the
Operator at all reasonable times, upon request, concerning the
operation of the Facility.
(5) Order, supervise and conduct a program of regular maintenance and
repair of the Facility at the Operator's cost and expense.
(6) Supervise and provide for the operation of food service
facilities for the Facility.
(7) Make periodic evaluations of the performance of all departments
of the Facility and investigate and report, upon request, any
inconsistency between expenditures and budget.
(8) Implement all policies and procedures reasonably necessary for
5
<PAGE> 6
the operation of the Facility consistent with applicable
regulations.
(9) Foster a working relationship between Management Firm and any
authorized volunteer or auxiliary groups interested in providing
support to the Facility and residents of the Facility.
The Management Firm shall conduct its affairs so that the Operator will
have no liability for the payment of wages, payroll taxes, fringe benefits, and
other expenses of employment for the Management Firm's employees or independent
contractors.
2. ADDITIONAL SERVICES. It is the intention of the parties that the Management
Firm be responsible for providing all service necessary or desirable for the
efficient and orderly management and operations of the Facility; provided, the
cost and expense of operating the Facility is to be paid by Operator. The
Management Firm shall actively utilize staff specialists in its employ or that
of its affiliates in such areas as accounting, budgeting, marketing,
reimbursement, dietary, housekeeping, clinical, pharmaceutical, purchasing and
third party payments in the management of the Facility when considered desirable
by the Management Firm. The expense of such personnel shall be the
responsibility of Operator.
3. FINANCIAL STATEMENT. The Management Firm shall prepare and deliver to the
Operator an unaudited balance sheet within forty-five (45) days after the close
of each fiscal quarter of the Operator. The Management Firm shall also cause an
unaudited annual statement to be made of the financial records of the Facility
and a copy of such report shall be provided to the Operator as soon as it is
available after the end of the fiscal year. The cost of the reports shall be an
expense of the Facility and shall be paid for by the Operator. The fiscal year
for the Facility shall coincide with the Operator's fiscal year. All financial
statements are to be prepared in accordance with GAAP. Without limiting any
other provision hereunder, the Management Firm shall prepare and deliver all
financial statements and reports relating to the Operator or the Facility
required by Lessor pursuant to the Lease.
4. PROPERTY INTERESTS/CONFIDENTIALITY. (a) The technical systems, methods,
policies, procedures and controls, copyrights, tradenames, trademarks,
servicemarks, "know-how" and all other intellectual property rights related
thereto employed by the Management Firm (the "INTANGIBLE RIGHTS") are to remain
the property of the Management Firm and are not, at any time, to be utilized,
distributed, copied or otherwise employed or acquired by the Operator except as
authorized in writing by the Management Firm or except as may be required by
law.
(b) Operator understands and acknowledges that Management Firm has
devoted substantial time, energy and expense to developing a process and
procedure to manage and operate facilities such as the Facility, and that such
processes, procedures, Intangible Rights and the information and materials
compiled or prepared in connection therewith, including without limitation
marketing plans, business plans, pricing information , information on
competition, demographics, suppliers and providers of services and financing
arrangements (collectively
6
<PAGE> 7
"CONFIDENTIAL INFORMATION") are proprietary to Management Firm and the
confidential information of the Management Firm. Operator shall not disclose to
any party any Confidential Information, without the prior written consent of
Management Firm, except as may be required by law or except as may be required
by the Lessor.
(c) The provisions of this Section shall survive the expiration or sooner
termination of this Agreement.
5. TERM OF AGREEMENT. The term of this Agreement shall commence upon the date
hereof, and continue for a period of two (2) years thereafter. This Agreement
shall be automatically renewed for additional one (1) year terms unless either
party gives the other party notice of its intent not to renew, which notice must
be given at least ninety (90) days prior to the expiration of the then current
term.
6. TERMINATION. (a) The Operator may terminate this Agreement upon written
notice if the Management Firm defaults in the performance of any material
covenant, agreement, term or provision of this Agreement to be performed by it
and such default continues for a period of forty-five (45) days after written
notice to the Management Firm from the Operator stating the specific default or,
if such default is not subject to cure within forty-five (45) days, such longer
period as may be required to effect a cure, provided Management Firm initiates
curative action within forty-five (45) days and thereafter is diligently and in
good faith pursuing such cure.
(b) The Management Firm may, after the expiration or sooner termination of
the Lease, terminate this Agreement upon written notice in the event any one or
more of the following events shall occur:
(1) If the Operator shall fail to timely pay to the Management Firm
any Management Fee required to be paid in accordance with
Paragraph 9 hereof and such failure continues for ten (10) days
after written notice to the Operator; or
(2) If the Operator defaults in the performance of any other material
covenant, agreement, term or provision of this Agreement to be
performed by the Operator and such default continues for a period
of forty-five (45) days after written notice to the Operator from
the Management Firm stating the specific default or, if such
default is not subject to cure within forty-five (45) days, such
longer period as may be required to effect a cure, provided the
defaulting party initiates curative action within forty-five (45)
days and thereafter is diligently and in good faith pursuing such
cure; or
(3) If the Facility or a material portion thereof is damaged or
destroyed by fire or other casualty and the Operator fails to
7
<PAGE> 8
commence to repair, restore, rebuild or replace any such damage
or destruction within ninety (90) days of the occurrence of such
damage or destruction, and thereafter to complete such work
within a reasonable period of time.
In the event of termination of this Agreement by either party pursuant to
Section 6(a) or 6(b) above, the Management Firm shall have the right to enter
the Facility and remove all of its personal property and Intangible Rights
material.
(c) The Management Firm and Operator acknowledge and agree that this
Agreement shall automatically terminate upon the expiration or sooner
termination of the Lease, unless the Operator has acquired fee title to the
Facility.
7. LIABILITY AND INDEMNIFICATION/FORCE MAJUERE. (a)By the Management Firm. The
Management Firm shall indemnify, defend, save and hold harmless the Operator,
its shareholders, officers, directors, employees, or agents from and against all
demands, claims, actions, losses, damages, deficiencies, liabilities, costs and
expenses (including, without limitation, attorney's fees, interest, penalties
and all amounts paid in investigation, defense or settlement of any of the
foregoing) asserted against or incurred by the Operator, its shareholders,
officers, directors, employees, or agents, in connection with, or arising out
of, or resulting from a breach of any covenant, agreement, representation or
warranty of the Management Firm. The provisions of this Section shall survive
the expiration or sooner termination of this Agreement.
(b) By the Operator. The Operator shall indemnify, defend, save and hold
harmless the Management Firm, its shareholders, officers, directors, employees,
or agents from and against all demands, claims, actions, losses, damages,
deficiencies, liabilities, costs and expenses (including, without limitation,
attorney's fees, interest, penalties and all amounts paid in investigation,
defense or settlement of any of the foregoing) asserted against or incurred by
the Management Firm, its officers, directors, employees, or agents, in
connection with, or arising out of, or resulting from a breach of any covenant,
agreement, representation or warranty of the Operator; provided, however, the
Operator shall not be required to provide indemnification hereunder in the event
that the claim for which the indemnification has arisen results from a breach of
a duty or obligation of the Operator under the Lease Documents or the
Transaction Documents that has been delegated to the Management Firm hereunder.
The provisions of this Section shall survive the expiration or sooner
termination of this Agreement.
(c) Joinder of BCC . BCC joins in the execution of this Agreement solely
and exclusively for the purpose of guarantying the obligations of the Management
Firm with respect to the indemnification provisions of Subsection (a) above,
which indemnification obligations shall be the joint and several obligations of
BCC and the Management Firm.
(d) No Bar to Claims. Nothing contained herein shall preclude either party
from asserting any claims or suits against the other party which may arise out
of the terms and
8
<PAGE> 9
provisions of this Agreement.
(e) Force Majuere. The Management Firm shall not be deemed to be in
violation of this Agreement, and its performance shall be excused, if it is
prevented from performing any of its obligations hereunder for any reason beyond
its control, including without limitation, shortages in labor or supplies, war,
acts of God, failure of the Operator to advance funds (unless such failure
results from any failure by BCC to advance funds pursuant to the Working Capital
Loan Documents, as defined in the Lease, following the full advance of the
Working Capital Reserve), or changes in any statute or regulation of Federal,
State or local government, or any agency thereof.
8. RELATIONSHIP BETWEEN PARTIES. The relationship of the Management Firm to the
Operator shall be that of independent contractor.
9. MANAGEMENT FEE. The Management Firm for the services rendered hereunder shall
be entitled to six percent (6%) of Gross Revenues (as defined in the Lease) of
the Facility as its sole compensation for management of the Facility (the
"Management Fee"). Payment of the Management Fee or any other amounts due to the
Management Firm from the Operator or the Facility shall be subordinated to
payment and other charges due to the Lessor under the Lease and the other Lease
Documents (as defined in the Lease). The Management Fee shall be paid monthly,
and shall be based on the financial operations of the Facility as of the end of
each calendar monthly. To the extent that the year-end audited financial
statements for the Facility disclose that the Management Fee actually received
during the year than ended was greater or less than what should have been
received, Operator shall (in case of underpayment) pay upon demand the shortfall
and (in the case of overpayment) shall be credited against the Management Fee
due in the next succeeding quarter such overpayment. In addition to the
Management Fee, the Management Firm shall be paid on a monthly basis beginning
on that date which is six months prior to substantial completion of the Facility
the sum of $3,000 per month. Notwithstanding the foregoing, the employee
benefits and salary of the community director and director of marketing for the
Facility shall be paid by the Operator, but shall at all times remain the
employee of the Management Firm.
10. FUNDING OF COSTS AND EXPENSES BY THE OPERATOR. The Operator shall at all
times provide sufficient working capital for operation of the Facility and shall
deposit such capital from time to time into the Operating Accounts of the
Facility in advance of the time required to be disbursed by the Management Firm.
Notwithstanding anything to the contrary in this Agreement, the Transaction
Documents or any other documents or agreements entered into between or among the
Operator, the Management Firm, or any of them or their respective affiliates, in
no event shall the directors or officers of the Operator or shareholders,
directors or officers of TC Realty Holding Company, Inc., the parent corporation
of the Operator, ever be personally liable to the Management Firm or any third
party for the payment and/or performance of any obligation or liability under
this Agreement or the Transaction Documents; provided, however, nothing
contained herein or in any other Transaction Document shall hinder or prevent
BCC from
9
<PAGE> 10
exercising BCC's rights and remedies under the Option Agreement.
11. NO APPROVAL BY THE OPERATOR. The Management Firm shall operate the Facility
and the Operator act as a passive investor with respect thereto. The Management
Firm shall, not less frequently than annually, adopt a plan of operation for the
Facility which shall set forth proposed staffing, budgets, program and related
matters; such matters shall not, however, be subject to approval of the Operator
or its designee, but shall be subject to the approval of the Lessor as provided
in the Lease. The Operator shall not participate in the day-to-day operation of
the Facility.
12. OTHER FACILITIES. Operator understands and acknowledges that Management Firm
is in the business of operating facilities such as the Facility, and that
Management Firm intends to continue to manage and operate such other facilities,
provided that such other facilities are not located within a 10 mile radius of
the Facility. Nothing contained herein shall be deemed to be construed as a
restriction on the Management Firm's right to so operate and manage such other
existing facilities or facilities that may be opened in the future. The
Management Firm acknowledges that it is included within the definition of
Leasing Group set forth under the Lease, and agrees to be bound by the
provisions of Section 11.5.4 of the Lease. The provisions of this Section 12
shall survive the expiration or sooner termination of the Lease and/or this
Agreement and may be enforced by the Lessor or any Purchaser (as defined in the
Lease) as a third party beneficiary.
13. NOTICES. All notices required or permitted hereunder shall be given in
writing by actual delivery or by Registered or Certified U.S. Mail, postage
prepaid. Notice shall be deemed given upon delivery, or if given by mail, upon
depositing with the U.S. Postal Service. Notice shall be delivered or mailed to
the parties at the following addresses or at such other places as a party shall
designate in writing.
Management Firm:
BCC AT ALTOONA, INC.
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Legal Department
The Operator:
TC REALTY OF ALTOONA, INC.
3801 PGA Boulevard, Suite 1000
Palm Beach Gardens, FL 33410
Attention: Bruce A. Rendina
10
<PAGE> 11
BCC:
BALANCED CARE CORPORATION
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Legal Department
14. ARBITRATION. Any controversy or dispute between the Management Firm and the
Operator with respect to the application or interpretation of the terms of this
Agreement, except failure of the Operator to pay compensation to the Management
Firm as required herein, will be submitted to mediation under the National
Health Lawyer's Association ("NHLA") Alternative Dispute Resolution Service
Rules of Procedure for Mediation. If any dispute is not resolved by mediation no
later than thirty (30) days after its submission to mediation, the dispute shall
be submitted to arbitration in accordance with the NHLA Alternative Dispute
Resolution Service Rules for Arbitration. The same person may serve as both
mediator and arbitrator. Any such arbitration shall be final and binding upon
the parties to the fullest extent permitted by law. The cost of mediation and/or
arbitration shall be shared equally by the Operator and the Management Firm;
however, each party shall bear the expense of its own attorneys, representatives
and witnesses, and the cost of any transcripts or related matters.
15. ENTIRE AGREEMENT. This writing contains the entire agreement between the
parties and shall be binding upon and inure to the benefit of their successors
and assigns. Any modifications or changes in this Agreement shall be effective
only if in writing and signed by the parties hereto.
16. COUNTERPARTS. This Agreement may be signed in any number of counterparts,
each of which shall be an original, and all of which taken together shall be
deemed to constitute one and the same instrument.
17. CONSTRUCTION. This Agreement shall be constructed in accordance with the
laws of the Commonwealth of Pennsylvania, exclusive of its conflicts of laws.
18. COMPLIANCE WITH FEDERAL RECORDS REQUIREMENTS. To the extent required under
applicable law, the Management Firm shall, (and if Management Firm carries out
any of the duties under this Agreement through a subcontract with a related
organization and such subcontract has a value or cost of $10,000 or more during
any 12-month period, such subcontract shall contain a clause to the effect that
the subcontractor shall), until the expiration of four (4) years after the
furnishing of services hereunder, make available upon written request by the
Secretary of Health and Human Service or the Comptroller General of the United
States or any of their duly authorized representatives, this Agreement and the
books, documents and records of the Management Firm (or such subcontractor) that
are necessary to verify the nature and extent of the costs furnished under this
Agreement.
19. SUCCESSORS AND ASSIGNS. Except with respect to the collateral assignment of
its interest in this Agreement to the Lessor, Operator may not assign this
Agreement, expressly, by operation of law, or otherwise, without the prior
written consent of the Management Firm, which consent may be withheld in the
sole discretion of the Management Firm. Management Firm may not assign this
11
<PAGE> 12
Agreement, expressly, by operation of law, or otherwise, without the prior
written consent of the Operator; provided, however, subject to the prior consent
of the Lessor (which consent shall not be unreasonably withheld, conditioned or
delayed) Management Firm may assign its rights and obligations hereunder without
consent to any company controlled by or under common control with the Management
Firm.
20. LEASE DOCUMENTS/NOTICES FROM LESSOR. The Management Firm acknowledges that
it has received true, complete and correct copies of all Lease Documents, and
that the Management Firm shall operate the Facility in accordance with the terms
of the Lease Documents so provided. In the event of any inconsistency between
the terms of the Lease Documents and the terms of this Agreement, the terms of
the Lease Documents shall control. Operator shall immediately provide to
Management Firm all notices received from the Lessor.
12
<PAGE> 13
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have affixed their names by their proper officers or duly authorized
representatives as of the day and year first above written.
WITNESS/ATTEST: THE MANAGEMENT FIRM:
BCC AT ALTOONA, INC.
By: /s/ Signature Illegible
- ----------------------------- ---------------------------------------
Title:
------------------------------------
WITNESS/ATTEST: THE OPERATOR:
TC REALTY OF ALTOONA, INC.
By: /s/ Signature Illegible
- ----------------------------- ---------------------------------------
Title:
------------------------------------
13
<PAGE> 14
Schedule to Exhibit 10.56 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Management Agreement
<TABLE>
<CAPTION>
Project Parties Property Location Date
- ------- ------- ----------------- ----
<S> <C> <C> <C>
Blytheville, AR BCC at Blytheville, Mississippi County 12/19/97
Inc.(Management Firm) AR
TC Realty of Blytheville
Inc. (Operator)
Maumelle, AR BCC at Maumelle, Pulaski County 12/19/97
Inc. (Management Firm) AR
TC Realty of Maumelle
Inc. (Operator)
Mountain Home, BCC at Mountain Home, Baxter County 12/19/97
AR Inc. (Management Firm) AR
TC Realty of Mountain
Home , Inc. (Operator)
Pocahontas, AR BCC at Pocahontas, Inc. Randolph County 12/19/97
(Management Firm) AR
TC Realty of Pocahontas,
Inc. (Operator)
Sherwood, AR BCC at Sherwood, Inc. Pulaski County 12/19/97
(Management Firm) AR
TC Realty of Sherwood,
Inc. (Operator)
Reading, PA BCC at Reading, Inc. Berks County 12/19/97
(Management Firm) PA
TC Realty of Reading,
Inc. (Operator)
Lewisburg, PA BCC at Lewisburg, Inc. Union County 12/19/97
(Management Firm) PA
TC Realty of Lewisburg,
Inc. (Operator)
Martinsburg, WV BCC at Martinsburg, Inc. Berkeley County 12/31/97
(Management Firm) WV
Black Box of Martinsburg,
Inc. (Operator)
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Dillsburg, PA BCC at Dillsburg, Inc. York County 12/31/97
(Management Firm) PA
Black Box of Dillsburg,
Inc. (Operator)
Peckville, PA BCC at Peckville, Inc. Lackawanna County 12/31/97
(Management Firm) PA
Black Box of Peckville,
Inc. (Operator)
Berwick, PA BCC at Berwick, Inc. Columbia County 1/7/98
(Management Firm) PA
TC Realty of Berwick,
Inc. (Operator)
Chippewa, PA BCC at Chippewa, Inc. Beaver County, 1/7/98
(Management Firm) PA
TC Realty of Chippewa,
Inc. (Operator)
Lewistown, PA BCC at Lewistown, Mifflin County, 1/7/98
Inc. (Management Firm) PA
TC Realty of Lewistown,
Inc. (Operator)
</TABLE>
<PAGE> 1
EXHIBIT 10.57
OPEN-END LEASEHOLD MORTGAGE AND SECURITY AGREEMENT
THIS INSTRUMENT SECURES FUTURE ADVANCES
MADE AS OF THE 19TH DAY OF DECEMBER, 1997,
Between
TC REALTY OF ALTOONA, INC., A DELAWARE CORPORATION
("Mortgagor");
And
BALANCED CARE CORPORATION, A DELAWARE CORPORATION
("Mortgagee").
WITNESSETH THAT:
WHEREAS, Mortgagor is the Lessee under that certain First
Amended and Restated Facility Lease Agreement dated as of December 19, 1997 (the
"Lease") between Mortgagor and MEDITRUST ACQUISITION CORPORATION II, a Delaware
corporation (the "Lessor"), whereby Lessee has leased from Lessor the Land and
Improvements (as those terms are hereinafter defined); and
WHEREAS, a memorandum of lease concerning the Lease will be
filed simultaneously herewith in the Recorder's Office of Blair County,
Pennsylvania; and
WHEREAS, the Mortgagor and Mortgagee entered into that certain
Shortfall Funding Agreement dated as of December 19, 1997 (the "Shortfall
Agreement"); and
WHEREAS, BCC at Altoona, Inc., a Delaware corporation (the
"MANAGEMENT FIRM") and Mortgagor have entered into that certain Management
Agreement dated as of December 19, 1997 (the "MANAGEMENT AGREEMENT"), whereby
Mortgagor has delegated all duties and obligations of Mortgagor under the Lease
Documents (as defined in the Lease) and the Transaction Documents (as defined in
the Shortfall Agreement) relating to the operation of the Facility (as defined
in the Shortfall Agreement) to the Management Firm; and
WHEREAS, the Mortgagor desires to execute and deliver this
Mortgage to Mortgagee as additional security for the faithful and timely
performance of the obligations of Mortgagor under the Shortfall Agreement, as
the same may be amended, modified or otherwise extended, and all obligations
secured by the other Transaction Documents (as defined in the Shortfall
Agreement); and
WHEREAS, the Mortgagor, the Mortgagee and the Lessor have
entered into that certain Subordination and Standstill Agreement dated as of
December 19, 1997, (the "Subordination Agreement") whereby Mortgagee has agreed
to subordinate its rights and interests granted by Lessee hereunder to the
interests of the Lessor, as more fully provided in the Subordination Agreement;
and
WHEREAS, Lessee has granted to Lessor that certain Open-End
Leasehold Mortgage and Security Agreement dated as of December 19, 1997 (the
"FIRST LEASEHOLD
<PAGE> 2
MORTGAGE"), whereby Lessee has granted to Lessor a first priority security
interest in Lessee's leasehold interest in the Lease as more fully provided in
the First Leasehold Mortgage.
NOW, THEREFORE, in consideration of the obligations of
Mortgagee under the Shortfall Agreement (and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged) and
as security for the due and punctual payment of the obligations incurred under
the Shortfall Agreement, this Mortgage, and the Debt (as hereinafter defined) in
accordance with the terms hereof and thereof, Mortgagor, intending to be legally
bound hereby, has given, granted, bargained and sold, aliened, enfeoffed,
released, conveyed, confirmed, mortgaged, assigned, transferred, and set-over,
and by these presents does give, grant, bargain and sell, alien, release,
convey, confirm, enfeoff, mortgage, assign, transfer, and set-over unto
Mortgagee, its successors and assigns forever,
ALL Mortgagor's estate, right, title, interest, claim and
demand in and with respect to the following property (hereinafter called the
"Mortgaged Property"):
A. Mortgagor's leasehold interest pursuant to the Lease in and
to the parcel of land situate in Blair County, Pennsylvania, and more
particularly described in Exhibit "A" attached hereto and made a part hereof and
all easements and rights of way over such land (hereinafter called the "Land").
B. All the buildings, structures and improvements of every
kind and description now or hereafter erected or placed on the Land, and all
facilities, fixtures, machinery, apparatus, appliances, installations,
machinery, equipment and other property, whether real, personal or mixed,
including, without limitation, electrical equipment necessary for the operation
of such buildings and heating, air conditioning and plumbing equipment now or
hereafter attached to, located in or used in connection with those buildings,
structures or other improvements, and including all Mortgagor's right, title and
interest (including purchase options and similar rights) under any equipment
leases which do not validly prohibit the mortgaging of such interest
(hereinafter collectively called the "Improvements").
C. All rights of way or use, servitudes, licenses, franchises,
easements, tenements, hereditaments, privileges, covenants, agreements and
appurtenances now or hereafter belonging or appertaining to any of the Land or
Improvements.
D. All of the right, title and interest of Mortgagor, as
lessor, in and to each lease covering any Mortgaged Property or any part
thereof, including, without limitation, all rentals and other sums payable to
them thereunder.
E. Together with reversions, remainders, easements, rents,
issues and profits arising or issuing from said Land and from the buildings,
structures and improvements thereon, including, but not limited to, the rents,
issues and profits arising or issuing from all leases and subleases now or
hereafter entered into covering all or any part of said Land and/or the
buildings, structures and improvements thereon, all of which leases, subleases,
rents, issues and profits are hereby assigned and, if requested by Mortgagee,
shall be caused to be further assigned to Mortgagee by Mortgagor. The foregoing
assignment shall include without limitation, cash or securities deposited under
leases to secure performance of lessees of their obligations thereunder, whether
such cash or securities are to be held until the expiration of the term of such
leases or applied to one or more installments of rent coming due prior to the
expiration of such term.
F. Together with any and all awards, damages, payments and
other compensation and any and all claims therefor and rights thereto which may
result from taking or injury by virtue of
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<PAGE> 3
the exercise of the power of eminent domain of or to, or any damage, injury or
destruction in any manner caused to, said Land and Improvements thereon, or any
part thereof, or from any change of grade or vacation of any street abutting
thereon, all of which awards, damages, payments, compensation, claims and rights
are hereby assigned, transferred and set over to Mortgagee to the fullest extent
that Mortgagor may under the law do.
G. Together with and including all property of whatsoever
nature now or hereafter situate upon the Mortgaged Property and used or intended
to be used in connection with any building or other improvements now or
hereafter erected thereon.
H. Together with and including all proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or liquidated
claims, including, without limitation, proceeds of insurance and condemnation
awards subject to the terms hereof.
Mortgagor hereby warrants and covenants that it is the lawful
owner of a leasehold interest in and to the Mortgaged Property pursuant to the
Lease; that Mortgagor has good, right and lawful authority to convey and
encumber the same; that the Mortgaged Property is free and clear from all liens
and encumbrances, other than (i) those liens and encumbrances stated on Exhibit
B attached hereto and (ii) the First Leasehold Mortgage (collectively, the
"Permitted Encumbrances"); and that it will warrant and defend such title to the
Mortgaged Property against the claims of all persons whomsoever.
And without limiting any of the other provisions of this
Mortgage, Mortgagor, as debtor, expressly grants unto Mortgagee, as secured
party, a security interest in all those portions of the Mortgaged Property which
may be subject to the Pennsylvania Uniform Commercial Code (the "Code")
provisions applicable to secured transactions, and Mortgagor will execute and
deliver to Mortgagee upon demand, and hereby irrevocably appoints Mortgagee or
any officer of Mortgagee the attorney-in-fact of Mortgagor (without requiring
them to act as such), such appointment being coupled with an interest, to
execute, deliver and file, such financing statements and other instruments as
Mortgagee may require in order to perfect and maintain such security interest
under the Code on the aforesaid collateral.
To have and to hold the same unto Mortgagee, its successors
and assigns, forever.
This conveyance is intended as a mortgage and is given for the
purpose of securing the faithful performance of Mortgagor under the Transaction
Documents and the Debt (as hereinafter defined).
This Mortgage is executed and delivered subject to the
following covenants, conditions and agreements:
1. Initially capitalized terms not otherwise defined herein
shall have the meanings ascribed to such terms in the Shortfall Agreement.
"Debt", as used herein, means, collectively, (i) all indebtedness, obligations
and liabilities whether of principal, interest, fees, expenses, charges or
otherwise, now existing or hereafter incurred under this Mortgage and the other
Transaction Documents, as any of the same may be amended, supplemented or
modified from time to time, together with any and all extensions, renewals,
refinancings or refunding thereof in whole or in part, (ii) all costs and
expenses, liabilities, obligations and advances, including without limitation,
to the extent permitted by law, reasonable attorneys' fees and legal expenses,
incurred by Mortgagee in the collection or satisfaction of any of the
indebtedness or other obligations referred to in clause (i) above, and (iii) any
advances made by Mortgagee for the insurance, maintenance, preservation,
protection or
3
<PAGE> 4
enforcement of, or realization upon, any property or assets now or hereafter
made subject to a mortgage, pledge, lien or security interest granted pursuant
to this Mortgage or the other Transaction Documents, or pursuant to any other
agreement, instrument or note relating to any of the Debt, including, without
limitation, advances for taxes, insurance, repairs and the like.
2. Without limiting any of the provisions set forth in the
Subordination Agreement, this Open-End Leasehold Mortgage and Security Agreement
is expressly subordinated to the prior payment and satisfaction of the First
Leasehold Mortgage.
3. Until payment in full of the Debt and termination of all
obligations, duties and commitments under the Transaction Documents, Mortgagor
shall (i) pay and discharge, when and as the same shall become due and payable,
all taxes, assessments, sewer and water rents, and any and all other charges,
claims and liens assessed, levied, imposed or created from time to time upon the
Mortgaged Property or any part thereof, (ii) pay all ground rents reserved from
the Mortgaged Property and pay and discharge all mechanics' liens which may be
filed against the Mortgaged Property, (iii) pay and discharge any documentary,
stamp or other tax, including interest and penalties thereon, if any, now or
hereafter becoming payable hereon, (iv) provide, renew and keep in force by
paying the necessary premiums and charges thereon such policies of hazard and
liability insurance upon the buildings and Improvements now or hereafter erected
upon the Mortgaged Property in such amounts as are required from time to time by
the Lessor under the Lease. All such insurance policies shall be underwritten by
companies licensed in Pennsylvania to issue insurance with a rating by Best's
Insurance Rating Service (or such other rating service as Mortgagee shall
direct) of no less than A-, shall be endorsed with a standard mortgagee clause
in favor of Mortgagee as its interest may appear, shall not be subject to
contribution and shall provide (without qualification in favor of the insurer to
use "best efforts" or similar language) for at least thirty (30) days prior
written notice of modification or cancellation to Mortgagee. Mortgagor shall
provide certificates evidencing compliance with the foregoing insurance
requirements to Mortgagee promptly upon request.
4. Risk of loss of, damage to or destruction of the Mortgaged
Property is and shall remain upon Mortgagor. Mortgagor shall promptly give
written notice to Mortgagee of damage or destruction to the Mortgaged Property.
If Mortgagor fails to effect and keep in force insurance covering the Mortgaged
Property as required by Mortgagee, or fails to pay the premiums thereon when
due, Mortgagee may, but shall not be obligated to, do so for the account of
Mortgagor and add the cost thereof to the Debt.
5. Mortgagor shall maintain all buildings and Improvements
subject to this Mortgage in good working order and condition, ordinary wear and
tear excepted. Mortgagee shall have the right to enter upon the Mortgaged
Property at any time for the purpose of inspecting the order, condition and
repair of the buildings and Improvements erected thereon.
6. Mortgagor, at its sole cost and expense, shall promptly
comply with all present and future laws, ordinances, orders, rules,
requirements, and regulations of any governmental authority exercising
jurisdiction over the Mortgaged Property.
7. Mortgagor shall ensure, at its sole cost and expense, that
the Mortgaged Property complies and continues to comply in all material respects
with all applicable federal, state and local laws, rules, regulations, orders,
and judicial determinations with respect to the existence on, discharge from, or
removal from the Mortgaged Property of solid wastes, toxic or hazardous
substances, waste, contaminants or other regulated substances ("Hazardous
Substances") the release, storage, disposal or transportation of which is
regulated by any federal, state or local law (the "Environmental Laws").
Mortgagor shall notify Mortgagee promptly and in reasonable detail in the event
that Mortgagor
4
<PAGE> 5
becomes aware of the presence of any violation of any Environmental Law with
respect to the Mortgaged Property. Mortgagee shall not be liable for and
Mortgagor shall indemnify, defend and hold Mortgagee harmless from and against
all losses, costs, liabilities, damages and expenses (including, without
limitation, reasonable attorneys' and engineers' fees and costs incurred in the
investigation, defense and settlement of claims) that Mortgagee may suffer or
incur (as holder of this Mortgage, as mortgagee in possession or as successor in
interest to Mortgagor as owner of the Mortgaged Property by virtue of a
foreclosure or acceptance of a deed in lieu of foreclosure) as a result of or in
connection with any Environmental Law (including the assertion that any lien
existing or arising pursuant to any Environmental Law takes priority over the
lien of this Mortgage) or breach of any covenant or undertaking by Mortgagor in
this Mortgage. Mortgagor hereby represents and warrants to Mortgagee that, to
the best knowledge of Mortgagor after due inquiry, no Hazardous Substances are
present on the Mortgaged Property. The provisions of this paragraph 7 shall
survive the termination of this Mortgage, the foreclosure of this Mortgage
and/or the delivery of a deed in lieu of foreclosure.
8. Mortgagor will, from time to time, make, do, execute and
acknowledge, as the situation may require, such further acts, deeds,
conveyances, mortgages, security agreements, financing statements, continuation
statements and other assurances as may be required for the purpose of
effectuating the intent hereof and for better assuring and confirming to
Mortgagee, its successors and assigns, the lien and security interest created by
this Mortgage.
9. In the event Mortgagor neglects or refuses to pay the
charges mentioned at paragraph 3 of this Mortgage, or fails to maintain the
buildings and Improvements as aforesaid, Mortgagee may, but shall not be
obligated to, do so, and add to the Debt the cost thereof together with interest
at the maximum lawful rate, and collect the same as a part of said Debt.
10. Except for Permitted Encumbrances, Mortgagor covenants
and agrees not to create, nor permit to accrue, upon all or any part of the
Mortgaged Property, any debt, lien or charge which would be prior to, or on a
parity with, or subordinate to, the lien of this Mortgage without the prior
written consent of Mortgagee.
11. In the event Mortgagee pays any prior lien on the
Mortgaged Property, Mortgagee shall be subrogated to the rights of the holder of
such prior lien as fully as if such lien had been assigned to Mortgagee.
12. Any or all leases or subleases of all or any part of the
Mortgaged Property (whether presently in effect or hereafter granted), other
than the Lease, shall be subordinated to this Mortgage and to the rights of
Mortgagee and, together with any and all rents, issues or profits relating
thereto, shall be, subject to the terms of the Lease Documents (as defined in
the Lease), assigned at the time of execution to Mortgagee as additional
collateral security for the Debt, all in such form, substance and detail as is
satisfactory to Mortgagee in its sole discretion. Mortgagor covenants and agrees
that no lease or any rentals under any lease, or any rents, issues or profits
issuing from the Mortgaged Property shall be sold, assigned, transferred,
mortgaged, pledged or otherwise disposed of or encumbered, except first to
Lessor pursuant to the Lease Documents and then to Mortgagee pursuant to this
Mortgage, whether by operation of law or otherwise, without the prior written
consent of Mortgagee, and any attempts to do so shall be null and void.
13. This Mortgage and the indebtedness secured hereby may not
be assumed, and Mortgagor shall not sell, convey, assign or otherwise transfer
any interest in the Mortgaged Property, or sublease the Mortgaged Property or
agree to do so, except as expressly provided for in the Lease Documents, without
the prior written consent of Mortgagee. Any default under this paragraph 13
5
<PAGE> 6
shall cause an immediate acceleration of the Debt without any demand by
Mortgagee.
14. "Default" shall mean (i) a failure by Mortgagor to pay
when due all sums Mortgagor is obligated to pay pursuant to the Notes, (ii) the
Mortgagor shall breach any representation, warranty, covenant, agreement or term
under this Mortgage or other Transaction Documents; or (iii) any other default
(other than a default by the Lessor, BCC or an affiliate of BCC) shall occur
under any Transaction Document; provided, however, Mortgagor shall not be in
Default hereunder if the breach or default specified in Subsections (i), (ii) or
(iii) of this Paragraph 14 results from a failure by the Management Firm to
perform its obligations under the Management Agreement.
15. Subject to the terms of the Subordination Agreement, if a
Default shall occur then, and in any such event, all of the Debt shall become
immediately due and payable without presentment, demand or further notice, and
Mortgagee shall have such rights, remedies, powers and privileges as are set
forth in the Note, this Mortgage, and the other Transaction Documents or as
otherwise provided by law, including without limitation the right:
(i) to institute an action in mortgage
foreclosure for the enforcement of this Mortgage and to
prosecute the same to judgment, execution and sale of the
Mortgaged Property, or any part or parts thereof, until
collection of the entire Debt is realized, together with costs
of suit and reasonable attorney's fees for collection; and
Mortgagor hereby waives and releases all errors in said
proceedings (including without limitation defects in service
of process), waives stay of execution, the right of
inquisition and extension of time of payment, agrees to
condemnation of any property levied upon by virtue of any such
execution, and waives all exemption from levy and sale of any
property that now is or hereafter may be exempted by law;
and/or
(ii) to immediately sell the Mortgaged Property,
or any part or parts thereof, under power of sale, which power
is hereby granted to Mortgagee to the full extent permitted by
law; and/or
(iii) to be appointed as receiver of the Mortgaged
Property, to enter into possession of the Mortgaged Property,
or any part or parts thereof, and to lease or operate the same
and collect all rents and profits therefrom and, after
deducting all costs of collection, carrying and administration
expense, to apply the net rents and profits to the payment of
the Debt as hereinafter provided. FOR THE PURPOSE OF OBTAINING
POSSESSION THE MORTGAGOR HEREBY AUTHORIZES AND EMPOWERS ANY
ATTORNEY OF ANY COURT OF RECORD IN THE COMMONWEALTH OF
PENNSYLVANIA OR ELSEWHERE, AS ATTORNEY FOR THE MORTGAGOR AND
ITS SUCCESSORS AND ASSIGNS, TO SIGN AN AGREEMENT FOR ENTERING
IN ANY COMPETENT COURT AN AMICABLE ACTION IN EJECTMENT FOR
POSSESSION OF THE MORTGAGED PROPERTY AND TO APPEAR FOR AND
CONFESS JUDGMENT AGAINST THE MORTGAGOR AND ITS SUCCESSORS AND
ASSIGNS, IN FAVOR OF THE MORTGAGEE, FOR RECOVERY BY THE
MORTGAGEE OF POSSESSION THEREOF, FOR WHICH THIS MORTGAGE, OR A
COPY HEREOF VERIFIED BY AFFIDAVIT, SHALL BE A SUFFICIENT
WARRANT; AND THEREUPON A WRIT OF POSSESSION MAY IMMEDIATELY
ISSUE FOR POSSESSION OF THE MORTGAGED PROPERTY, WITHOUT ANY
PRIOR WRIT OR PROCEEDING WHATSOEVER AND WITHOUT ANY STAY OF
EXECUTION. IF FOR ANY REASON AFTER SUCH AMICABLE ACTION OF
EJECTMENT HAS BEEN COMMENCED IT SHALL BE DISCONTINUED, OR
POSSESSION OF THE MORTGAGED PROPERTY SHALL REMAIN IN OR BE
RESTORED TO THE MORTGAGOR, THE MORTGAGEE SHALL HAVE THE RIGHT
FOR THE SAME DEFAULT OR ANY SUBSEQUENT DEFAULT TO BRING ONE OR
MORE FURTHER AMICABLE ACTIONS AS ABOVE
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<PAGE> 7
PROVIDED TO RECOVER POSSESSION OF THE MORTGAGED PROPERTY. AN
AMICABLE ACTION IN EJECTMENT MAY BE BROUGHT AND JUDGMENT MAY
BE CONFESSED THEREIN BEFORE OR AFTER THE INSTITUTION OF
PROCEEDINGS TO FORECLOSE OR TO ENFORCE THE NOTE, OR AFTER
ENTRY OF JUDGMENT THEREON OR ON THE NOTE, OR AFTER A SHERIFF'S
SALE OF THE MORTGAGED PROPERTY IN WHICH THE MORTGAGEE IS THE
SUCCESSFUL BIDDER.
16. Mortgagee shall apply the proceeds of any foreclosure sale
of, or other disposition or realization upon, or rents or profits from the
Mortgaged Property to satisfy the Debt in the following order:
(a) First: to the payment of any obligations secured
by a lien that has priority over the lien of this Mortgage;
(b) Second: to the payment of all costs and expenses
incurred in connection with such sale or other realization;
(c) Third: to the payment of interest due upon the
Note and any other Debt;
(d) Fourth: to the payment of the principal due upon
the Note or any other Debt owed to Mortgagee; and
(e) Fifth: the balance (if any) of such proceeds
shall be paid to the Mortgagor subject to any duty imposed by law or otherwise
to the holder of any subordinate lien in the collateral known to the Mortgagee
and subject to the direction of a court of competent jurisdiction.
If any such proceeds from the Mortgaged Property, together
with the proceeds of any other collateral granted to the Mortgagee by Mortgagor,
shall be insufficient to pay the amounts secured hereby, Mortgagor shall be
liable for the deficiency, and any surplus will be distributed as required by
law.
17. Subject to the terms of the Subordination Agreement,
Mortgagee shall have the right upon a default, in connection with the exercise
of its remedies hereunder, to the appointment of a receiver to collect the
rents, issues, income and profits of the Mortgaged Property without notice and
without regard to the adequacy of the Mortgaged Property to secure the Debt.
18. If at any time the Mortgaged Property, or any part
thereof, is taken or damaged by condemnation proceedings under right of eminent
domain or in any other manner, Mortgagee shall, subject to the rights of Lessor
under the Lease, the Subordination Agreement, and the First Leasehold Mortgage,
be entitled to receive all compensation, damages, awards, or other relief.
Subject to the foregoing, Mortgagor shall promptly assign to Mortgagee all such
proceeds to be applied on account of the Debt after deducting therefrom all
expenses incurred, including reasonable attorneys' fees, and any balance
thereafter to be paid to Mortgagor, and Mortgagee shall be authorized, at its
option, to commence, appear in, and/or prosecute in its own name any action or
proceeding or to make any reasonable compromise or settlement in connection with
such taking or damage.
19. Mortgagor will indemnify against, and on demand repay
Mortgagee for, any loss, damage, expense, or reasonable attorneys' fees which
may be reasonably incurred by reason of any action or proceeding affecting the
Mortgaged Property or the title thereto or Mortgagee's interest under this
Mortgage, to which Mortgagee is made a party (by intervention or otherwise).
Such indemnity obligation shall be deemed Debt secured by this Mortgage upon
demand for indemnification from Mortgagee to Mortgagor. The provisions of this
paragraph 19 shall survive the termination of
7
<PAGE> 8
this Mortgage, the foreclosure of this Mortgage and/or the delivery of a deed in
lieu of foreclosure.
20. The agreements and obligations of Mortgagor hereunder are
continuing, absolute and unconditional irrespective of the genuineness, validity
or enforceability of the Notes or this Mortgage or any other instrument or
instruments now or hereafter evidencing the Debt or any part thereof, or of any
other agreement or agreements now or hereafter entered into by Mortgagee and
Mortgagor pursuant to which the Debt or any part thereof is issued, or of any
other circumstance which might otherwise constitute a legal or equitable
discharge of such agreements and obligations. Without limitation upon the
foregoing, such obligations will not be affected by (i) any renewal, refinancing
or refunding of the Debt in whole or in part, (ii) any extension of the time of
payment of any note or other instrument or instruments now or hereafter
evidencing the Debt or any part thereof, (iii) any amendment to or modification
of the terms of the Note, this Mortgage or other instruments now or hereafter
evidencing the Debt or any part thereof or of any other agreement or agreements
now or hereafter entered into by Mortgagee and Mortgagor pursuant to which the
Debt or any part thereof is issued or secured, (iv) any substitution, exchange
or release of, or failure to preserve, perfect or protect, or other dealing in
respect of, the Mortgaged Property or any other property or any security for the
payment of the Debt or any part thereof, (v) any bankruptcy, insolvency,
arrangement, composition, assignment for the benefit of creditors or similar
proceeding commenced by or against Mortgagor, or (vi) any other matter or thing
whatsoever whereby the agreements and obligations of Mortgagor hereunder would
or might otherwise be released or discharged.
21. The rights and remedies of Mortgagee as provided in this
Mortgage and in the other Transaction Documents, or contained in any of them,
shall be cumulative and concurrent, may be pursued separately, successively or
together against Mortgagor or against the Mortgaged Property at the sole
discretion of Mortgagee, and may be exercised as often as occasion thereof shall
arise. The failure to exercise any such right or remedy shall in no event be
construed as a waiver or release thereof. Any failure by Mortgagee to insist
upon strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a waiver of any of the terms or provisions of
this Mortgage, and Mortgagee shall have the right thereafter to insist upon
strict performance by Mortgagor of any and all of them.
22. Mortgagee may release, regardless of consideration, any
part of the security held for the Debt without, as to the remainder of the
security, in any way impairing or affecting the lien of this Mortgage or its
priority over any subordinate lien. For payment of the Debt secured hereby
Mortgagee may resort to any other security therefor held by Mortgagee in such
order and manner as Mortgagee may elect. All costs related to any release of the
lien of this Mortgage shall be paid by Mortgagor.
23. Mortgagor hereby waives and releases all benefit that
might accrue to Mortgagor by virtue of any present or future law exempting the
Mortgaged Property, or any part of the proceeds arising from any sale thereof,
from attachment, levy or sale on execution, or providing for any stay of
execution, exemption from civil process or extension of time for payment, and,
unless specifically required herein, all notices of Mortgagor's default or of
Mortgagee's election to exercise, or Mortgagee's actual exercise of any option
under this Mortgage or any Document.
24. All notices and other communications provided for under
this Mortgage or any other Documents shall be in writing and mailed or
delivered, if to the Mortgagor, at its address of: 3801 PGA Boulevard, Suite
1000, Palm Beach Gardens, FL 33410; Attn: Bruce A. Rendina, or, if to the
Mortgagee, at its address of: 5021 Louise Drive, Suite 200, Mechanicsburg, PA
17055, or at such other address as shall be designated by such party in a
written notice to the other party from time to time. All such notices and
communications shall, when mailed, be effective three days after being
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<PAGE> 9
deposited in the mail.
25. This Mortgage shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania. If any provision
of this Mortgage shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Mortgage.
26. No provision of this Mortgage may be amended,
supplemented, waived or otherwise modified, except by means of a writing
executed by each of the parties hereto, and then only to the extent set forth in
such writing.
27. The covenants, conditions and agreements contained in this
Mortgage shall bind, and the benefits thereof shall inure to, the parties hereto
and their respective successors and assigns; provided, however, that Mortgagor
may not, voluntarily or by operation of law, assign this Mortgage.
28. MORTGAGOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY FOR ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
MORTGAGE OR THE NOTES, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND THE MORTGAGOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT THE MORTGAGEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
PARAGRAPH 28 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE MORTGAGOR
TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
29. Mortgagor hereby covenants and agrees to execute and
deliver unto Mortgagee such instruments and documents, and take such further
actions, as Mortgagee may request in connection with this Mortgage and the
Notes.
30. Subject to the rights of the Lessor under the Lease, the
Subordination Agreement, the First Leasehold Mortgage and the other Lease
Documents, this Mortgage constitutes a security agreement under the Uniform
Commercial Code and creates a security interest in all that property (and the
proceeds thereof) included in the Mortgaged Property which might otherwise be
deemed "personal property". Mortgagor shall execute, deliver, file and refile
any financing statements, continuation statements, or other security agreements
Mortgagee may require from time to time to confirm the lien of this Mortgage
with respect to such property. Without limiting the foregoing, in the event that
Mortgagor fails or refuses to execute and deliver such financing statements,
continuation statements or other security agreements, then Mortgagor hereby
irrevocably appoints Mortgagee attorney-in-fact for Mortgagor to execute,
deliver and file such instruments for and on behalf of Mortgagor.
31. This instrument is intended to be an Open End Mortgage as
defined in 42 Pa.C.S.A. Section 8143(f) and, as such, is entitled to the
benefits of Senate Bill 693, 1989 session of the General Assembly of
Pennsylvania (the "Act") as codified at 42 Pa.C.S.A. Section 8143 et seq. The
parties to this instrument intend that, in addition to any other debt or
obligations secured hereby, this instrument shall secure unpaid balances of
advances made pursuant to the Shortfall Agreement after this instrument is left
for record with the Recorder's Office of the County where the Property is
located, whether such advances are made pursuant to an obligation of BCC or
otherwise. The maximum principal amount of unpaid indebtedness secured by this
instrument is TEN MILLION DOLLARS ($10,000,000), plus interest thereon, which
indebtedness may consist of present and future loans made under the Shortfall
Agreement, fees payable pursuant thereto, advances made with respect to any
property for the payment of, among other things, taxes, assessments, maintenance
charges, insurance premiums and the like, and costs and expenses,
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<PAGE> 10
including but not limited to attorney's fees, incurred for the protection of the
Property or the lien and security of this instrument or by reason of any default
hereunder or under any other Transaction Document.
32. Notwithstanding any other provision of this Mortgage to
the contrary, in no event shall the directors or officers of the Mortgagor, or
the shareholders, directors or officers of the sole shareholder of Mortgagor,
ever be personally liable to Mortgagee for the payment and/or performance of any
obligation set forth in this Mortgage; provided, however, the foregoing shall in
no way prevent or limit Mortgagee from exercising all rights and remedies of
Mortgagee under the Option Agreement (as defined in the Shortfall Agreement).
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<PAGE> 11
WITNESS, intending to be legally bound hereby, the due
execution hereof as of the day and year first above written.
WITNESS/ATTEST: TC REALTY OF ALTOONA, INC.
- ------------------------- By:/s/ Signature Illegible
-------------------------------------------
- ------------------------- Title:-------------------------------------
11
<PAGE> 12
Schedule to Exhibit 10.57 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Open End Leasehold Mortgage and Security Agreement
<TABLE>
<CAPTION>
Project Parties Date
- ------- ------- ----
<S> <C> <C>
Blytheville, AR TC Realty of Blytheville, 12/19/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Maumelle, AR TC Realty of Maumelle, 12/19/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Mountain Home, AR TC Realty of Mountain 12/19/97
Home, Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Pocahontas, AR TC Realty of Pocahontas, 12/19/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Sherwood, AR TC Realty of Sherwood, 12/19/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Reading, PA TC Realty of Reading, Inc. 12/19/97
(Mortgagor)
Balanced Care
Corporation (Mortgagee)
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
Project Parties Date
- ------- ------- ----
<S> <C> <C>
Dillsburg, PA Black Box of Dillsburg, 12/31/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Martinsburg, WV Black Box of Martinsburg, 12/31/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Peckville, PA Black Box of Peckville, 12/31/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Lewisburg, PA Black Box of Lewisburg, 12/31/97
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Berwick, PA TC Realty of Berwick, 1/7/98
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
Chippewa, PA TC Realty of Chippewa, 1/7/98
Inc. (Mortgagor)
Balanced Care
Corporation (Mortgagee)
</TABLE>
<PAGE> 1
EXHIBIT 10.58
TC REALTY OF POCAHONTAS, INC.
STOCK SUBSCRIPTION AND CAPITALIZATION AGREEMENT
THIS AGREEMENT is made effective on and as of December 1, 1997.
RECITALS:
WHEREAS, TC Realty Holding Company ("Subscriber") agrees to subscribe
for the capital stock of TC Realty of Pocahontas, Inc., a Delaware corporation
(the "Corporation") and to make an additional capital contribution in the amount
of $316,134, all as more specifically set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Subscriber agrees as follows:
(1) Subscriber hereby agrees to subscribe for One Hundred (100) shares
(the "Shares") of common stock, par value $0.01 per share, of the Corporation,
and agrees to pay to the Corporation a price of $0.01 per share for the Shares,
for a total purchase price of $1.00 (the "Purchase Price"), in cash, due and
payable as set forth in Section (3) below.
(2) Subscriber hereby agrees to make an additional capital contribution
to the Corporation in an amount equal to $316,134 (the "Additional Capital
Contribution"), in cash, due and payable as set forth in Section (3) below.
(3) The Purchase Price and the Additional Capital Contribution shall be
due and payable by Subscriber upon the simultaneous closing (the "Closing") of
the following transactions: (i) the sale and assignment by Balanced Care at
Pocahontas, Inc. ("BCC") to the Corporation pursuant to that certain Agreement
Regarding Facility Lease and Related Transaction Documents and certain other
related documents each dated effective as of December 1, 1997 (collectively, the
"BCC Transaction Documents") of BCC's interests and obligations under that
certain Facility
<PAGE> 2
Lease Agreement and certain other related documents by and among BCC and certain
of its affiliates, the Corporation and the Subscriber each dated as of December
19, 1997 (collectively, the "Lease Transaction Documents"), (ii) the assignment,
assumption and restatement of the Lease Transaction Documents and the execution
and delivery of certain related documents (collectively, the "Amended and
Restated Lease Documents") between the Corporation and Meditrust Acquisition
Corporation II ("MT") and such other parties as MT shall require, and (iii) the
funding of that certain working capital loan to Subscriber by MT pursuant to
that certain Promissory Note and certain other related documents (collectively,
the "Loan Documents") (hereinafter, the BCC Transaction Documents, the Amended
and Restated Lease Documents and the Loan Documents shall be collectively
referred to as the "Transaction Documents"). Notwithstanding anything to the
contrary that may be contained herein, Subscriber's obligation to pay the
Purchase Price and the Additional Capital Contribution is expressly conditioned
upon the occurrence of Closing and the funding of all such amounts by MT to
Subscriber pursuant to the Loan Documents and, if Closing fails to occur for any
reason, this Agreement and Subscriber's obligations hereunder shall
automatically become NULL AND VOID.
(4) Subscriber represents and warrants to the Corporation as follows:
(a) Subscriber understands that the Shares have not been
registered under the Securities Act of 1933 (the "Federal Act") or the Delaware
Securities Act (the "Delaware Act") by reason of specific exemptions under the
provisions thereof which depend, in part, upon the representations made by
Subscriber in this Agreement. Subscriber understands that the Corporation is
relying upon Subscriber's representations and warranties contained in this
Agreement for the purpose of determining whether this transaction meets the
requirements for
2
<PAGE> 3
such exemptions.
(b) Subscriber has such knowledge, skill and experience in
business, financial and investment matters so that Subscriber is capable of
evaluating the merits and risks of an investment in the Shares. To the extent
that Subscriber has deemed it appropriate to do so, Subscriber has retained, and
relied upon, appropriate professional advice regarding the tax, legal and
financial merits and consequences of the investment in the Shares.
(c) Subscriber has made, either alone or together with
advisors (if any), such independent investigation of the Corporation and related
matters as Subscriber deems to be, or such advisors (if any) have advised to be,
necessary or advisable in connection with an investment in the Shares; and
Subscriber and Subscriber's advisors (if any) have received all information and
data which Subscriber and such advisors (if any) believe to be necessary in
order to reach an informed decision as to the advisability of an investment in
the Shares. Subscriber is satisfied that there are no material facts regarding
the Corporation or the Shares as to which Subscriber is not aware.
(d) Subscriber represents that (i) Subscriber has adequate
means of providing for Subscriber's financial needs and possible contingencies
and has assets or sources of income which, taken together, are more than
sufficient so that Subscriber could bear the risk of loss of Subscriber's entire
investment in the Shares, (ii) Subscriber has no present or contemplated future
need to dispose of all or any portion of the Shares to satisfy any existing or
contemplated need or indebtedness, and (iii) Subscriber is capable of bearing
the economic risk of an investment in the Shares for the indefinite future.
Subscriber agrees to furnish any additional information requested by the
Corporation to assure compliance of this transaction with applicable federal and
state
3
<PAGE> 4
securities laws in connection with the purchase and sale of the Shares.
(e) Subscriber understands that the Shares are "restricted
securities" under applicable Federal Securities laws and that the Federal Act
and the rules of the Securities and Exchange Commission provide in substance
that Subscriber may dispose of the Shares only pursuant to an effective
registration statement under the Federal Act or an exemption from such
registration if available. Subscriber further understands that the Corporation
has no obligation or intention to register any of the Shares under or to take
action so as to permit sales pursuant to the Federal Act. Accordingly,
Subscriber may dispose of the Shares only in certain transactions which are
exempt from registration under the Federal Act, including "private placements",
in which event transferee will acquire "restricted securities" subject to the
same limitations as in the hands of the Subscriber. Subscriber further
understands that the Delaware Act allows sales of the Shares only if the Shares
are registered or the transaction is subject to an applicable exemption. As a
consequence, Subscriber understands that Subscriber must bear the economic risks
of the investments in the Shares for an indefinite period of time.
(f) Subscriber hereby confirms that Subscriber is acquiring
the Shares for investment only and not with a view to or in connection with any
resale or distribution of the Shares. Except as may be contemplated in the
Transaction Documents, Subscriber hereby affirms that Subscriber has no present
intention of making any sale, assignment, pledge, gift, transfer or other
disposition of the Shares or any interest therein.
(g) Except as may be contemplated in the Transaction
Documents, Subscriber agrees that Subscriber will not sell or otherwise transfer
all or any part of Subscriber's interest in the Shares during the twelve month
period following the date of purchase of the Shares.
4
<PAGE> 5
(5) Subscriber acknowledges and agrees that the certificate(s)
evidencing the Shares will bear the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933 or any state
securities laws and may not be sold or transferred in the
absence of such registration or an exemption therefrom under
the Securities Act of 1933 and applicable state securities
laws.
(6) Subscriber acknowledges that neither the Corporation nor any
persons acting on its behalf has offered or sold the Shares to Subscriber by any
form of general solicitation, general or public media advertising mass mailing.
(7) This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Pennsylvania, exclusive of its conflict
of laws provisions.
(8) Neither this Agreement nor any provisions hereof shall be modified,
changed, discharged or terminated except by an instrument in writing signed by
the party against whom any waiver, change, discharge or termination is sought.
IN WITNESS WHEREOF, intending to be legally bound hereby, the
undersigned has executed and delivered this Agreement effective on and as of
December 1, 1997.
WITNESS/ATTEST: TC REALTY HOLDING COMPANY
BY:/s/ Signature Illegible BY: /s/ Signature Illegible
- -------------------------- ---------------------------
NAME: NAME:
TITLE: TITLE:
DATE: DATE:
5
<PAGE> 6
Schedule to Exhibit 10.58 filed pursuant to Instruction 2 to Item 601(a) of
Regulation S-K
Stock Subscription Agreement
<TABLE>
<CAPTION>
Project Corporation Additional Capital Contribution
- ------- ----------- -------------------------------
<S> <C> <C>
Blytheville, AR TC Realty of Blytheville, Inc. $268,057
Maumelle, AR TC Realty of Maumelle, Inc. $350,622
Mountain Home, TC Realty of Mountain Home, Inc. $348,623
AR
Pocahontas, AR TC Realty of Pocahontas, Inc. $316,134
Sherwood, AR TC Realty of Sherwood, Inc. $385,751
Reading, PA TC Realty of Reading, Inc. $149,374
</TABLE>
<PAGE> 1
EXHIBIT 10.59
ESCROW AGREEMENT
THIS AGREEMENT is made as of the 31st day of December, 1997, by and
among BALANCED CARE CORPORATION, a Delaware corporation, having its principal
place of business at 5021 Louise Drive, Suite 200, Mechanicsburg, PA 17055
("BCC") (hereinafter referred to as "BCC"), MEDITRUST ACQUISITION CORPORATION
II, a Delaware corporation, having its place of business at 197 First Avenue,
Needham Heights, Massachusetts 02194 (hereinafter referred to as "Meditrust")
and NUTTER, MCCLENNEN & FISH, LLP, a Massachusetts limited liability
partnership, having its place of business at One International Place, Boston,
Massachusetts 02110 (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Meditrust has entered those certain Facility Lease Agreements,
more particularly described on EXHIBIT A attached hereto and incorporated herein
by reference, with various Subsidiaries (as hereinafter described) of BCC
(collectively, the "Leases") and the Lease Obligations (as defined under each
Lease) are guarantied by BCC;
WHEREAS, the holders of the lessees' interests under the Leases
(collectively, the "Lessees") have requested that (a) Meditrust consent to the
assignment by the Lessees of their respective interests under the Leases to the
seven (7) newly-formed single purpose entities described on EXHIBIT B attached
hereto and incorporated herein by reference (collectively, the "TC Realty
Subsidiaries"), which are Subsidiaries of TC Realty Holding Company, a Delaware
corporation (the "Parent") and (b) in connection with such assignment
transaction (the "Assignment Transaction"), Meditrust (i) enter into development
arrangements with BCC Development and Management Co., a Delaware corporation
(the "Developer") and the TC Realty Subsidiaries, pursuant to which, the
Developer will supervise the completion of the construction of each Facility (as
defined under each Lease), (ii) consent to the TC Realty Subsidiaries entering
into management agreements with Subsidiaries of BCC, (iii) make certain working
capital loans to the Parent (the "Working Capital Loans"), so that the Parent
can use the proceeds of such Working Capital Loans as equity contributions to
the TC Realty Subsidiaries and (iv) consent to the grant to BCC by the Parent of
options to acquire all of the issued and outstanding equity interests in the TC
Realty Subsidiaries;
WHEREAS, Meditrust is willing to consent to the Assignment Transaction
subject to certain conditions (the "Closing Conditions");
WHEREAS, notwithstanding the fact that the Closing Conditions have not
been satisfied, BCC has requested and Meditrust has agreed to place a portion of
the requested Working Capital Loan proceeds in escrow, subject to the terms
hereof;
NOW, THEREFORE, for good and valuable consideration paid by each of the
parties hereto to the other, the receipt and sufficiency of which is hereby
acknowledged, Meditrust,
<PAGE> 2
BCC and the Escrow Agent agree with each other as follows:
1. DELIVERY INTO ESCROW: Concurrently with the execution and delivery of
this Agreement, Meditrust shall deliver TWO MILLION ONE HUNDRED FIFTY-NINE
THOUSAND EIGHT HUNDRED NINETEEN DOLLARS ($2,159,819) (the "Escrowed Funds") to
the Escrow Agent to hold such Escrowed Funds in an interest-bearing account,
with the interest accruing thereon to accrue to the benefit of Meditrust.
Meditrust hereby agrees that the Escrowed Funds shall be held in escrow by the
Escrow Agent until the earlier to occur of (i) the date of the consummation of
the Assignment Transaction (the "Closing Date"), which shall not occur unless
and until Meditrust has determined, in its sole and absolute discretion, that
all of the Closing Conditions have been satisfied and (ii) the Termination Date
(as hereinafter defined). The Termination Date shall be defined as February 27,
1998, unless the same is extended by Meditrust (in writing) in its sole and
absolute discretion.
2. OBLIGATION OF BCC: In consideration of Meditrust's agreement to place
the Escrowed Funds in escrow pursuant to the terms hereof, BCC hereby agrees to
pay to Meditrust, upon the earlier to occur of the Closing Date or the
Termination Date (as the same may be extended in accordance with the terms
hereof), an amount (the "Make-Whole Payment") equal to all costs and expenses
incurred by Meditrust in connection with all arrangements made by Meditrust to
place the Escrowed Funds in escrow pursuant to the terms hereof including,
without limitation, "Meditrust's Cost of Funds" (as hereinafter defined) minus
the interest, if any, earned on the Escrowed Funds. Calculation of the
Make-Whole Payment shall be determined on and as of the Closing Date or the
Termination Date (as the same may be extended in accordance with the terms
hereof), as applicable. The Make-Whole Payment shall be due and payable by BCC
whether or not the Assignment Transaction is consummated (regardless of the
reason); although, notwithstanding the foregoing, Meditrust agrees that, in the
event that the Assignment Transaction is consummated, the Make-Whole Payment may
be paid by the TC Realty Subsidiaries on the Closing Date in connection with the
consummation of the Assignment Transaction. The provisions of this Section 2
shall survive the expiration or earlier termination of this Agreement.
As used herein, "Meditrust's Cost of Funds" shall mean the interest
expense incurred by Meditrust in borrowing the Escrowed Funds at the "Prime
Rate" (as hereinafter defined). As used herein, the Prime Rate shall mean the
variable rate of interest per annum from time to time announced by Fleet Bank of
Connecticut, N.A. ("Fleet") as its prime rate of interest, and in the event that
Fleet 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 Meditrust.
3. TERMS OF THE ESCROW ARRANGEMENT: In the event that the Assignment
Transaction is consummated on or prior to the Termination Date (as the same may
be extended in accordance with the terms hereof), on the Closing Date, Meditrust
shall instruct
-2-
<PAGE> 3
the Escrow Agent to disburse the Escrowed Funds in accordance with the
Disbursement Authorization Statement approved by Meditrust in connection with
the consummation of the Assignment Transaction. In the event that the Assignment
Transaction is not consummated on or prior to the Termination Date (as the same
may be extended in accordance with the terms hereof), Meditrust shall instruct
the Escrow Agent to return the Escrowed Funds to Meditrust. Meditrust shall
endeavor to provide to BCC copies of all written instructions furnished by
Meditrust to the Escrow Agent concurrently with the delivery of the same to the
Escrow Agent, but Meditrust shall have no liability as a result of any failure
to provide such copies to BCC.
4. THE ESCROW AGENT'S DUTIES: The Escrow Agent may rely upon and shall be
protected in acting or refraining from acting upon any written notice,
instruction, request, affidavit, or other instrument, document or agreement
furnished to it by Meditrust pursuant to this Agreement or in connection with
the Escrowed Funds and believed by it to be genuine and to have been signed or
presented by the proper Person and shall have no duty to examine or pass upon
the validity, effectiveness or genuineness of any such notice, instruction,
request, affidavit, certificate or other instrument, document or agreement.
The Escrow Agent's duties hereunder shall be limited to the safekeeping
and disbursement of the Escrowed Funds pursuant to the terms and provisions
hereof. The Escrow Agent undertakes to perform only such duties or obligations
as are expressly set forth herein and no duties or obligations shall be implied
against the Escrow Agent. Except as expressly set forth herein, the Escrow Agent
shall be under no obligation to refer to any other document or agreement between
or among the parties hereto or related in any way to the proposed Assignment
Transaction. Without limiting any other provision hereof, the Escrow Agent shall
not be liable to Meditrust or BCC or any other Person for any action taken or
omitted to be taken by the Escrow Agent or for any claims, actions, causes of
action, judgments, damages, liabilities, losses, costs or expenses, unless
caused by the Escrow Agent's gross negligence or willful misconduct.
The Escrow Agent shall bear no responsibility for the financial
condition of the issuer of any check, certified check or money order or of any
depository into which the Escrowed Funds are deposited. Without limiting the
foregoing, the Escrow Agent shall deposit the Escrowed Funds in an interest
bearing account with the financial institution where the Escrow Agent
customarily maintains its client trust fund accounts.
BCC acknowledges that (i) the Escrow Agent is entitled to rely on any
instructions received by the Escrow Agent from Meditrust as to whether it may
release any of the Escrowed Funds held under and pursuant to this Agreement and
(ii) the Escrow Agent is obligated to release the Escrowed Funds in accordance
with any instructions received by the Escrow Agent from Meditrust. Upon release
of the Escrowed Funds in accordance with any instructions received by the Escrow
Agent from Meditrust, the Escrow Agent shall have no further liability
hereunder. If threatened with litigation, the Escrow Agent is authorized by
-3-
<PAGE> 4
Meditrust and BCC to interplead all interested parties in any court of competent
jurisdiction and to deposit the Escrowed Funds with such court and thereupon the
Escrow Agent shall be fully relieved and discharged of any further
responsibility under the Escrow Agreement. While the Escrow Agent may act as its
own counsel hereunder, the Escrow Agent may also consult with counsel of its own
choice and shall have full and complete authorization and protection for any
action taken or omitted to be taken or suffered by it hereunder in accordance
with the advice of said counsel.
BCC further acknowledges that the Escrow Agent acts as counsel to
Meditrust, Meditrust Corporation, a Delaware corporation, that is the sole
shareholder of Meditrust (the "REIT") and various Subsidiaries and affiliates of
the REIT (and that, without limiting the foregoing, the Escrow Agent is acting
as counsel to Meditrust in connection with the Assignment Transaction) and BCC
agrees the Escrow Agent may continue to act to act as such counsel,
notwithstanding any dispute or litigation arising with respect to the Escrowed
Funds or the duties of the Escrow Agent hereunder.
Meditrust and BCC jointly and severally agree to defend, indemnify and
hold the Escrow Agent harmless from any losses, damages, claims or liabilities
arising out of or in connection with the Escrow Agent's acts or failure to act
hereunder and the Escrow Agent shall be entitled to reimbursement by Meditrust
and BCC, jointly and severally, for all reasonable costs and expenses incurred
in the performance of its duties hereunder, including, without limitation, all
out-of-pocket expenses and reasonable attorneys' fees and expenses of counsel
retained by the Escrow Agent, but excluding (for the purposes of this paragraph
only) those costs and expenses chargeable to Meditrust insofar as the Escrow
Agent acts as counsel to Meditrust.
5. SUCCESSORS AND ASSIGNS: This Agreement shall inure to and be binding
on BCC, Meditrust and the Escrow Agent and their respective heirs, executors,
administrators, legal representatives and successors and assigns.
Notwithstanding the foregoing, none of the parties hereto may assign any of its
respective rights or obligations hereunder without the prior consent of the
others.
6. NO THIRD PARTY BENEFICIARIES: This Agreement is solely for the benefit
of Meditrust, the Escrow Agent and BCC and nothing contained herein shall confer
upon any Person, other than BCC, Meditrust and the Escrow Agent and their
respective successors and assigns, any right to insist upon or to enforce the
performance or observance of any of the obligations contained herein.
7. GOVERNING LAW: This Agreement shall be construed, and the rights and
obligations of the parties hereto shall be determined, in accordance with the
laws of the Commonwealth of Massachusetts.
To the maximum extent permitted by applicable law, BCC hereby submits
to the
-4-
<PAGE> 5
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 this Agreement and expressly waives any and all objections
BCC may have as to venue in any of such courts.
8. 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 (i) if
personally delivered, upon delivery; (ii) if sent by certified mail, three (3)
Business Days after the date of the postmark; or (iii) if by overnight delivery,
the next Business Day after being placed in the possession of the delivery
service, and addressed as follows:
IF TO BCC: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: President
WITH COPIES TO: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: General Counsel
and
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Steven Adelkoff, Esq.
IF TO MEDITRUST: Meditrust Acquisition Corporation II
197 First Avenue
Needham, Massachusetts 02194
Attn: Michael F. Bushee, Chief Operating Officer
WITH COPIES TO: Meditrust Acquisition Corporation II
197 First Avenue
Needham, Massachusetts 02194
Attn: Michael S. Benjamin, Esq.
and
Nutter, McClennen & Fish, LLP
One International Place
-5-
<PAGE> 6
Boston, Massachusetts 02110-2699
Attn: Marianne Ajemian, Esq.
IF TO THE ESCROW AGENT: Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110-2699
Attn: Marianne Ajemian, Esq.
or at such other place as any party hereto may from time to time hereafter
designate to the others in writing.
9. LIMITATION OF MEDITRUST LIABILITY: BCC acknowledges that Meditrust has
agreed to enter into this Agreement and to place the Escrowed Funds into escrow
in accordance with the terms hereof at the request of and as an accommodation to
BCC. BCC further acknowledges and agrees that notwithstanding Meditrust's
agreement to place the Escrowed Funds into escrow in accordance with the terms
hereof, Meditrust shall be under no obligation whatsoever to (i) consent to the
Assignment Transaction (and Meditrust shall not be deemed to have committed to
consenting to Assignment Transaction), (ii) make any Working Capital Loans or
(iii) extend the Termination Date beyond February 27, 1998, if the Assignment
Transaction is not consummated (for any reason whatsoever) on or before such
date. BCC also acknowledges and agrees that all of the Closing Conditions have
not yet been identified. Without limiting the foregoing, BCC acknowledges and
agrees that, in the event that the Assignment Transaction is consummated and
Meditrust has agreed to make the Working Capital Loans, the maximum principal
amount of the Working Capital Loans shall not exceed the amounts set forth on
EXHIBIT C attached hereto and incorporated herein by reference.
10. AMENDMENTS, WAIVERS AND MODIFICATIONS: This Agreement sets forth the
entire agreement of the parties with respect to the subject matter hereof and
none of the terms, covenants, conditions, warranties or representations
contained in this Agreement may be renewed, replaced, amended, modified,
extended, substituted, revised, waived, consolidated or terminated, except by an
agreement, in writing, signed by the Person against whom enforcement is sought
or except as otherwise expressly provided herein.
11. CAPTIONS AND HEADINGS: The captions and headings set forth in this
Agreement 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 Agreement or any part hereof.
12. TIME OF THE ESSENCE: Time is of the essence of each and every term,
condition, covenant and warranty set forth herein.
-6-
<PAGE> 7
13. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute an original and all
of which shall constitute one and the same instrument.
14. RULES OF CONSTRUCTION: References in this Agreement to "herein",
"hereof" and "hereunder" shall be deemed to refer to this Agreement and shall
not be limited to the particular text or Section in which such words appear. 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.
As used herein, the term "Business Day" shall mean: any day which is
not a Saturday or Sunday or a public holiday under the laws of the United States
of America or the Commonwealth of Massachusetts.
As used herein, 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 items or matters that could reasonably fall within the broader scope of the
general statement.
As used herein, the term "Governmental Authority" shall mean: 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.
As used herein, the term "Person" shall mean: All individuals,
corporations, general and limited partnerships, stock companies or associations,
joint ventures, unincorporated associations, companies, trusts, banks, trust
companies, land trusts, business trusts, Governmental Authorities and other
entities of every kind and nature.
As used herein, the term "Subsidiary" shall mean: With respect to any
Person, any corporation or other entity, fifty percent (50%) or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances) of which, is owned or controlled, directly
or indirectly (through one or more Subsidiaries) by any such Person.
EXECUTED as a sealed instrument as of the day and year first above
mentioned.
-7-
<PAGE> 8
WITNESS: MEDITRUST ACQUISITION CORPORATION II,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
WITNESS: BALANCED CARE CORPORATION,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
WITNESS: NUTTER, MCCLENNEN & FISH, LLP,
a Massachusetts limited
liability partnership
/s/ Signature Illegible By: /s/ Signature Illegible
- ---------------------------------- ----------------------------------
Name: Name:
Title:
-8-
<PAGE> 1
EXHIBIT 10.60
ASSIGNMENT AND SECURITY AGREEMENT
THIS ASSIGNMENT AND SECURITY AGREEMENT, made as of the 6th day of
February, 1998, by and between EXTENDED CARE OPERATORS OF HARRISBURG,
LLC, a Delaware limited liability company ("Lessee") and CAPSTONE CAPITAL OF
PENNSYLVANIA, INC., a Pennsylvania corporation, its successors and assigns
("Lessor").
R E C I T A L S:
A. Lessee desires to accept an assignment of 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
<PAGE> 2
Facility for the operation of ongoing retail businesses such as barbershops,
beauty shops, medical offices, pharmacies and specialty shops).
"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 coverage under the same, including Medicare, Medicaid,
and any successor program or other similar reimbursement program and private
insurance agreements.
2
<PAGE> 3
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
Pennsylvania.
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 2, 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 and
except for liens arising in favor of BCC, Lessee will not, without the express
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.
Notwithstanding the foregoing, provided no Default or Event of Default then
exists, Lessor will subordinate, in an instrument reasonably satisfactory to
Lessor, its security interest in accounts receivable of
3
<PAGE> 4
Lessee/Facility to a first lien security interest granted therein to a lender to
secure a working capital line of credit for the benefit of the Facility.
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.
(c) Use, operate and control the Collateral to preserve the
Collateral or the value thereof.
4
<PAGE> 5
(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 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
5
<PAGE> 6
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:
c/o Hakman & Co.
1350 Old Bayshore Highway; Suite 300
Burlingame, CA 94010
If to Lessor:
Capstone Capital of Pennsylvania, Inc.
1000 Urban Center Drive, Suite 630
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 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
6
<PAGE> 7
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 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
7
<PAGE> 8
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 LESSOR SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
SIGNATURES ON FOLLOWING PAGE
8
<PAGE> 9
IN WITNESS WHEREOF, Lessee and Lessor have cause this Agreement to be
properly executed as of the day and year first above written.
LESSEE:
EXTENDED CARE OPERATORS OF
HARRISBURG, LLC.
BY: /s/ Signature Illegible
------------------------------
ITS:
------------------------------
LESSOR:
CAPSTONE CAPITAL OF
PENNSYLVANIA, INC.
BY: /s/ Daryl D. McCombs
------------------------------
DARYL D. MCCOMBS, ASST. VICE-PRESIDENT
<PAGE> 10
Schedule to Exhibit 10.60 filed pursuant to Instruction 2 to
Item 601(a) of Regulation S-K
Assignment and Security Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Ravenna, OH BCC at Ravenna, Inc.;
Extended Care Operators
of Ravenna LLC
Greensboro, NC BCC at Greensboro, Inc.;
Extended Care Operators
of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.61
(Harrisburg)
This instrument prepared by:
Haskins W. Jones
Johnston Barton Proctor & Powell LLP
1901 Sixth Avenue North
2900 AmSouth/Harbert Plaza
Birmingham, Alabama 35203
(205) 458-9400
STATE OF __________________)
COUNTY OF ________________)
ASSIGNMENT, ASSUMPTION AND AMENDMENT OF LEASE AGREEMENT
THIS ASSIGNMENT, ASSUMPTION AND AMENDMENT OF LEASE AGREEMENT
("Assignment") made as of the 6th day of February, 1998, by and among
SENIOR CARE OPERATORS, LLC, a Delaware Limited Liability Company ("Assignor"),
BCC AT HARRISBURG, INC., a Delaware corporation ("Manager"), EXTENDED CARE
OPERATORS OF HARRISBURG, LLC, a Delaware limited liability company ("Assignee"),
and Capstone Capital of Pennsylvania, Inc., a Pennsylvania corporation
("Owner").
R E C I T A L S
WHEREAS, Owner, as lessor and Manager, as lessee, entered into that
certain lease agreement dated March 28, 1997 (the "Lease"), covering that
certain 51-unit assisted living facility located in Harrisburg, Pennsylvania,
which is located on real property more particularly described in Exhibit A
attached hereto (the "Facility"); and
WHEREAS, Manager assigned the Lease to Assignor pursuant to an
Assignment and Assumption Agreement dated as of December 30, 1997 (the "Prior
Assignment Agreement")
WHEREAS, Assignor desires to assign to Assignee and Assignee desires to
assume, all of Assignor's rights, interests, and obligations under the Lease;
and
WHEREAS, Owner agrees to the assignment of the Lease on the condition
that the same be amended as agreed herein.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be bound, Assignor and Assignee hereby agree as follows:
1. Effective as of the date hereof, Assignor conveys, transfers and
assigns unto the Assignee, its successors and assigns, all the rights, interest
and privileges and the obligations,
<PAGE> 2
duties and commitments which the Assignor, as lessee, has under the terms of the
Lease.
2. Assignee agrees to assume and perform all the obligations and duties
of Assignor under the Lease, and to be bound by and perform all covenants to be
performed by the lessee thereunder.
3. Assignor agrees to indemnify the Assignee for, and to save it
harmless from, any and all liability, loss or damage which the Assignee might
incur under the Lease, and from any and all claims and demands which may be
asserted against the Assignee thereunder, by virtue of any acts or omissions on
the part of the Assignor which occurred prior to the effective date of this
Assignment.
4. Assignee agrees to indemnify the Assignor for, and to save it
harmless from, any and all liability, loss or damage which the Assignor may
incur under the Lease, and from any and all claims and demands whatsoever which
may be asserted against the Assignor thereunder, by virtue of any acts or
omissions on the part of the Assignee occurring subsequent to the effective date
of this Assignment.
5. It is expressly understood and agreed that Assignor shall have no
liability for the performance of the obligations and covenants set forth in the
Lease following the effective date of this Assignment, and that Assignee shall
have no liability for the performance of the obligations and covenants set forth
in the Lease with respect to the period prior to the effective date of this
Assignment.
6. Assignee agrees that Section 2.6 of the Lease is hereby deleted in
its entirety and the following is substituted therefor:
2.6 MANAGEMENT OF FACILITY
(a) 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 Developer or an Affiliate of Developer, (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 if with an Affiliate of Developer, then the
same shall be guaranteed by Developer, and (iv) all management or leasing
agreements must contain provisions to the effect that (A) the obligation of
Lessee to pay management fees is subordinate to its obligation to pay Rent, and
(B) the manager shall not have the right to collect any management fees during
the continuance of an Event of Default.
(b) In lieu of any similar covenants in the Lease, Balanced Care
Corporation ("BCC") shall contain covenants acceptable to Lessor requiring that
Developer and its Affiliates (including BCC) shall maintain on a consolidated
basis the following:
2
<PAGE> 3
(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
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
an rent payments.
The covenants of Section 2.6 (b) above shall be included in that
certain Working Capital Assurance Agreement dated as of February 6, 1998
between Lessor and BCC. A default of such covenants shall constitute a default
under the Lease.
(c) In the event that BCC or any affiliate of BCC exercises its right
to purchase the membership interest of Lessee, or the assigns of Lessee, the
covenants contained in Section 2.6(b) above shall be included as an obligation
of BCC or such affiliate under this Lease. In the event that BCC uses an
Affiliate to purchase the membership interests of the Lessee, BCC shall execute
a guaranty of such Affiliate's obligations as Lessee hereunder in a form
substantially the same as executed by the Guarantors hereunder.
(d) GUARANTY/ GUARANTORS. The Rent and other obligations pursuant to
the Lease are guaranteed by the individual owners of all of the membership
interest of Lessee (each, a "Guarantor" and, collectively, "Guarantors")
pursuant to an unlimited guaranty agreement ("Guaranty") executed simultaneously
herewith in favor of Lessor."
7. The terms of this Assignment shall apply to, bind and inure to the
benefit of the parties hereto and their respective successors and assigns.
[SIGNATURES ON FOLLOWING PAGE]
3
<PAGE> 4
IN WITNESS WHEREOF, Assignor, Assignee and Owner have executed this
Assignment as of the date first set forth above.
MANAGER:
BCC AT HARRISBURG, INC.,
a Delaware corporation
By: /s/ Brian L. Barth
----------------------------------
Brian L. Barth, Vice President
ASSIGNEE:
EXTENDED CARE OPERATORS OF HARRISBURG, LLC,
a Delaware limited liability company
By: /s/ Signature Illegible
-----------------------------------
Its:
-----------------------------------
OWNER:
CAPSTONE CAPITAL CORPORATION, INC.,
a Maryland corporation
By: /s/ Daryl D. McCombs
-------------------------------
Daryl D. McCombs, Assistant Vice President
ASSIGNOR:
SENIOR CARE OPERATORS, LLC,
a Delaware limited liability company
By: /s/ Signature Illegible
-------------------------------
Its:
-------------------------------
4
<PAGE> 5
Schedule to Exhibit 10.61 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Assignment, Assumption and Amendment of Lease Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Ravenna, OH BCC at Ravenna, Inc.;
Extended Care Operators of Ravenna LLC
Greensboro, NC BCC at Greensboro, Inc.
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.62
CONSENT AND SUBORDINATION AGREEMENT
THIS AGREEMENT, made as of the 6th day of February, 1998, by and
among EXTENDED CARE OPERATORS OF HARRISBURG, LLC, a Delaware limited liability
company, ("Lessee"), BCC AT HARRISBURG, INC., a Delaware corporation
("Manager"), and CAPSTONE CAPITAL OF PENNSYLVANIA, INC., a Pennsylvania
corporation, its successors and assigns ("Lessor").
R E C I T A L S:
A. Manager and Lessee shall enter into a Management Agreement to be
dated ______________ 1998 (the "Management Agreement") with respect to an
assisted living facility more particularly described in the Management Agreement
("Facility"), located at certain real property in Dauphin County, Pennsylvania
and 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. Lessee has requested that Lessor permit Lessee to accept an
assignment of a lease (the "Lease") with Lessee. As one of the conditions to
permitting the assignment, Lessor required certain agreements from the Manager
and Lessee.
AGREEMENT
NOW, THEREFORE, in consideration of the Recitals and the covenants of
the parties hereto, and as an inducement to Lessor to enter into the Lease, the
parties hereto do mutually agree as follows:
1. All unaccrued, and accrued but unpaid, fees, expenses and other
amounts now or from time to time owing to Manager under the Management Agreement
shall be subordinate to the Lease, interest thereon and all other amounts from
time to time payable by Lessee to Lessor upon the terms and conditions set forth
herein. Any amendments heretofore or hereafter made to the Lease shall not
require the consent of Manager.
2. Provided no Event of Default exists and remains uncured beyond any
applicable cure period (as defined in the Lease), the Lessee shall be entitled
to pay, and Manager shall be entitled to receive, the fees, expenses and other
amounts payable to Manager pursuant to the Management Agreement; provided,
however, Manager and Lessee agree with Lessor (a) not to modify the method for
calculating the fees, expenses and other amounts payable to Manager without
first obtaining the prior written consent of Lessor (which consent shall not
unreasonably be withheld); and (b) not to accrue or pay fees, expenses and other
amounts in excess of one (1) month without first obtaining the prior written
consent of Lessor (which consent shall not unreasonably be withheld).
3. Following an Event of Default that remains uncured beyond any
applicable cure
<PAGE> 2
period, Lessor may, at its option, elect to terminate or require Lessee to
terminate the Management Agreement without any obligation of Lessor to Manager,
other than those obligations set forth in the Lease (if any) and those required
by law. Manager agrees that it shall not look to Lessor for any sums due it as
of the date of or as a result of such termination.
4. Manager shall timely provide the financial and other reports of the
operations of the Facility and of the Manager as required in the Lease.
5. Manager hereby acknowledges that pursuant to the Lease, Lessee has
assigned to Lessor all of Lessee's rights and interests in the Management
Agreement.
6. Manager hereby consents to the aforesaid assignment and agrees that
if Lessor, or its successors and assigns, becomes in possession of the Facility
through any rights granted under the Lease or at law, Manager shall, at the
option of Lessor, its successors and assigns, continue to honor its duties and
obligations under the Management Agreement for the benefit of the Lessor, its
successors and assigns, provided Lessor agrees to honor Lessee's duties and
obligations owed to the Manager under the Management Agreement.
7. Manager will, upon request, furnish promptly to Lessor at Lessor's
main office in Birmingham, Alabama, copies of the following (to the extent
applicable): all leases, patient and resident agreements, books, records,
monthly reports, statements of account, budgets, evidence of deposits and
withdrawals from any account in which payments (including payments from
Medicare, Medicaid, and private insurance) relating to the Property are
deposited, licenses, Medicare and Medicaid reimbursement agreements, Medicare
and Medicaid surveys, statements of deficiencies and plans of correction,
Medicare and Medicaid cost reports and other items which Manager is required to
maintain under the Management Agreement or which Manager maintains for its own
purposes with respect to the Property.
8. Upon any termination of the Management Agreement, Manager may seek
recourse against Lessee, subject to the subordination contained herein. Manager
shall have no right of specific performance and no lien or charge upon the
Property or income from or relating to the Property so long as Lessor owns the
Property.
9. Manager will notify Lessor promptly of any material default by
Lessee or termination by Lessee under or with respect to the Management
Agreement.
10. If Manager and Lessee should modify the Management Agreement or
enter into a new management agreement, it shall be subject to all provisions
hereof and of the Lease relating to the Management Agreement.
11. This Agreement shall be binding upon Manager and Lessee and their
successors and assigns and shall inure to the benefit of Lessor and its
successors and assigns. Manager and Lessee shall have the right to assign the
Management Agreement to an affiliate of Manager
2
<PAGE> 3
or Lessee, as the case may be, without Lessor's consent, provided such
assignment subjects the assignee to all provisions hereof and of the Lease.
12. The validity, interpretation, enforcement and effect of this
Agreement shall, at Lessor's option, be governed by and construed in accordance
with the laws of the State of Alabama or, at Lessor's option, the laws of the
State of Pennsylvania. The Lessor's principal place of business is located in
Jefferson County of the State of Alabama, and the Lessee and Manager agree that
this Agreement shall be held by Lessor at such principal place of business, and
this Agreement shall constitute sufficient minimum contacts of Lessee and
Manager with Jefferson County of the State of Alabama for the purpose of
conferring jurisdiction upon the federal and state courts presiding in such
county and state. Lessee and Manager consent that any legal action or proceeding
arising hereunder may be brought in the Circuit Court of the State of Alabama,
Jefferson County, Alabama in 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.
13. In the event any provision hereof is deemed to be invalid by reason
of the operation of any law or by reason of the interpretation placed hereon by
any court, this Agreement shall be construed as not containing such provision,
and the invalidity of such provision shall not affect any other provisions which
are otherwise lawful and valid and shall remain in full force and effect.
14. The failure at any time or times to require strict performance of
any of the provisions, warranties, terms and conditions contained herein or in
any other agreement, document or instrument heretofore, now or hereafter
executed by the Lessee or Manager and delivered to the Lessor shall not waive,
affect or diminish any right of the Lessor to thereafter demand strict
compliance or performance therewith and with respect to any other provisions,
warranties, terms and conditions contained in such agreements, documents and
other 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 of
a different type. None of the warranties, conditions, provisions and terms
contained in this Agreement or in any other agreement, document or instrument
heretofore, now or hereafter executed by the Lessee or the Manager 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 Lessee and Manager
specifying such waiver.
15. In the event at any time or times hereafter the Lessor employs
counsel to advise or provide other representation with respect to this Agreement
or any other agreement, document or instrument heretofore, now or hereafter
executed by the Manager and delivered to the Lessor with respect to the Lessee,
the Manager, the Management Agreement or this Agreement, or to commence, defend,
intervene, file a petition, complaint, answer, motion or
3
<PAGE> 4
other pleading or take any other action with respect to any suit or proceeding
relating to this Agreement or any other agreement, instrument or document
heretofore, now or hereafter executed by the Manager and delivered to the Lessor
with respect to the Lessee, the Manager, the Management Agreement or this
Agreement, or to represent Lessor in any litigation with respect to the affairs
of the Manager or to enforce any rights of the Lessor or the obligations of
Manager or Lessee or any other person, firm or corporation which may be
obligated to Lessor by virtue of this Agreement, then in any such events all the
reasonable attorneys' fees arising from such service, including attorneys' fees
in appellate and bankruptcy proceedings, and expenses, costs or charges relating
thereto shall be due and payable to Lessor by Lessee upon Lessor's demand.
16. All notices, demands, or requests, and responses thereto, required
or permitted to be given pursuant to this Agreement or by applicable law shall
be in writing and shall be deemed to have been properly given or served 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 the United States mall, postage prepaid and
registered or certified 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:
Extended Care Operators of Harrisburg, Inc.
c/o Hakman & Co
1350 Old Bayshore Highway; Suite 300
Burlingame, CA 94010
With a copy to:
If to Managers:
BCC at Harrisburg, Inc.
5021 Louise Drive, Suite 200
Mechanicsburg, Pa. 17055
With a copy to:
Steven Adelkoff, Esq.
Kirkpatrick & Lockhart, LLP
1500 Oliver Building
Pittsburgh, Pennsylanvia 15222-2312
If to the Lessor to:
4
<PAGE> 5
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 LLP
2900 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203-2618
or at such other single address in the United States as Lessee, Lessor or
Manager may by notice in writing designate for notice.
17. Lessee and Manager hereby agree that they will not (acting together
or individually) terminate or materially modify the Management Agreement without
Lessor's consent, which consent shall be in the sole discretion of Lessor. This
Agreement shall be deemed to supersede any conflicting provisions of the
Management Agreement.
18. TO THE EXTENT ALLOWED BY APPLICABLE LAW, LESSEE AND MANAGER HEREBY
WAIVE ANY RIGHT THAT THEY MAY HAVE TO A TRIAL BY JURY OR 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 AND MANAGER WITH RESPECT TO THE LEASE 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 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 AND MANAGER AGREE
THAT LESSOR MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE
OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF LESSEE AND MANAGER
IRREVOCABLY TO WAIVE THEIR 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
5
<PAGE> 6
HEREIN) BETWEEN LESSEE AND/OR MANAGER WITH LESSOR SHALL INSTEAD BY TRIED IN A
COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
[SIGNATURES ON FOLLOWING PAGE]
6
<PAGE> 7
IN WITNESS WHEREOF, Manager, Lessee, and Lessor have caused this
Agreement to be executed as of the day and year first above written.
LESSEE:
EXTENDED CARE OPERATORS OF
HARRISBURG, LLC
BY: /s/ Signature Illegible
-------------------------------------------
ITS:
-------------------------------------------
MANAGER:
BCC AT HARRISBURG, INC.
BY: /S/ Brian L. Barth
-------------------------------------------
BRIAN L. BARTH, VICE-PRESIDENT
LESSOR:
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.
BY: /s/ Daryl D. McCombs
-------------------------------------------
DARYL D. MCCOMBS, ASSISTANT VICE-PRESIDENT
7
<PAGE> 8
Schedule to Exhibit 10.62 filed pursuant to Instruction 2 to
Item 601(a) of Regulation S-K
Consent and Subordination Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Ravenna, OH BCC at Ravenna, Inc.;
Extended Care Operators of Ravenna LLC
Greensboro, NC BCC at Greensboro, Inc.
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.63
SUBORDINATION AND STANDSTILL AGREEMENT
THIS SUBORDINATION AND STANDSTILL AGREEMENT is made as of the 6th day
of February, 1998 by and between BALANCED CARE CORPORATION, a Delaware
corporation, having its place of business at 5021 Louise Drive, Suite 200,
Mechanicsburg, PA 17055 ("BCC"), EXTENDED CARE OPERATORS OF HARRISBURG, LLC, a
Delaware limited liability company (the "Lessee") and CAPSTONE CAPITAL OF
PENNSYLVANIA, INC., a Pennsylvania corporation, having its place of business at
1000 Urban Center Drive, Suite 630, Birmingham, AL 35242 (the "Lessor").
WHEREAS, the Lessor has permitted the Lessee to accept an assignment of
that certain Lease Agreement (the "Lease"), relating to certain premises located
in Dauphin County, Pennsylvania, more particularly described therein (the
"Leased Property"); all capitalized terms used herein and not otherwise defined
herein shall have the same meanings as ascribed to such terms in the Lease;
WHEREAS, the Lease and all other instruments and documents now or
hereafter evidencing and/or securing the obligations of the Lessee are
hereinafter collectively referred to as the "Lease Documents";
WHEREAS, the Lessee and BCC have entered into that certain Shortfall
Agreement of even date herewith (the "Shortfall Agreement"), pursuant to which,
under certain circumstances, BCC has agreed to provide certain loans to the
Lessee (collectively, the "Working Capital Loans");
WHEREAS, the obligations of the Lessee under all instruments and
documents evidencing and/or securing the repayment of, or otherwise pertaining
to and executed and delivered in connection with, the Working Capital Loans,
including without limitation, the Leasehold Mortgage (as hereinafter defined)
and the Shortfall Agreement;
WHEREAS, payment of the Lessee's indebtedness and performance of the
Lessee's obligations under the Working Capital Loans are secured, in part, by a
Leasehold Mortgage and Security Agreement of even date herewith granted by the
Lessee in favor of BCC (the "Leasehold Mortgage") encumbering the Lessee's
interest under the Lease, which Leasehold Mortgage is to be recorded with the
Dauphin County Records;
WHEREAS, BCC and the Lessee agreed to enter into the Shortfall
Agreement, Option Agreement, Leasehold Mortgage, Deposit and Pledge Agreement
and Promissory Note (the "Working Capital Loan Documents") as an inducement to
the Lessor to agree to enter into and/or accept the Lease Documents; and
WHEREAS, it is a condition of the Shortfall Agreement and Leasehold
Mortgage that the parties hereto enter into this Subordination Agreement.
<PAGE> 2
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in consideration of the mutual covenants set forth herein, the parties act and
agree as follows:
1. BCC agrees that the payment of principal, interest and all other
sums payable with respect to the "Working Capital Debt" (as hereinafter defined)
is expressly subordinated, in the manner hereinafter set forth, in right of
payment to the prior payment and satisfaction in full of the Lease Obligations.
As used herein, "Working Capital Debt" means the principal, interest and all
other sums payable and all obligations to be performed from time to time under
the Working Capital Loan Documents and any and all other indebtedness or
liability of the Lessee to BCC, whether direct or indirect, absolute or
contingent, secured or unsecured.
2. As long as any part of the Lease Obligations shall remain
unsatisfied, no payment of principal or interest or any other sum shall be made
by the Lessee or accepted by BCC, at any time, with respect to the Working
Capital Debt, without the prior written consent of the Lessor, in each instance;
provided, however, that the Lessee may make any payment due under the Working
Capital Loan Documents (to be applied toward the Working Capital Debt) and BCC
may accept any such payment from Lessee (and apply it toward the Working Capital
Debt) if: (1) no Lease Default shall have occurred and remain uncured, nor shall
any event have occurred (or failed to occur) which, with the passage of time
and/or the giving of notice, would constitute a Lease Default, (2) such payment
would not impair the compliance of the Lessee with the financial covenants of
the Lease Documents if such payment were deemed to be an operating expense and
(3) such payment would not constitute, nor, with the giving of notice and/or the
passage of time would give rise to, a Lease Default. BCC further agrees that,
without the prior written consent of the Lessor, in each instance, BCC will not
demand, ask, bring suit for, accept or receive any payment with respect to the
Working Capital Debt. If BCC nevertheless receives any payment contrary to the
terms of this Agreement, BCC shall hold such payment in trust for the Lessor and
shall immediately remit the same to the Lessor (to be applied toward the Lease
Obligations). The Lessor shall be under no obligation to grant any consent
referred to in this Paragraph 2 as long as any part of the Lease Obligations
shall remain unsatisfied.
3. In the event of any termination of the Lease and/or an acceleration
of the Lease Obligations pursuant to the terms of any of the Lease Documents, or
in the event of a distribution of the assets, dissolution, winding-up,
liquidation or reorganization of the Lessee (whether in bankruptcy, insolvency
or receivership proceedings or upon an assignment for the benefit of creditors
or otherwise), the Lease Obligations shall be paid and satisfied in full
(notwithstanding any such termination) before BCC is entitled to receive any
payment whatsoever on account of the Working Capital Debt, any payment or
distribution (of any kind or nature whatsoever) to which any holder of Working
Capital Debt would otherwise be entitled, but for the subordination provisions
of this Agreement, shall be paid directly to the Lessor (to be applied toward
the Lease Obligations) until the Lease Obligations shall have been paid and
satisfied in full. Subject to the foregoing and the provisions of Paragraph 4,
BCC shall have the right to file a claim or proof of claim, be a member of a
creditors' committee, vote on a plan and otherwise act to preserve and protect
its claims and interests as a holder of the Working Capital Debt.
2
<PAGE> 3
4. BCC irrevocably authorizes and directs and the Lessor and any
trustee in bankruptcy, receiver or assignee for the benefit of creditors of the
Lessee, whether in voluntary or involuntary liquidation, dissolution or
reorganization proceedings, on BCC's behalf, to take such action as may be
reasonably necessary or appropriate to effect the subordination provisions and
other rights and/or remedies granted to the Lessor in this Agreement (including,
without limitation, in the case of the Lessor to file a proof of claim and to
vote upon matters with respect to which BCC may be able to vote in connection
with any bankruptcy proceedings relating to the Lessee) and irrevocably appoints
the Lessor and any such trustee, receiver or assignee as its
attorney-or-attorneys-in-fact for such purposes with full powers of substitution
and resubstitution. The power of attorney conferred on the Lessor and any such
trustee receiver and assignee by the provisions of this Paragraph 4, being
coupled with an interest, shall be irrevocable until the Lease Obligations are
fully satisfied and shall not be affected by the disability or incapacity of BCC
and shall survive the same. Such power of attorney is provided solely to protect
the interests of the Lessor and any such trustee, receiver and assignee and
shall not impose any duty on the Lessor nor any such trustee, receiver or
assignee to exercise any such power and neither the Lessor nor any such trustee,
receiver or assignee 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.
5. The terms of this Agreement, the subordination effected hereby and
the respective rights, remedies and obligations of the Lessor and BCC shall not
be affected by (a) any amendment or restatement of, or addition or supplement
to, any of the Lease Documents, (b) any exercise or non-exercise of any right,
power or remedy under any of the Lease Documents or any instrument or agreement
relating thereto, or securing or guaranteeing any of same or (c) any waiver,
consent, release, indulgence, extension, renewal, modification, delay or other
action, inaction or omission pertaining to the Lease Obligations or any
instrument or agreement relating thereto, or securing or guaranteeing any of
same, all whether or not BCC shall have had notice and/or knowledge of any of
the foregoing.
6. As long as any portion of the Lease Obligations shall remain
outstanding:
(a) without limiting any other provision set forth herein or
in any of the other Lease Documents, BCC acknowledges that (i) if BCC
should ever acquire any interest in the Leased Property, such interest
is hereby made subject and subordinate to the Lessor's interest in the
Lease and the Leased Property, regardless of time, order or place of
filing or recording of any mortgage (including, without limitation, the
Leasehold Mortgage) or other document or instrument relating to the
Working Capital Debt, and regardless of the perfection or non-
perfection thereof, notwithstanding to the contrary any provision of
any applicable law relating to perfection or priority; provided
however, BCC may exercise any right, remedy or recourse against and
realize upon (x) the equity holders' interest in the Lessee or (y) the
Lessee's interest in Lease and the Leased Property, without the prior
consent of the Lessor, and Lessor consents to such action, (ii) upon
any termination of the Lessee's interest in the Lease in connection
with any exercise by the Lessor of its rights and/or remedies under the
Lease, BCC's Leasehold Mortgage (encumbering the Lessee's interest in
the Lease and
3
<PAGE> 4
the Leased Property) shall automatically terminate and shall be of no
further force, without the need of any further action (provided,
however, that, upon the request of the Lessor, BCC shall promptly
execute and deliver to the Lessor a discharge of the Leasehold Mortgage
in recordable form) and (iii) upon any acquisition by BCC, its nominee
or designee or any other Person, of (x) the Lessee's interest in the
Lease and the Leased Property as a result of (1) any exercise of BCC's
rights as mortgagee or secured party (2) as a result of any transfer of
the Lessee's interest in the Lease, in lieu of a foreclosure of the
Leasehold Mortgage, to BCC, its nominee or designee or any other
Person, or (y) all of the issued and outstanding capital stock of the
Lessee in the Lessee (as a result of the exercise by BCC of its rights
and remedies relating to its lien encumbering all of the membership
interests of the Lessee, without limiting the provisions of Paragraph 2
hereof, (A) the proceeds of any such disposition of the Lessee's
interest in the Lease which any holder of the Working Capital Debt
would otherwise be entitled, but for the subordination provisions of
this Agreement, shall be paid directly to the Lessor (to be applied
toward the Lease Obligations), (B) BCC shall execute and deliver to the
Lessor a guaranty of the Lease Obligations, in form and substance
acceptable to the Lessor, (C) the new holders, if any, of all of the
membership interests of the Lessee shall execute and deliver to the
Lessor pledge agreements, in form and substance acceptable to the
Lessor, along with related powers and the certificates evidencing the
membership interests of the Lessee and (D) such evidence of the due
authorization, execution and delivery and unenforceability of such
pledge agreements, powers and guaranty as the Lessor may request,
including, without limitation, certified copies of limited liability
company resolutions and opinions, all in form and substance acceptable
to the Lessor;
(b) BCC irrevocably waives any right to require marshaling of
the assets of the Lessee and agrees that the Lessor shall have no
obligation to seek satisfaction of the Lease Obligations through
recourse to the collateral;
(c) neither the Working Capital Debt, nor any of the Working
Capital Loan Documents nor any other agreement between BCC and the
Lessee shall be amended, canceled, forgiven or terminated, without the
prior written consent of the Lessor, in each instance, which consent
may be withheld in the Lessor's sole and absolute discretion;
(d) BCC shall not grant or consent to any further or
additional subordination of the Working Capital Debt in whole or in
part in favor of any Person other than the Lessor, without the prior
written consent of the Lessor, in each instance, which consent may be
withheld in the Lessor's sole and absolute discretion;
(e) BCC will not file, cause to be filed or join in the filing
of, any petition under the Bankruptcy Code, or any similar petition or
pleading under any state law, against the Lessee or seeking any relief
with respect to the Lessee (including, without limitation, the
appointment of a receiver, trustee or other similar official for it or
any part of its business or properties) under any such law, without the
prior written consent of the Lessor, in each instance, which consent
may be withheld in the Lessor's sole and absolute discretion; and
4
<PAGE> 5
(f) BCC will not demand or accept as security for the Working
Capital Debt any collateral owned, wholly or in part, by the Lessee
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, notwithstanding the foregoing,
subject to the terms and conditions hereof, the Lessor hereby consents
to the Lessee granting a security interest in the Lessee's leasehold
interest in the Lease to BCC pursuant to the Leasehold Mortgage and to
the granting to BCC of a security interest in the membership interests
of the Lessee pursuant to the BCC Option Agreement and Stock Pledge
Agreement.
7. BCC shall be entitled to the right of subrogation with respect to
payments to the Lessor made hereunder, but may only exercise any such right if
the Lease Obligations shall have been first paid in full and discharged.
8. BCC agrees not to assign or transfer any interest in the Working
Capital Debt to any Person without the prior written consent of the Lessor, in
each instance, which consent the Lessor may withhold in its sole and absolute
discretion.
9. If BCC and/or the Lessee, contrary to this Agreement, makes or
receives any payment, attempts to or threatens to make or receive any payment,
takes any other action contrary to this Agreement or fails to any action
required by this Agreement or, with respect to BCC, commences or participates in
any action or proceeding against the Lessee and/or the Leased Property to
enforce the payment of the Working Capital Debt, then, the Lessor may obtain
relief by injunction, specific performance and/or other appropriate equitable
relief; it being understood and agreed that (a) the Lessor's damages from BCC's
and/or the Lessee's actions may at that time be difficult to ascertain and may
be irreparable, and (b) BCC and the Lessee waive any defense or claim that the
Lessor cannot demonstrate any damage and/or can be made whole by the awarding of
damages.
10. BCC agrees to indemnify and to hold the Lessor harmless from and
against any and all reasonable costs and expenses (including, without
limitation, reasonable attorney's fees and expenses) relating to (a) any actions
of BCC taken contrary to this Agreement and (b) the enforcement of this
Agreement in the event of any breach or default by BCC hereunder. The Lessee
agrees to indemnify and hold the Lessor harmless from and against any and all
reasonable costs and expenses (including, without limitation, reasonable
attorneys' fee and expenses) relating to (a) any actions of the Lessee taken
contrary to this Agreement and (b) the enforcement of this Agreement in the
event of any breach of default by it hereunder.
11. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, executors, administrators,
legal representatives, successors and assigns.
12. If any provision of this Agreement or the application thereof to
any Person or circumstance, for any reason and to any extent, shall be held to
be invalid or unenforceable, neither the remainder of this Agreement nor the
application of such provision to any other person or
5
<PAGE> 6
circumstance shall be affected thereby, but rather the same shall be enforced to
the greatest extent permitted by law. Notwithstanding the foregoing, it is the
intention of the parties hereto that if any provision hereof 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.
13. Any note evidencing any portion of the Working Capital Debt (the
"Working Capital Notes") shall be marked with the following legend:
"Payment of this note is subject to the terms and
conditions of a Subordination and Standstill
Agreement dated as of , 1998 between the payee and
Capstone Capital of Pennsylvania, Inc. A copy of said
Subordination and Standstill Agreement may be
obtained upon written request of any holder of this
note from Capstone Capital Corporation, 1000 Urban
Center Drive, Suite 630, Birmingham, AL 35242"
14. Promptly upon the request of the Lessor, which may be made from
time to time, BCC shall pledge, assign, transfer, set over and deliver to the
Lessor the Working Capital Notes then in effect, duly endorsed in blank by BCC,
to be held by the Lessor as security for the Lease Obligations so long as any of
the Lease Obligations shall be outstanding or any agreement by the Lessor as to
any extension of credit to the Lessee shall remain in effect.
15. Nothing contained in this Agreement or otherwise will in any event
be deemed to constitute the Lessor to be the agent of BCC for any purpose nor to
create any fiduciary relationship between the lessor and BCC. No action or
inaction with respect to any collateral for Lease Obligations; nor any amendment
to any of the Lease Documents; nor any exercise or nonexercise of any right,
power or remedy under or in respect of any of the Lease Obligations or any
instrument or agreement relating to, securing or guaranteeing any of the Lease
Obligations; nor any waiver, consent, release, indulgence, extension, renewal,
modification, delay or other action, inaction or omission in respect of any of
the Lease Obligations or any instrument or agreement relating to, securing or
guaranteeing any of the Lease Obligations will in any event give rise to any
claim by BCC against the Lessor or any officer, director, employee or agent of
the Lessor.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Alabama.
17. To the maximum extent permitted by applicable law, BCC and the
Lessee hereby submit to the jurisdiction of the courts of the State of Alabama
and the United States District Court for the Northern District of Alabama, 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 this Agreement and expressly waive any and
all objections they may have as to venue in any of such courts.
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<PAGE> 7
18. This Agreement shall remain in full force and effect so long as the
Lease Obligations remains undischarged or unsatisfied in any respect. BCC and
the Lessee agree that an affidavit, certificate, letter or statement of any
officer, agent or attorney of the Lessor indicating that any part of the Lease
Obligations remains outstanding shall be deemed prima facie evidence of the
validity, effectiveness and continuing force of this Agreement and any Person is
hereby authorized to rely thereon. Upon the complete payment and performance of
the Lease Obligations and the recording of a notice of the termination of the
Lease, this Agreement shall be deemed terminated without further action and, if
at such time, the Lessor is holding the Working Capital Notes in escrow pursuant
to the terms hereof, the Lessor shall return the Working Capital Notes to BCC
and this Agreement shall thereupon be of no further force or effect.
19. Reference in this Agreement to "herein" , "hereof" and "hereunder"
shall be deemed to refer to this Agreement and shall not be limited to the
particular text or section in which such words appear. 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.
Reference in this Agreement to the Mortgaged Property shall be deemed
to include references to all of the Mortgaged Property and references to any
portion thereof. References in this Agreement to the Working Capital Debt shall
be deemed to include references to any of the Working Capital Debt and any
portion thereof. References in this Agreement to the Lease Obligations shall be
deemed to include references to all of the Lease Obligations and any portion
thereof. References within this Agreement to the Lease Documents shall include,
without limitation, all renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations and modifications of the Loan
Documents.
As used herein the term "person" shall include all individuals and all
entities of every kind and nature, including, without limitation, corporations,
general and limited partnerships, stock companies or associations, joint
ventures, unincorporated associations, companies, trusts, banks, trust
companies, land trustee, business trusts, and agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures, or 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.
As used herein, 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 items or matters that could reasonably fall within the broader scope of the
general statement.
22. This Agreement may be executed in one or more counterparts, each of
which taken together shall constitute an original and all of which shall
constitute one and the same instrument.
23. Time is of the essence of this Agreement.
7
<PAGE> 8
24. This Agreement may be executed in one or more counterparts, each of
which taken together shall constitute an original and all of which shall
constitute one and the same instrument.
SIGNATURES ON FOLLOWING PAGE
8
<PAGE> 9
EXECUTED as an instrument under seal as of the date and year first
above written.
LESSOR:
CAPSTONE CAPITAL OF PENNSYLVANIA, INC.
a Pennsylvania corporation
By: /s/ Daryl D. McCombs
------------------------------------------
Daryl D. McCombs, Assistant Vice President
BCC:
BALANCED CARE CORPORATION,
a Delaware corporation
By: /s/ Brian L. Barth
------------------------------------------
Brian L. Barth, Vice President
LESSEE:
EXTENDED CARE OPERATORS
OF HARRISBURG, LLC, a
Delaware limited liability company
---------------------------------------------
By: /s/ Signature Illegible
------------------------------------------
Its:
9
<PAGE> 10
Schedule to Exhibit 10.63 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Subordination and Standstill Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Ravenna, OH BCC at Ravenna, Inc.;
Extended Care Operators of Ravenna LLC
Greensboro, NC BCC at Greensboro, Inc.
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.64
OPTION AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made as of February 6, 1998, between
Extended Care Operators, LLC, a Delaware limited liability company and Oakhaven
Senior Living, Inc., a California corporation (collectively, the "OPTIONOR") and
Balanced Care Corporation, a Delaware corporation, or its successors and assigns
("BCC").
W I T N E S S E T H
WHEREAS, Optionor is the owner of 100% of the equity interests (the
"EQUITY INTERESTS") of Extended Care Operators of Ravenna, LLC, a Delaware
limited liability company (the "COMPANY"), which Equity Interests are evidenced
by certificate numbers __& __ of the Company, and represent 100% of the equity
interests in the Company; and
WHEREAS, the Company, Lessor, Senior Care Operators, LLC and Management
Firm (hereinafter defined) executed and delivered an Assignment, Assumption and
Amendment of Lease Agreement dated as of February 6, 1998 wherein Management
Firm assigned to Lessee that certain Lease dated as of March 28, 1997 (the
"LEASE") between Lessee and Lessor, whereby Lessee leased from Lessor property,
together with all improvements built or to be built thereon, located in Dauphin
County, Pennsylvania, as more fully described in the Lease (the "PROPERTY"); and
WHEREAS, the Company and Balanced Care at Ravenna, Inc., a Delaware
corporation (the "MANAGEMENT FIRM") have entered into that certain Management
Agreement dated as of February 6, 1998 (the "MANAGEMENT AGREEMENT") whereby the
Company has appointed the Management Firm as the exclusive manager and operator
of the Facility; and
WHEREAS, BCC, Optionor and the Company have entered into that certain
Shortfall Funding Agreement dated as of February 6, 1998 (the "SHORTFALL
AGREEMENT") whereby, among other matters, BCC has agreed to fund certain
Shortfalls by making loans to the Company, as more fully provided in the
Shortfall Agreement; and
WHEREAS, BCC is willing to enter into the Shortfall Agreement, and all
other Transaction Documents of which BCC is a party, only if Optionor executes
and delivers an option agreement whereby BCC or its successors and assigns may
acquire all of the Equity Interests of the Optionor, on the terms and conditions
provided herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
1. GRANT OF OPTION/CONSIDERATION. (a) Optionor hereby grants to
BCC an option (the "OPTION") to purchase all of Optionor's right, title and
interest in and to the Equity Interests on the terms and conditions provided
herein. The Purchase Price for the Equity Interests shall be paid to Optionor on
the Closing Date in immediately available funds. The Option shall be exercisable
by providing written notice to Optionor on or before the ninth anniversary after
the date of this Agreement (the "OPTION TERM").
(b) In consideration of the grant of the Option to BCC, BCC shall
make the
<PAGE> 2
following payments (the "OPTION PAYMENTS") to Optionor, which Option Payments
shall be payable over a nine year period (until the exercise of the Option) in
quarterly installments, as follows: on the first day of each calendar quarter,
beginning on July 1, 1998, and for so long as this Agreement is in effect (but
ending in all events at the time of exercise of the Option), one-fourth of an
amount calculated as 27.5% per annum of the Working Capital Reserve actually
funded by the Optionor, compound on an annual basis; provided, however, BCC
shall pay on April 1, 1998 a pro rata amount calculated as 27.5% per annum of
the Working Capital Reserve actually funded by Optionor from the date hereof
through April 1, 1998, plus one-fourth of an amount equal to 27.5% per annum of
the Working Capital Reserve actually funded as of April 1, 1998, which payment
represents Option Payments through the end of the second calendar quarter of
1998. Notwithstanding anything to the contrary contained herein, if the Option
is exercised, BCC's obligation to make Option Payments thereafter shall cease.
Option Payments shall be made to Optionors without demand or notice, except as
expressly provided herein.
(c) Until BCC provides written notice of its exercise of the
Option, BCC shall be under no obligation whatsoever to purchase the Equity
Interests or exercise the Option, and shall not otherwise have any liability
whatsoever hereunder in connection with Option Payments or the purchase of the
Equity Interests.
(d) The "PURCHASE PRICE" as used herein shall mean (i) an amount
equal to the Working Capital Reserve actually funded by the Optionor under the
Shortfall Agreement, plus (ii) an amount calculated as 27.5% per annum of the
Working Capital Reserve actually funded by the Optionor under the Shortfall
Agreement, compounded annually through the Closing Date (as defined below), plus
(iii) the aggregate amount of all Advances and all other obligations due and
payable by Lessee or the Optionor to BCC or a BCC Affiliate under the
Transaction Documents through the Closing Date (exclusive of the Management Fee
under the Management Agreement), minus (iv) any Option Payments (including, for
purposes of this Subsection, payments made pursuant to Subsection (ii) of this
Section 1(d)). The aggregate amount of all Advances and all other obligations
due and payable by Lessee or the Optionor through the Closing Date to BCC or a
BCC Affiliate under the Transaction Documents as provided in Subsection (iii) of
this Section 1(d), shall be paid to BCC or the BCC Affiliate (as appropriate) on
the Closing Date from the Purchase Price.
2. CLOSING. (a) The closing of the purchase of the Equity
Interests (the "CLOSING") shall take place at such time and location in
Pennsylvania as shall be designated by BCC upon three (3) days prior written
notice to Optionor (the "CLOSING DATE"). At the Closing (i) BCC shall deliver
the Purchase Price and (ii) Optionor shall deliver to BCC (A) the certificates
representing the original Equity Interests, together with such powers and other
instruments as BCC may request and (B) the certificate of an appropriate officer
of the Company stating that the transfer of the Equity Interests to BCC has been
recorded on the books and records of the Company, and affirming to BCC such
additional matters as BCC may reasonably request. Additionally, both BCC and
Optionor shall take such further actions and execute and deliver such further
documents and instruments as either party may reasonably request. The Equity
Interests shall be transferred to BCC free and clear of all Liens and
restrictions of any kind or nature, except for Liens in favor of BCC as
expressly provided herein and Liens in favor of Lessor as expressly provided in
the Lease.
(b) Notwithstanding anything to the contrary contained herein or
in the other Transaction Documents and without in any way implying that such
actions are permissible under the Transaction Documents, if and to the extent
that the funding of the Working Capital Reserve is advanced in the form of a
loan to the Company (such advances, together with all interest,
-2-
<PAGE> 3
penalties and other costs and fees assessed or incurred in connection therewith,
are referred to herein as the "BORROWINGS"), the Borrowings shall be repaid in
full from the Purchase Price at the Closing. Optionor shall give BCC prior
written notice before authorizing the Company to make any Borrowings, detailing
the amount thereof. BCC shall have the right at the Closing to pay to the holder
of any note evidencing Borrowings from the Purchase Price the total amount
outstanding with respect to the Borrowings.
3. COVENANTS OF OPTIONOR/LEGEND/PLEDGE. (a) Optionor shall not
(i) sell, assign, convey, pledge (except as expressly provided herein), encumber
or otherwise transfer (by operation of law or otherwise) any of Optionor's
rights, title or interest under, in or to the Equity Interests, (ii) cause or
permit the Company to merge, consolidate, dissolve, liquidate, change its
capital structure, issue new or substitute Equity Interests (including the
issuance of warrants) or sell, convey, assign or otherwise transfer all or any
portion of the Company's assets or (iii) cause or permit the Company to
otherwise take any action that with the passage of time and/or the giving of
notice would constitute a default under or a breach of any covenant or provision
of the Shortfall Agreement or the other Transaction Documents.
(b) Optionor shall cause the Company to place the following legend
on all certificates representing Equity Interests:
THE INTERESTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN OPTION TO PURCHASE IN FAVOR OF BALANCED CARE CORPORATION
AND ITS SUCCESSORS AND ASSIGNS, AS MORE FULLY SET FORTH IN
THAT CERTAIN OPTION AGREEMENT DATED AS OF FEBRUARY 6, 1998.
(c) To secure the obligations of the Optionor hereunder, Optionor
hereby grants and pledges to BCC a first priority lien and security interest in
the Equity Interests. Such pledge sgall be further memorialized by the Stock
Pledge Agreement. For purposes of perfecting the security interest in the Equity
Interests, Optionor shall deliver herewith to BCC possession of all
certificates, instruments, documents and other evidence of Optionor's ownership
of the Equity Interests accompanied by undated powers of attorney or other
appropriate duly executed blank transfer powers. Optionor shall take such
further actions, and execute such further documents, as may be requested by BCC
to effect the pledge and grant of a security interest in the Equity Interests.
(d) In addition to the other covenants stated herein, each
Optionor covenants and agrees that each Optionor shall not, and shall not cause
the Company to, without the prior written consent of BCC: (i) except as
otherwise expressly permitted under the Transaction Documents or the Lease
Documents, create or suffer to exist any Lien or any other type of preferential
arrangement, upon or with respect to any of the properties of Optionor or the
Company, whether now owned or hereafter acquired, or assign any right to receive
income, (ii) make any distribution of cash or other property or declare or pay
any dividend or distribution on any securities issued by the Company or Optionor
(provided, however, this restrictions shall not be construed to prohibit
Optionor's Members or shareholders from receiving Option Payments in accordance
with the terms and conditions of this Agreement), (iii) engage in any business
venture or enter into any agreement with respect to any business venture, except
as expressly provided in the Transaction Documents and the Lease Documents with
respect to the Facility, (iv) except as otherwise expressly permitted under the
Transaction Documents and the Lease Documents, convey, transfer, lease,
sublease, assign or otherwise dispose of (whether in
-3-
<PAGE> 4
one transaction or in a series of transactions) any of the assets of Optionor or
the Company (whether now owned or hereafter acquired) to, or acquire all or
substantially all of the assets of, any person or Entity, (v) create, assume,
guaranty or otherwise become or remain obligated in respect of, or permit or
suffer to exist or to be created, assumed or incurred or to be outstanding, any
Indebtedness, except as expressly provided in the Lease Documents or the
Transaction Documents, (vi) form, organize or participate in the formation or
organization of any Entity, or make any investment in any newly formed or
existing Entity, (vii) amend, supplement or otherwise modify the terms of the
Articles of Organization or the Operating Agreement of the Company in any way,
(viii) enter into any transaction with Lessor or any affiliate or related party
to or with Lessor, other than pursuant to the Transaction Documents and the
Lease Documents, (ix) merger or consolidate with, purchase all or any
substantial part of the assets of, or otherwise acquire any Entity, (x) issue
any equity interests or options, warrants or other rights to purchase any equity
interests or any securities convertible or exchangeable for equity interests, or
commit to do any of the foregoing, other than in favor of BCC in accordance with
the Transaction Documents or (xi) enter into any administrative or other similar
agreement with any party relating to the provision of administrative or
management service for the benefit of either Optionor or the Company.
4. REPRESENTATIONS AND WARRANTIES. Optionor represents and
warrants to BCC that (i) Optionor is the sole and exclusive owners of the Equity
Interests free and clear of all Liens and restrictions (except Permitted Liens),
and Optionor's ownership interest in the Equity Interests is appropriately noted
and documented on the books and records of the Company, (ii) each Optionor is
validly organized and in good standing under the jurisdiction of its formation,
this Agreement and the other Transaction Documents to which the Optionors are a
party have been duly authorized by all requisite action and this Agreement and
the other Transaction Documents to which each Optionor is a party constitutes
the legal, valid and binding obligation of each Optionor, subject only to
bankruptcy and creditor's rights laws, (iii) no Person or Entity holds any
Equity Interests in the Company, other than the Optionor, (iv) the Equity
Interests have been duly issued to Optionor, are fully paid and nonassessable,
(v) Optionor has the full right and power to transfer and convey the Equity
Interests, enter into this Option Agreement and sell the Equity Interests to BCC
without the need to obtain the consent or joinder of any Person or Entity, (vi)
Optionor (and each person or Entity that has an ownership in Optionor) has had
the opportunity to ask all questions of BCC, the Company and any other person or
entity necessary or desirable concerning Optionor's investment in the Equity
Interests, (vii) Optionor (and each person or Entity that has an ownership
interest in Optionor) has the requisite knowledge and sophistication to make
informed decisions regarding the risks and merits of an investment in the
Company, and has not relied on any oral or written statements of BCC or any BCC
Affiliate in connection with Optionor's investment in the Company and (viii)
Optionor (and each person or Entity that has an ownership interest in Optionor)
understands that the Equity Interests will be deemed restricted securities
within the meaning of the 1933 Act (and state securities laws), the Equity
Interests are non-transferable and Optionor (and each person or Entity that has
an ownership interest in Optionor) must be able to bear the economic risks of
ownership of the Equity Interests for an indefinite period of time. The
provisions of this Section shall survive the Closing and purchase of the Equity
Interests.
5. BINDING EFFECT. The rights and obligations of the parties
hereunder shall be binding upon and inure to the benefit of the parties hereto
and their heirs, personal representatives, successors and assigns.
6. ASSIGNMENT. Optionor may not assign, pledge, hypothecate or
otherwise transfer its rights, obligations and duties hereunder without the
prior written consent of BCC.
-4-
<PAGE> 5
BCC shall have the right to transfer and assign its rights, obligations and
duties hereunder to any affiliate or third party without the consent of the
Optionor; provided, however, BCC shall nonetheless remain primarily liable to
Optionors for all obligation hereunder.
7. DEFAULT. (a) In the case of default by Optionor hereunder, BCC
shall be entitled, after ten (10) days prior written notice to Optionor, to (a)
seek an action in specific performance and/or (b) seek such other relief,
including without limitation an action at law for damages, as may be available.
Optionor shall pay all reasonable counsel fees of BCC in connection with
enforcing any rights or benefits of BCC hereunder or under the other Transaction
Documents. The rights and remedies of BCC under this Option Agreement are
cumulative and not exclusive of any rights or remedies which it may otherwise
have.
(b) In the case of default by BCC hereunder, Optionor shall be
entitled, after ten (10) days prior written notice to BCC, to seek such relief,
including without limitation an action at law for damages, as may be available
to Optionors. Without limiting the foregoing, in the case of a default by BCC
hereunder, after applicable notice, BCC shall not be permitted to exercise the
Option. BCC shall pay all reasonable counsel fees of Optionor in connection with
enforcing any rights or benefits of Optionor hereunder. The rights and remedies
of Optionor under this Option Agreement are cumulative and not exclusive of any
rights or remedies which they may otherwise have.
8. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered in
person, Federal Express or other recognized overnight courier or sent by
registered or certified U.S. mail, return receipt requested or sent by facsimile
or telecopy transmission and addressed:
(i) If to the Optionor, at:
1350 Old Bayshore Highway
Suite 300
Burlingame, CA 94010
Attention: F. David Carr
(ii) If to BCC at
5021 Louise Drive
Suite 200
Mechanicsburg, PA 17055
or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.
9. DEFINITIONS; INTERPRETATION; MISCELLANEOUS. Capitalized terms
used but not otherwise defined in this Agreement have the respective meanings
specified in Appendix 1 hereto; the rules of interpretation and other provisions
set forth in Appendix 1 hereto shall apply to this Agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first above written.
WITNESS: EXTENDED CARE OPERATORS, LLC
By: /s/ Signature Illegible
- ----------------------------------- -----------------------------------
Title:
--------------------------------
ATTEST: OAKHAVEN SENIOR LIVING, INC.
By: /s/ Signature Illegible By: /s/ Signature Illegible
------------------------------ -----------------------------------
Title: Title:
--------------------------- --------------------------------
BALANCED CARE CORPORATION
By: /s/ Signature Illegible
------------------------------------
Title:
---------------------------------
S-1
<PAGE> 7
Schedule to Exhibit 10.64 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Option Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Ravenna, OH BCC at Ravenna, Inc.;
Extended Care Operators of Ravenna LLC
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.65
SHORTFALL FUNDING AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made as of February 6, 1998,
by and among Extended Care Operators of Ravenna, LLC, a limited liability
company (the "LESSEE"), the members of Lessee listed on Schedule A attached
hereto (collectively, the "MEMBER") and Balanced Care Corporation, a Delaware
corporation ("BCC").
W I T N E S S E T H
WHEREAS, the Member constitutes the holder of all equity
interests in the Lessee; and
WHEREAS, Lessee, Lessor and Management Firm (defined
hereinafter) executed and delivered an Assignment, Assumption and Amendment of
Lease Agreement dated as of December 1, 1997, wherein Management Firm assigned
to Lessee that certain Lease dated as of March 28, 1997 (the "LEASE") between
Lessee and Capstone Capital Corporation, a Maryland corporation (the "LESSOR"),
whereby Lessee leased from Lessor property, together with all improvements built
or to be built thereon, located in Dauphin County, Pennsylvania, as more fully
described in the Lease (the "PROPERTY"); and
WHEREAS, the Lessee and Balanced Care at Ravenna, Inc., a
Delaware corporation (the "MANAGEMENT FIRM") have entered into that certain
Management Agreement dated as of December 1, 1997 (the "MANAGEMENT AGREEMENT")
whereby Lessee has appointed the Management Firm as the exclusive manager and
operator the Facility; and
WHEREAS, Lessee will deposit with Lessor immediately available
funds from time to time as specifically provided in this Agreement to fund the
Working Capital Reserve (to be used to fund Shortfalls); and
WHEREAS, upon depletion of the Working Capital Reserve, BCC
intends to make Advances to the Lessee, on the terms and conditions herein
stated, to fund continuing Shortfalls; and
WHEREAS, BCC is willing to fund Advances to Lessee covering
Shortfalls upon depletion of the Working Capital Reserve only on the terms and
conditions provided in this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
FUNDING SHORTFALLS
SECTION 1.01 FUNDING; WORKING CAPITAL RESERVE. (a) Each Member
(jointly and severally if more than one) hereby agrees to contribute as capital
to the Lessee such amounts
<PAGE> 2
as are required from time to time by BCC to fund Shortfalls; provided, however,
the contribution of the Members in the aggregate shall not exceed $400,000; and
provided, further, such capital contribution shall be made as follows:
(i) On February 28, 1998, the Member shall deposit into the
Cash Collateral Account no less than the sum of $130,000; and
(ii) on or before March 31, 1998 the Member shall deposit into
the Cash Collateral Account funds sufficient to make to the total amounts
contributed no less than the sum of $400,000.
Time is of the essence with respect to each contribution described in this
Section 1.01(a).
(b) The contributions described in Section 1.01 (a) shall be
made directly into the Cash Collateral Account. Each contribution of funds into
the Cash Collateral Account as provided in this Section 1.01 is referred to
herein as a "FUNDING", and the aggregate of all Fundings made is collectively
referred to as the "WORKING CAPITAL RESERVE").
(c) In the event that the Member defaults in the timely
payment of Fundings into the Working Capital Reserve as provided in Section 1.01
(a), BCC shall have the right at any time thereafter, but not the obligation, to
require that the Member sell all of the Equity Interests to BCC or its designee
in the manner provided for in the Option Agreement; provided, however, the
purchase price for the Equity Interests shall be the amount of Fundings actually
deposited by the Member into the Cash Collateral Account, plus an amount
(calculated as a yearly return) equal to 27.5% of the Working Capital Reserve
actually funded through Fundings, compounded annually through the closing date.
In such event, all terms and conditions of the sale applicable to the Asset
Purchase Option or Option shall be equally applicable to the sale under this
Section 1.01(c), and the failure by Lessee or the Member (as the case may be) to
close on such sale within 3 days after written notice from BCC (time being of
the essence) shall constitute an Event of Default.
(d) The Member and the Lessee acknowledge and agree that (i)
each Funding constitutes the capital contribution of the Member to the Lessee,
(ii) each Funding is not in any way evidence of a loan from any Member to the
Lessee and (iii) Lessor and the Manager may withdraw funds from the Working
Capital Reserve to fund Shortfalls with respect to the Facility as provided in
the Transaction Documents and the Lease Documents.
SECTION 1.02 ADVANCES. Upon complete depletion of the Working
Capital Reserve, and to the extent thereafter of any Shortfall, BCC hereby
agrees to advance from time to time funds to the Lessee upon no less than three
(3) days prior written notice, upon the terms and conditions provided herein
(each advance being an "ADVANCE" and collectively, the "ADVANCES"). Advances
shall be evidenced by one or more promissory notes issued by the Lessee in the
form attached hereto as Exhibit A (the "NOTES"). The Notes shall be payable upon
demand. Interest shall accrue on the Notes at the rate of 2% over the Prime Rate
as announced from time to time in the Wall Street Journal (or, in the event of
the discontinuance of the publishing of the Prime Rate in the Wall Street
Journal, such other source as the parties may agree), and shall be payable in
arrears on the first day of each calendar quarter. All sums owed under the
<PAGE> 3
Notes and hereunder to BCC, and all other obligations and covenants under the
Transaction Documents applicable to Lessee and the Member (including the
obligations of each Member under the Option Agreement), together with all
interest payable under the Transaction Documents and all other costs and
expenses payable by Lessee or any Member to or for the benefit of BCC or any BCC
Affiliate (including indemnification and defense obligations) are referred to
herein as the "OBLIGATIONS".
SECTION 1.03 ASSET PURCHASE OPTION. The Lessee and the Member
hereby grant to BCC an option (the "ASSET PURCHASE OPTION") to purchase all of
the assets of the Lessee (including the option to take an assignment of the
Lease) for the Asset Purchase Price. The Asset Purchase Option may be exercised
by BCC by providing written notice to the Lessee at any time during the term of
the Lease. The closing of the purchase of the assets of the Lessee shall take
place within 30 days after BCC exercises the Asset Purchase Option at such
location in Pennsylvania as BCC may designate. At the closing of the asset
purchase, the Lessee shall transfer, assign and convey to BCC (or its designee)
all assets of Lessee, free and clear of all Liens and restrictions of any kind
or nature, except for Liens or restrictions in favor of the Lessor pursuant to
the Lease Documents or in favor of BCC pursuant to the Transaction Documents
(provided, however, Liens in favor of BCC securing Advances or other Obligations
shall be paid in full by Lessee and the Member at the closing of the asset
purchase). The Lessee (and the Member if requested by BCC) shall execute and
deliver at the closing of the asset purchase an assignment of lease (assigning
the Lease to the purchaser), a bill of sale conveying all other assets of the
Lessee and such other documents and instruments as BCC may reasonably request,
all in form and substance reasonably satisfactory to BCC. The "ASSET PURCHASE
PRICE" as used herein shall mean (i) all amounts actually funded into the
Working Capital Reserve, plus (ii) an amount (calculated as a yearly return)
equal to 27.5% of the Working Capital Reserve actually funded through Fundings,
compounded annually through the closing date, plus (iii) the aggregate amount of
all Advances and all other Obligations due and payable by Lessee or the Member
to BCC or a BCC Affiliate through the closing date (exclusive of the Management
Fee), minus (iv) any payments made to the Member under the Option Agreement. All
Advances and all other Obligations due and payable by Lessee or the Member to
BCC or a BCC Affiliate through the closing date of the asset purchase shall be
payable from the Asset Purchase Price to BCC or the BCC Affiliate, as
appropriate.
SECTION 1.04 TRANSACTION DOCUMENTS. In addition to the Notes,
and to better secure the performance of Lessee hereunder and under the other
Transaction Documents, Lessee and the Member (as applicable) have executed and
delivered the following:
(i) the Lease and the other Lease Documents to
which it is a party;
(ii) Open End Leasehold Mortgage in the form attached
hereto as Exhibit B encumbering the Property in favor of BCC
(the "LEASEHOLD MORTGAGE");
(iii) the Deposit Pledge Agreement and the Stock
Pledge Agreement; and
(iv) such other documents, certificates, powers,
affidavits and instrument as BCC may reasonably request.
<PAGE> 4
In addition to the foregoing documents, the Member has
executed and delivered to BCC the Option Agreement (the
"OPTION AGREEMENT") substantially in the form attached hereto
as Exhibit C, whereby each Member has agreed that BCC shall
have an option to purchase the equity interest of each Member
in Lessee, on the terms and conditions provided therein.
SECTION 1.05 INTEREST PAYMENTS. In no event shall the amount
of interest due or payable pursuant to any Transaction Document exceed the
maximum rate of interest allowed by Law and, in the event any such payment is
inadvertently paid by the Lessee or the Member or inadvertently received by BCC
or any BCC Affiliate, then such excess sum shall be credited as a payment of
principal due to BCC or any BCC Affiliate. It is the express intention of the
parties hereto that neither the Lessee nor the Member pay to BCC, directly or
indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the Lessee.
SECTION 1.06 INTENTION. It is the intention of BCC, the Member
and Lessee that (i) the Management Firm operate the Facility pursuant to the
Management Agreement and that Lessee act as a passive investor with respect to
the Facility, (ii) Lessee include on its financial statements all revenue and
losses with respect to the Facility during the term of this Agreement for
accounting purposes, and (iii) Advances made hereunder and all other obligations
of Lessee and the Member under the Transaction Documents be secured by the
Leasehold Mortgage, but subject to the rights of Lessor under the Lease,
regardless of any bankruptcy, insolvency, receivership or similar proceedings
instituted by or against Lessee. BCC, each Member and Lessee agree to take no
position inconsistent with the intention of the parties as herein stated.
ARTICLE II
CONDITIONS TO ADVANCES
SECTION 2.01 CONDITIONS PRECEDENT TO ADVANCES. The obligations
of BCC to accept delivery of the Transaction Documents and make Advances are
subject to the condition precedent that BCC receives the following five days
prior to the making of any Advance, in form and substance satisfactory to BCC:
(a) the Note(s);
(b) the Working Capital Assurance Agreement;
(c) the Leasehold Mortgage;
(d) the Option Agreements;
(e) the Management Agreement;
(f) a certificate of the Secretary of State of the State of
Delaware stating that the Lessee is duly organized, validly existing and in good
standing in such state;
(g) a certified copy of the Operating Agreement of the Lessee
and the Member, together with certified resolutions or authorizations of the
Lessee and the Member
<PAGE> 5
granting the power to Lessee and the Member to enter into and perform the
Transaction Documents;
(h) all other Transaction Documents;
(i) the Lease and all other Lease Documents; and
(j) such other affidavits, documents, certificates, statements
and instruments as BCC may reasonably request.
SECTION 2.02 ADDITIONAL CONDITIONS PRECEDENT TO ADVANCES. The
obligation of BCC to accept delivery of the Transaction Documents and consummate
this transaction, and to make any Advance, shall be further subject to the
condition precedent that:
(a) the following statements shall be true and correct (and
the delivery by the Lessee and the Member of the Transaction Documents shall be
deemed to constitute a representation and warranty by the Lessee and the Member
that such statements are true on such date):
(i) The representations and warranties contained in
Article III of this Agreement and the other Transaction
Documents are true and correct in all material respects on and
as of date of the execution and delivery of this Agreement, at
the time of each Advance, and as of each date until the
Obligations are satisfied in full; and
(ii) No event has occurred and is continuing which
constitutes a Default or an Event of Default under any of the
Transaction Documents; and
(b) BCC shall have received such other opinions or documents
as BCC may request in BCC's sole discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE LESSEE. The
Lessee and each Member represents and warrants as follows:
(a) ORGANIZATION; QUALIFICATION. The Lessee is a limited
liability company duly formed, validly existing and in good standing under the
laws of State of Delaware, has qualified to do business in the State of
Maryland, and has the power and authority to own its properties and to carry on
its business as now being and hereafter proposed to be conducted.
(b) POWER; AUTHORITY. The execution, delivery and performance
by the Lessee of this Agreement and the other Transaction Documents to which it
is a party are within the Lessee's power and have been duly authorized by all
necessary action, and this Agreement and the other Transaction Documents to
which Lessee is a party have been duly executed and delivered by the duly
authorized Manager of the Lessee.
<PAGE> 6
(c) APPROVAL OR CONSENTS. No approval or consent of any
foreign, domestic, federal, state or local authority is required for the due
execution, delivery and performance by the Lessee of this Agreement or any other
Transaction Document to which it is a party and the execution, delivery and
performance by the Lessee of this Agreement and the other Transaction Documents
to which it is a party do not conflict with, and will not result in the breach
of or default under, any contract, agreement or other document or instrument to
which the Lessee is a party or by which its properties are bound.
(d) BINDING OBLIGATIONS. This Agreement and the other
Transaction Documents to which the Lessee is a party are legal, valid and
binding obligations of the Lessee enforceable against the Lessee in accordance
with their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting generally the
enforcement of creditors' rights.
(e) LITIGATION. There is no pending or, to the best of
Lessee's knowledge, threatened action, suit or proceeding against or affecting
the Lessee before any court, governmental agency or arbitrator.
(f) APPLICABLE LAW. The execution, delivery and performance of
this Agreement and the other Transaction Documents to which the Lessee is a
party, and the borrowings hereunder, do not and will not, by the passage of
time, the giving of notice or otherwise, violate any Law applicable to the
Lessee.
(g) TITLE AND CONDITION OF ASSETS. Except for Lessee's
leasehold interest in the Lease, the Lessee has good, marketable and legal title
to its properties and assets. The Lessee has a good and valid leasehold interest
in the Lease.
(h) LIENS. None of the properties and assets of the Lessee are
subject to any Lien or other charge other than Liens in favor of BCC as provided
herein, a BCC Affiliate or the Lessor ("PERMITTED Liens"), and the execution,
delivery and performance by the Lessee of this Agreement and the other
Transaction Documents to which it is a party will neither result in the creation
of any Lien or other change upon any of the Lessee's properties or assets, nor
cause a default under any agreements to which Lessee is a party.
(i) SECURITY. Upon the consummation of this transaction, BCC
will have a valid and perfected mortgage lien in the Lease.
(j) TAX RETURNS AND PAYMENTS. All federal, state and other tax
returns of the Lessee required by Law to be filed have been duly filed, and all
federal, state and other taxes, assessments and other governmental charges or
levies upon the Lessee and its properties, income, profits and assets which are
due and payable have been paid.
(k) NO EMPLOYEES. The Lessee has no employees for which it is
required to comply with the Employment Retirement Income Security Act of 1974.
(l) ABSENCE OF DEFAULTS. No event has occurred, which has not
been remedied, cured or waived, which constitutes, or with the passage of time
or giving of notice or
<PAGE> 7
both would constitute, a Default or an Event of Default under any Transaction
Document or Lease Document or which constitutes or which with the passage of
time or giving of notice or both would constitute a default or event of default
by the Lessee under any agreement or judgment, decree or order, to which the
Lessee is a party or by which the Lessee or any of its properties may be bound.
(m) ACCURACY AND COMPLETENESS OF INFORMATION. All written
information, reports and other papers and data furnished to BCC were, at the
time the same were so furnished, complete and correct in all material respects,
to the extent necessary to give BCC a true and accurate knowledge of the subject
matter, or, in the case of financial statements, present fairly, in accordance
with GAAP consistently applied throughout the periods involved, the financial
position of the persons involved as at the date thereof and the results of
operations for such periods. No document furnished or written statement made to
BCC by Lessee or any Member in connection with the execution of this Agreement
or any of the other Transaction Documents (or in connection with the
organization or capitalization of Lessee by the Members) contains or will
contain any untrue statement of a material fact or fails to state a material
fact necessary in order to make the statements contained therein not materially
misleading.
(n) SUBSIDIARIES. The Lessee does not own, directly or
indirectly, of record or beneficially, any of the voting stock of any class or
classes of, or any other voting interests of, any Entity.
(o) INVESTMENT COMPANY. The Lessee is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(p) PUBLIC UTILITY COMPANY. The Lessee is not a "holding
company" or a "subsidiary company", or an "affiliate" of a "holding company",
within the meaning of the Public Holding Company Act of 1935, as amended.
(q) SECURITIES REPRESENTATIONS. Neither Lessee nor any agent,
broker, dealer or other person or entity has offered or sold any equity
interests in Lessee in violation of the 1933 Act or any state securities laws.
(r) CAPITAL CONTRIBUTIONS. All Indebtedness (if any) incurred
by any Member or equity owner of any Member to fund the capital contributions to
Lessee or any Member (including Indebtedness used to make Fundings) constitutes
full recourse Indebtedness against such Member or equity owners (as
appropriate), and such Indebtedness is not limited in collection to any
particular asset of the person or Entity incurring such Indebtedness.
ARTICLE IV
COVENANTS OF THE LESSEE
SECTION 4.01 AFFIRMATIVE COVENANTS. So long as BCC or any BCC
Affiliate shall have any commitment or Obligation hereunder or under the other
Transaction Documents owed to it, the Lessee will and the Member shall cause the
Lessee to:
<PAGE> 8
(a) COMPLIANCE WITH LAWS; ETC. Comply, in all material
respects with all applicable Laws, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property.
(b) MAINTENANCE OF INSURANCE. Maintain or contract to be
maintained, with premiums fully paid, with responsible and reputable insurance
companies or associations, such insurance in such amounts and covering such
risks as is required to be carried under the Lease, and all such policies
evidencing such insurance shall name BCC and Lessor as additional insureds
thereunder. Lessee shall also maintain insurance of sufficient types and amounts
to comply with all other Laws of any government entity exercising jurisdiction
over Lessee. All insurance policies shall provide for notice of nonrenewal and
notice of extension to BCC and Lessor, and shall not be terminated, canceled,
amended or modified without 30 days prior written notice to BCC and Lessor.
Lessee shall provide BCC with evidence of all insurance, including renewals or
extensions of such insurance, promptly after receiving such insurance. Insurance
policies and proceeds thereof shall at all times during the term of the Lease be
subject to the Lessor's rights as provided in the Lease Documents.
(c) NOTICE OF LITIGATION AND OTHER MATTERS. Promptly give
notice to BCC of the following: (i) any actions, suits or proceedings instituted
against the Lessee; (ii) any change in the chief executive office, principal
place of business or location of the books and records of the Lessee and (iii)
the occurrence of a Default or an Event of Default.
(d) MAINTENANCE OF PROPERTY. In addition to, and not in
derogation of, the requirements of any of the other Transaction Documents, (i)
protect and preserve all of its properties, (ii) maintain in good repair,
working order and condition all of its tangible properties, and (iii) from time
to time make or cause to be made all needed and appropriate repairs, renewals,
replacements and additions to such properties so that the business carried on in
connection therewith may be properly and advantageously conducted at all times,
as reasonably may be determined by BCC.
(e) PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. Preserve
and maintain its existence under the Laws of the state of its formation, and
preserve and maintain its rights, franchises, licenses and privileges in such
state as a limited liability company, and qualify and remain qualified and
authorized to do business in such state.
(f) BUSINESS. At all times endeavor to carry on its business
in the most efficient manner possible under the circumstances and engage only in
the business presently carried on by the Lessee.
(g) FURTHER ASSURANCES. At BCC's request, from time to time,
execute, acknowledge or take such further action as BCC may reasonably require
to effectuate the purposes of this Agreement and the purposes of the other
Transaction Documents.
Provided, however, notwithstanding anything to the contrary contained in this
Section 4.01, Lessee shall not be in default hereunder to the extent that the
obligations described in this Section 4.01 are required to be performed by the
Management Firm under the Management Agreement.
<PAGE> 9
SECTION 4.02 NEGATIVE COVENANTS. So long as BCC shall have any
commitment or Obligation hereunder or under the other Transaction Documents owed
to it, the Lessee will not, and no Member will cause the Lessee to, without the
prior written consent of BCC:
(a) LIENS CREATED BY LESSEE. Create or suffer to exist any
Lien or any other type of preferential arrangement, upon or with respect to any
of its properties, whether now owned or hereafter acquired, or assign any right
to receive income, other than Permitted Liens.
(b) DISTRIBUTIONS. Make any distribution of cash or other
property to the Member or declare or pay any dividend or distribution on any
securities of Lessee.
(c) OTHER BUSINESS. Engage in any business venture or enter
into any agreement with respect to any business venture, except as expressly
provided in the Transaction Documents with respect to the Facility.
(d) TRANSFER OF ASSETS. Convey, transfer, lease, sublease,
assign or otherwise dispose of (whether in one transaction or in a series of
transactions) any of its assets (whether now owned or hereafter acquired) to, or
acquire all or substantially all of the assets of, any person or Entity. The
restrictions of this Subsection shall include a prohibition on any assignment,
pledge, hypothocation or other transfer of the Lease or sublease or license of
the Facility, except to Lessor, BCC or a BCC Affiliate in accordance with the
terms and conditions of the Transaction Documents and Lease Documents.
(e) INDEBTEDNESS FOR BORROWED MONEY. Create, assume, guaranty
or otherwise become or remain obligated in respect of, or permit or suffer to
exist or to be created, assumed or incurred or to be outstanding, any
Indebtedness, except Indebtedness incurred to BCC or a BCC Affiliate under the
Transaction Documents or Indebtedness incurred to Lessor as expressly provided
in the Lease Documents.
(f) CREATION OF AFFILIATES. Form, organize or participate in
the formation or organization of any Entity, or make any investment in any newly
formed or existing Entity.
(g) LOANS. Extend credit to or make any advance, loan,
contribution or payment of money or goods to any person or Entity.
(h) GOVERNANCE DOCUMENTS. Amend, supplement or otherwise
modify the terms of the Articles of Organization or the Operating Agreement of
the Lessee in any way.
(i) OTHER TRANSACTIONS WITH LESSOR. Enter into any transaction
with Lessor or any affiliate or related party to or with Lessor, other than
pursuant to the Transaction Documents.
(j) TRANSFERS OF EQUITY INTERESTS. Permit the Member to
transfer all or any portion of the Member's Equity Interest in Lessee to a party
that does not as of the date hereof hold an equity interest in the Lessee.
<PAGE> 10
(k) AMEND TRANSACTION DOCUMENTS. (i) Amend, terminate,
supplement or otherwise modify any Transaction Document, (ii) waive any default
or potential event of default by Lessor under any Transaction Document, (iii)
declare a default or event of default under any Transaction Document, (iv)
exercise any right to extend the term of the Lease, (v) exercise any right to
purchase the Facility or exercise a right of refusal with respect thereto or
(vi) exercise any right to cancel the Lease as a result of a casualty or
condemnation with respect to the Facility, or otherwise.
(l) MERGERS AND CONSOLIDATIONS. Merger or consolidate with,
purchase all or any substantial part of the assets of, or otherwise acquire any
Entity.
(m) ISSUANCE OF SECURITIES. Except for the equity interests of
the Lessee that have been issued to the Member and are outstanding as of the
date hereof, issue any equity interests or options, warrants or other rights to
purchase any equity interests or any securities convertible or exchangeable for
equity interests, or commit to do any of the foregoing.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.01 EVENTS OF DEFAULT. Each of the following events
shall constitute an event of default hereunder ("SHORTFALL EVENT OF DEFAULT"),
whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
nongovernmental body:
(a) The Lessee shall fail to make any payment of principal or
interest, as stated in the Notes, when due, or the Member shall fail to make
payments in connection with Fundings (as provided in Section 1.01 hereof) when
due (each a "MONETARY DEFAULT"); or
(b) Any representation or warranty made by the Lessee or the
Member under or in connection with any Transaction Document shall prove to have
been incorrect or misleading in any material respect when made; or
(c) The Lessee or the Member shall fail to perform or observe
any term, covenant or agreement contained in this Agreement, or in any other
Transaction Document, on its or their part to be performed or observed beyond
the applicable cure period; or
(d) The Lessee or any Member shall generally not pay its
debts when due; or
(e) The Lessee or any Member shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Lessee or any Member seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of the Lessee or any Member of any of its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for the Lessee or
any Member or for any substantial part of its property; or the Lessee or any
Member shall take any
<PAGE> 11
action to authorize any of the actions set forth above in this subsection; or
(f) Any nonappealable judgment or order for the payment of
money in excess of $50,000 shall be rendered against the Lessee and the same
shall not be discharged within 30 days after entry; or
(g) A warrant or writ of attachment or execution or similar
process shall be issued against any property of the Lessee which exceeds $50,000
in value and such warrant or process shall continue undischarged or unstayed for
ten consecutive days; or
(h) Any material provision of any Transaction Document to
which the Lessee or the Member is a party shall for any reason cease to be valid
and binding on the Lessee or the Member, or the Lessee or the Member shall so
state in writing; or
(i) The Leasehold Mortgage shall for any reason cease to
create a valid and perfected security interest in any of the collateral covered
thereby, subject in priority only to the Permitted Liens; or
(j) an Option Agreement Event of Default, a Mortgage Event of
Default, a Lease Event of Default, a Deposit Pledge Event of Default or a
Management Agreement Event of Default shall occur and be continuing.
ARTICLE VI
REMEDIES
SECTION 6.01 APPLICABLE PROVISIONS UPON OCCURRENCE OF AN EVENT
OF DEFAULT. Upon the occurrence of a Shortfall Event of Default, the following
provisions shall apply:
(a) ACCELERATOR AND TERMINATION:
(i) Automatic. Upon the occurrence of a Shortfall
Event of Default specified in Section 5.01(e), the principal
of, and the interest on, the Notes at the time outstanding,
and all other amounts owed to BCC under this Agreement and any
of the other Transaction Documents, shall become automatically
due and payable without presentment, demand, protest, or other
notice of any kind all of which are expressly waived, anything
in this Agreement or the other Transaction Documents to the
contrary notwithstanding.
(ii) Optional. If any other Shortfall Event of
Default shall have occurred, and in every such event, BCC may
do the following: declare the principal of, and interest on,
the Notes at the time outstanding, and all other amounts owed
to BCC under this Agreement and the other Transaction
Documents, to be forthwith due and payable, whereupon the same
shall immediately become due and payable without presentment,
demand, protest or other notice of any kind, all of which are
expressly waived, anything in this Agreement or the other
Transaction Documents to the contrary notwithstanding.
<PAGE> 12
(b) BCC'S RIGHT TO ENTER PROPERTY. BCC may enter upon the
Property and any premises on which collateral may be located and, without
resistance or interference by the Lessee, take physical possession of any or all
thereof and maintain such possession on such premises or move the same or any
part thereof to such other place or places as BCC shall choose, without being
liable to the Lessee on account of any loss, damage or depreciation that may
occur as a result thereof.
(c) USE OF PREMISES. BCC may, without payment of any rent or
any other charge, enter the Property and, without breach of peace, take
possession of the Property or place custodians in exclusive control thereof,
remain on such premises and use the same and any of the Lessee's equipment, for
the purpose of (i) operating the Facility and (ii) collecting any accounts
receivable.
(d) OTHER RIGHTS. BCC may exercise any and all of its rights
and remedies available under the other Transaction Documents, as well as those
available in Law or in equity.
(e) RIGHT TO FORECLOSE. BCC may foreclose upon the Lease, take
immediate possession of the Facility and Property and operate the Property, all
in accordance with the terms and conditions of the Leasehold Mortgage.
SECTION 6.02 APPLICATION OF PROCEEDS. All proceeds from each
sale of, or other realization upon, all or any part of the Collateral following
a Shortfall Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses
incurred in connection with such sale or other realization, including, without
limitation, the expenses for indemnification as provided herein;
(b) Second: to the payment of the interest due upon the
Notes;
(c) Third: to the payment of the principal due upon the Notes
or any other payments owed to BCC under the Transaction Documents; and
(d) Fourth: the balance (if any) of such proceeds shall be
paid to the Lessee subject to any duty imposed by law or otherwise to the holder
of any subordinate lien in the Collateral known to BCC and subject to the
direction of a court of competent jurisdiction.
The Lessee shall remain liable and will pay, on demand, any
deficiency remaining in respect of the Obligations owing by the Lessee to BCC
after the application of proceeds set forth above together with interest thereon
at a rate per annum equal to the highest rate then payable hereunder.
SECTION 6.03 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
(a) RIGHTS CUMULATIVE. The rights and remedies of BCC under
this Agreement and each of the other Transaction Documents shall be cumulative
and not exclusive of any rights or remedies which it would otherwise have. In
exercising its rights and remedies BCC
<PAGE> 13
may be selective and no failure or delay by BCC in exercising any right shall
operate as a waiver of it, nor shall any single or partial exercise of any power
or right preclude its other or further exercise of any other power or right.
(b) WAIVER OF MARSHALLING. The Lessee hereby waives any right
to require any marshalling of assets and any similar right.
(c) LIMITATION OF LIABILITY. Nothing contained in this Article
VI or elsewhere in this Agreement or in any other Transaction Documents shall be
construed as requiring or obligating BCC or any agent or designee thereof to
make any demand, or to make any inquiry as to the nature or sufficiency of any
payment received by it, or to present or file any claim or notice or take any
action, with respect to any account or any other Collateral or the moneys due or
to become due under the Notes or any other Transaction Documents or in
connection therewith, or to take any steps necessary to preserve any rights
against prior parties and neither BCC nor any of its agents or designees shall
have any liability to the Lessee for actions taken pursuant to this Article VI,
any other provision of this Agreement or any other Transaction Documents, except
as otherwise provided by Law.
(d) WAIVER OF DEFENSES. Lessee hereby waives any and all
defenses, either by way of set-off as to matters arising prior to the date
hereof or any other defenses, which Lessee presently believes it has or which
Lessee may have in the future relating to monetary defaults under this Agreement
or any other Transaction Document.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 RIGHT TO CURE DEFAULTS UNDER TRANSACTION
DOCUMENTS. Lessee shall give BCC immediate notice of an default or event of
default under any Transaction Document received from Lessor. BCC shall have the
right, but not the obligation, to cure such default or event of default. To the
extent that BCC shall expend sums to cure any such default or event of default,
such sums shall be deemed Advances hereunder, payable upon demand.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 DEFINITIONS; INTERPRETATION; MISCELLANEOUS.
Capitalized terms used but not otherwise defined in this Agreement have the
respective meanings specified in Appendix 1 hereto; the rules of interpretation
and other provisions set forth in Appendix 1 hereto shall apply to this
Agreement.
SECTION 8.02 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person, Federal Express or other recognized overnight courier or
sent by registered or certified U.S. mail, return receipt requested or sent by
facsimile or telecopy transmission and addressed:
<PAGE> 14
(i) If to the Lessee, at:
Extended Care Operators of Ravenna, LLC
c/o Hakman & Company, Incorporated
1350 Old Bayshore Highway
Suite 300
Burlingame, CA 94010
(ii) If to BCC, at
5021 Louise Drive
Suite 200
Mechanicsburg, PA 17055
or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.
SECTION 8.03 JURISDICTION. THE LESSEE AND THE MEMBER HEREBY
IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY PENNSYLVANIA COURT OR
FEDERAL COURT SITTING IN PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH
THE LESSEE IS A PARTY, AND THE LESSEE AND THE MEMBER HEREBY IRREVOCABLY AGREE
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND
DETERMINED IN SUCH PENNSYLVANIA COURT OR IN SUCH FEDERAL COURT. THE LESSEE AND
THE MEMBER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING. THE LESSEE AND THE MEMBER IRREVOCABLY CONSENT TO THE SERVICE OF
COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE
LESSEE AT ITS ADDRESS SPECIFIED IN SECTION 8.02. THE LESSEE AND THE MEMBER AGREE
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF BCC TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
BCC TO BRING ANY ACTION OR PROCEEDING AGAINST THE LESSEE OR ITS PROPERTY (OR THE
MEMBER OR THE MEMBER'S PROPERTY) IN THE COURTS OF OTHER JURISDICTIONS.
SECTION 8.04 PERFORMANCE OF LESSEE'S DUTIES. The Lessee's
obligations, and the obligation of the Member, under this Agreement and the
other Transaction Documents shall be performed by the Lessee and the Member at
their sole cost and expense. If the Lessee or the Member shall fail to do any
act or thing which it or they have covenanted to do under this Agreement or any
of the other Transaction Documents, BCC may, but shall not be obligated to, do
the same or cause it to be done either in the name of BCC or in the name and on
behalf of the Lessee or the Member, and the Lessee and the Member hereby
irrevocably authorizes BCC so to
<PAGE> 15
act.
SECTION 8.05 INDEMNIFICATION. The Lessee agrees to reimburse
BCC for all costs and expenses, including reasonable counsel fees and
disbursements, incurred, and to indemnify and hold BCC harmless from and against
all losses suffered by BCC in connection with:
(a) any breach by Lessee or any Member of any covenant,
agreement, representation or warranty under any Transaction Document,
(b) any and all uncollected items, including all checks or
other negotiable instruments returned to BCC for insufficient funds, and
(c) any claim, debt, demand, loss, damage, action, cause of
action, liability, cost and expense or suit of any kind or nature whatsoever,
brought against or incurred by BCC, in any manner arising out of or, directly or
indirectly, related to or connected with the operation of the Lessee's business
or sale thereto, which claim, debt, demand, loss, damage, action , cause of
action, liability, cost or expense was not caused by the acts or omissions of
BCC or a BCC Affiliate.
The Lessee shall indemnify BCC as provided herein upon
demand and in immediately available funds.
SECTION 8.06 INJUNCTIVE RELIEF. The Lessee and each Member
recognize that, in the event the Lessee or any Member fails to perform, observe
or discharge any of its or their obligations or liabilities under this Agreement
or any of the other Transaction Documents, any remedy of Law may prove to be
inadequate relief to BCC; therefore, the Lessee and each Member agrees that BCC
shall be entitled to temporary and permanent equitable relief in any such case
without the necessity of proving actual damages.
SECTION 8.07 BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the Lessee, the Member and BCC and their
respective personal representatives, heirs, successors and assigns, except that
Lessee shall have no right to assign its rights hereunder or any interest
herein.
SECTION 8.08 WAIVERS.
(a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR
CONTROVERSY BETWEEN THE LESSEE, THE MEMBER AND BCC WOULD BE BASED ON DIFFICULT
AND COMPLEX ISSUES OF LAW AND FACT. ACCORDINGLY THE LESSEE, EACH MEMBER AND BCC,
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN
ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST THE
LESSEE AND/OR THE MEMBER ARISING OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE
LESSEE, THE MEMBER AND BCC OF ANY KIND OR NATURE, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE, AND WHETHER NOW EXISTING OR HEREAFTER ARISING, AND LESSEE
AND THE MEMBER HEREBY AGREE AND CONSENT THAT ANY SUCH ACTION OR
<PAGE> 16
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL, IF BCC SO CHOOSES, WITHOUT JURY
AND BCC MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THE CONSENT OF THE LESSEE AND THE MEMBERS TO THE WAIVER
OF THE RIGHT TO TRIAL BY JURY.
(b) FURTHER, THE LESSEE AND THE MEMBER WAIVE THE BENEFIT OF
ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS.
(c) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF
COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF.
SECTION 8.09 CONFLICT WITH LEASE DOCUMENTS
This Agreement is subject to the covenants and agreements
contained in the Lease and other Lease Documents. In the event of any conflict
between the provisions of this Agreement and the Lease Documents, the provisions
of the Lease Documents shall control.
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Agreement to be executed by their respective
officers or authorized agents as of the date first above written.
WITNESS:: EXTENDED CARE OPERATORS OF
RAVENNA, LLC
- -------------------------------- By: /s/ Signature Illegible
--------------------------------
Title:
-----------------------------
ATTEST: OAKHAVEN SENIOR LIVING, INC.
By: /s/ Signature Illegible By: /s/ Signature Illegible
- -------------------------------- --------------------------------
Title: Title:
--------------------------- ----------------------------
MEMBER: EXTENDER CARE OPERATORS, LLC
By: /s/ Signature Illegible By: /s/ Signature Illegible
----------------------------- --------------------------------
Title:
----------------------------
ATTEST: BALANCED CARE CORPORATION
By: /s/ Signature Illegible
- -------------------------------- --------------------------------
Title:
----------------------------
S-1
<PAGE> 18
APPENDIX 1
TO
SHORTFALL FUNDING AGREEMENT, OPTION AGREEMENT,
MANAGEMENT AGREEMENT, OPEN END LEASEHOLD MORTGAGE AND
SECURITY AGREEMENT, STOCK PLEDGE AGREEMENT,
AND DEPOSIT PLEDGE AGREEMENT
DEFINITIONS, INTERPRETATION, AND MISCELLANEOUS PROVISIONS
A. INTERPRETATION. In each Transaction Document, unless a clear
contrary intention appears:
(i) wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular
and plural;
(ii) reference in the masculine, feminine or neuter gender
shall include the masculine, feminine and the neuter;
(iii) reference to any agreement, document or instrument means
such agreement, document or instrument as amended, supplemented or
modified and in effect from time to time in accordance with the terms
thereof and, if applicable, the terms of the other Transaction
Documents and reference to any promissory note includes any promissory
note which is an extension or renewal thereof or a substitute or
replacement therefor;
(iv) reference in any Transaction Document to any title,
article, section, subsection, schedule, or exhibit means such title,
article, section, subsection, schedule, or exhibit thereto;
(v) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to a Transaction Document as a whole
and not to any particular Article, Section or other provision thereof;
(vi) "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term;
(vii) reference to any Law means such Law as amended,
modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, including rules and regulations promulgated
thereunder and reference to any section or other provision of any Law
means that provision of such Law from time to time in effect and
constituting the substantive amendment, modification, codification,
replacement or reenactment of such section or other provision
(viii) relative to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding",
and
(ix) references in any Transaction Document to any titles,
articles, sections, subsections, schedules, or exhibits are for
convenience only, and neither limit nor amplify
<PAGE> 19
the provisions of any such Transaction Document.
B. GOVERNING LAW. Each Transaction Document shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania
excluding its conflicts of laws, it being recognized that BCC Affiliates have
negotiated this transaction in Pennsylvania, certain notices to BCC and BCC
Affiliates are to be made in Pennsylvania, certain payments made under the
Transaction Documents are to be sent to or from Pennsylvania and Pennsylvania
has a significant and material interest in the transactions contemplated by the
Transaction Documents; provided, however, if a Facility is located in a state
other than the Commonwealth of Pennsylvania, then the Laws of such state shall
apply solely with respect to the creation of interests in real property, the
perfection of security interests (other than the pledges of Equity Interests)
and the exercise of remedies under the Mortgage.
C. ACCOUNTING TERMS. In each Transaction Document, unless expressly
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP consistently applied.
D. CONFLICT IN TRANSACTION DOCUMENTS. If there is any conflict between
any Transaction Documents, such Transaction Document shall be interpreted and
construed, if possible, so as to avoid or minimize such conflict but, to the
extent (and only to the extent) of such conflict, the Shortfall Agreement shall
prevail and control.
E. LEGAL REPRESENTATION OF THE PARTIES. The Transaction Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Transaction Document
to be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
F. NO WAIVER. No failure on the part of BCC to exercise, and no delay
in exercising, any right under any Transaction Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any right under any
Transaction Document preclude any other or further exercise thereof or the
exercise of any other right. The remedies provided in the Transaction Documents
are cumulative and not exclusive of any remedies provided by law.
G. SEVERABILITY. If any provision of any Transaction Document is held
to be unenforceable for any reason, all other provisions of the respective
Transaction Document shall be deemed valid and enforceable to the fullest extent
possible. To the fullest extent permitted by Law, the parties hereto hereby
waive any provision of Law that renders any term or provision of any Transaction
Document invalid or unenforceable in any respect.
H. COUNTERPARTS. Each Transaction Document may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
together shall constitute a single instrument.
I. ENTIRE AGREEMENT/AMENDMENTS. The Transaction Documents contain the
entire understanding among the parties thereto with respect to the subject
matter thereof and supersede any prior understandings or agreements between such
parties with respect to such subject matter.
<PAGE> 20
Each Transaction Document may be modified or amended only by a written
instrument executed by the parties thereto.
J. NOTICES. A notice or other communication shall be deemed to
be duly received:
(a) if sent by hand or telegram or express
service, when left at the address of the recipient;
(b) if sent by registered or certified U.S.
mail, return receipt requested, the second business
day after mailing; and
(c) if sent by facsimile, upon receipt by
the sender of an acknowledgment or transmission
report generated by the machine from which the
facsimile was sent indicating that the facsimile was
sent in its entirety to the recipient's facsimile
number;
provided that if a notice or other communication is served by
hand or by telegram, or is received by telex or facsimile on a day which is not
a business day, or after 5:00 P.M. on any business day at the addressee's
location, such notice or communication shall be deemed to be duly received by
the recipient at 9:00 A.M. on the first business day thereafter.
K. DEFINED TERMS. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Transaction Document.
"1933 ACT" means the Securities Act of 1933, as the same may be
amended, supplemented and modified from time to time.
"ADVANCE" is defined in Section 1.01 of the Shortfall Agreement.
"ASSET PURCHASE OPTION" is defined in Section 1.03 of the Shortfall
Agreement.
"ASSET PURCHASE PRICE" is defined in Section 1.03 of the Shortfall
Agreement.
ASSIGNMENT AGREEMENT" means that certain Assignment, Assumption and
Amendment to Lease Agreement dated as of February 6, 1998 among Lessee, Lessor
and Management Firm.
"BANK" is defined in Section 1 of the Deposit Agreement.
"BCC" means Balanced Care Corporation, a Delaware corporation.
"BCC AFFILIATE" means any Entity in which BCC owns, either outright or
beneficially, 50% or more of the outstanding equity interests.
"CASH COLLATERAL" is defined in Section 1 of the Deposit Agreement.
"CASH COLLATERAL ACCOUNT" is defined in Section 1 of the Deposit
Agreement.
3
<PAGE> 21
"CLOSING" is defined in Section 3 of the Option Agreement.
"CLOSING DATE" is defined in Section 3 of the Option Agreement.
"COMPANY" means the Lessee.
"CONFIDENTIAL INFORMATION" is defined in Section 4 of the Management
Agreement.
"DEBT" is defined in Section 1 of the Leasehold Mortgage.
"DEFAULT" means any event that, with the passage of time or the giving
of notice or both would constitute an Event of Default.
"DEPOSIT AGREEMENT" means that certain Deposit Pledge Agreement dated
as of February 6, 1998, among the Members, the Lessee, the Lessor and BCC.
"DEPOSIT PLEDGE EVENT OF DEFAULT" means any breach of any
representation, warranty, covenant or agreement by the Lessee or any Member
under the Deposit Agreement.
"ENTITY" means any corporation, partnership, limited partnership,
limited liability company, common law trust, business trust, statutory trust,
professional corporation, joint venture, limited liability partnership, sole
proprietorship, or other business entity,
"ENVIRONMENTAL LAWS" is defined in Section 6 of the Leasehold Mortgage.
"EQUITY INTERESTS" is defined in the recitals of the Option Agreement.
"EVENT OF DEFAULT" means a Shortfall Event of Default, a Mortgage Event
of Default, an Option Event of Default, a Lease Event of Default, a Deposit
Pledge Event of Default, a Management Agreement Event of Default and any other
breach by the Company or any Member of any provision of any Transaction
Document.
"FACILITY" means that certain 51 bed assisted care facility located on
the Property.
"FUNDING" is defined in Section 1.01 of the Shortfall Agreement.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time consistently applied.
"GOVERNMENTAL AUTHORITIES" means all Federal, state and local
government entities and agencies thereof.
"IMPROVEMENTS" is defined in the Leasehold Mortgage.
"INDEBTEDNESS" means, for any person or Entity, (i) all indebtedness of
such person or
4
<PAGE> 22
Entity for borrowed money or for the deferred purchase price of property or
services, (ii) all obligations of such person or Entity under any conditional
sale or other title retention agreement relating to property purchased by such
person or Entity, (iii) all indebtedness for borrowed money or for the deferred
purchase price of property or services secured by (or for which the holder of
such indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on any property owned by such person or Entity, whether or not such
indebtedness has been assumed, (iv) all obligations of such person or Entity as
lessee under leases that have been or should be, in accordance with GAAP,
recorded as capital leases, (v) all obligations of such person or Entity under
direct or indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clause (i) through (iv) above, and (vi) all current or past due
liabilities of such person or Entity in respect of unfunded vested benefits
under plans covered by Title IV of ERISA.
"INTANGIBLE RIGHTS" is defined in Section 4 of the Management
Agreement.
"LAND" is defined in the Leasehold Mortgage.
"LAWS" means all existing and future applicable laws (including the
common law and rules of equity), rules, regulations (including Environmental
Laws, as defined in the Mortgage) statutes, treaties, codes, ordinances,
permits, certificates, orders and licenses of and interpretations by, any
Governmental Authority, and applicable judgments, decrees, injunctions, writs,
orders or like action of any court, arbitrator or other administrative, judicial
or quasi-judicial tribunal or agency of competent jurisdiction (including those
pertaining to health, safety or the environment (including wetlands) and those
pertaining to the construction, use or occupancy of the Facility) and any
restrictive covenant or deed restriction or easement of record affecting the
Facility or any other material asset of the Lessee.
"LEASE" means the Lease, dated as of March 28, 1997, between the Lessor
and the Management Firm, assigned to Lessee pursuant to the Assignment
Agreement..
"LEASE DOCUMENTS" mean the following documents the Lease Agreement,
(ii) the Assignment Agreement, (iii) the Subordination and Standstill Agreement,
(iv) the Assignment and Security Agreement executed by Lessee in favor of Lessor
dated as of February 6, 1998, (v) the Working Capital Assurances Agreement, (vi)
Consent and Subordination Agreement dated as of February 6, 1998, among Lessee,
Lessor and Management Firm and (vii){ADD OTHER DOCUMENTS}
"LEASE EVENT OF DEFAULT" means "Event of Default" as defined in Section
___ of the Lease.
"LEASE OBLIGATIONS" means the obligations of the Lessee under the Lease
and the other Lease Documents.
"LEASEHOLD MORTGAGE" means that certain Revolving Credit/Future
Advances Leasehold Mortgage and Security Agreement dated as of February 6, 1998,
between BCC and Lessee.
5
<PAGE> 23
"LESSEE" means Extended Care Operators of Ravenna, LLC, a Delaware
limited liability company.
"LESSOR" means Capstone Capital Corporation, a Maryland corporation.
"LIENS" means any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, easement, servitude or charge of any kind, including any
irrevocable license, conditional sale or other title retention agreement, any
lease in the nature thereof, or any other right of or arrangement with any
creditor to have its claim satisfied out of any specified property or asset with
the proceeds therefrom prior to the satisfaction of the claims of the general
creditors of the owner thereof, whether or not filed or recorded, or the filing
of, or agreement to execute as "debtor", any financing or continuation statement
under the UCC of any jurisdiction or any federal, state or local lien imposed
pursuant to any Environmental Law.
"MANAGEMENT AGREEMENT" means that certain Management Agreement dated as
of February 6, 1998, between the Management Firm and the Leasehold Tenant.
"MANAGEMENT AGREEMENT EVENT OF DEFAULT" means any breach of any
representation, warranty, covenant or agreement by the Leasehold Tenant under
the Management Agreement.
"MANAGEMENT FEE" is defined in Section 9 of the Management Agreement.
"MANAGEMENT FIRM" means BCC at Ravenna, Inc., a Delaware corporation.
"MEMBERS" means those parties listed on Schedule 1 attached to the
Shortfall Agreement;
"MONETARY DEFAULT" is defined in Section 5.01 of the Shortfall
Agreement
"MORTGAGEE" means BCC.
"MORTGAGE EVENT OF DEFAULT" is defined in Section 13 of the Leasehold
Mortgage.
"MORTGAGED PROPERTY" is defined in the Leasehold Mortgage.
"MORTGAGOR" means the Lessee.
"NOTES" means promissory notes in the form attached to the Shortfall
Agreement as Exhibit A.
"OBLIGATIONS" is defined in Section 1.02 of the Shortfall Agreement.
"OPERATING ACCOUNTS" is defined in Section 1 of the Management
Agreement.
"OPTION" is defined in Section 2 of the Option Agreement.
6
<PAGE> 24
"OPTION AGREEMENT" means that certain Option Agreement dated as of
February 6, 1998, between the Optionor and BCC.
"OPTION AGREEMENT EVENT OF DEFAULT" means any breach of any
representation, warranty, covenant or agreement by the Optionor under the Option
Agreement.
"OPTION PAYMENTS" is defined in Section 2 of the Option Agreement.
"OPTION TERM" is defined in Section 2 of the Option Agreement.
"OPTIONOR" means collectively Extended Care Operators, LLC, a Delaware
limited liability company and Oakhaven Senior Living, Inc., a California
corporation.
"PERMITTED ENCUMBRANCES" is defined in the Leasehold Mortgage.
"PERMITTED LIENS" is defined in Section 3.01 of the Shortfall
Agreement.
"PERSONAL PROPERTY" is defined in Section 29 of the Leasehold Mortgage.
"PROPERTY" means all of that certain property leased pursuant to the
Lease..
"PURCHASE PRICE" is defined in Section 2 of the Option Agreement.
"RIGHT OF REFUSAL AGREEMENT" means that certain Right of Refusal
Agreement dated as of February 6, 1998, between Lessor and BCC.
"SHORTFALL AGREEMENT" means that certain Shortfall Funding Agreement
dated as of February 6, 1998, between Lessee, the Members and BCC.
"SHORTFALL EVENT OF DEFAULT" is defined in Section 5.01 of the
Shortfall Agreement.
"SHORTFALLS" is defined as the excess of all recurring and nonrecurring
expenses and costs of the operation and management of the Facility of any kind
or nature whatsoever (exclusive of costs and expenses incurred in the original
construction of improvements on the Property), over all revenues and other
income attributable to the Facility earned by or on behalf of the Lessee.
"STOCK PLEDGE AGREEMENT" means that certain Stock Pledge Agreement
dated as of February 6, 1998, between the Members and BCC.
"TRANSACTION DOCUMENTS" means the following:
(a) the Shortfall Agreement;
(b) the Notes;
(c) the Lease;
(d) the Deposit Agreement;
7
<PAGE> 25
(e) the Leasehold Mortgage;
(f) the Option Agreements;
(g) the Management Agreement;
(h) the Working Capital Assurance Agreement;
(i) the Stock Pledge Agreement; and
(j) the other documents, certificates, financing statements,
affidavits and instruments executed by Lessee, as any of the same may be
amended, modified or supplemented from time to time.
"WORKING CAPITAL ASSURANCE AGREEMENT" means that certain Working
Capital Assurance Agreement dated as of February 6, 1998, between Lessor and
BCC.
"WORKING CAPITAL LOANS" is defined in Section 1 of the Working Capital
Assurance Agreement.
"WORKING CAPITAL RESERVE" is defined in Section 1.01 of the Shortfall
Agreement.
"UCC" means the Uniform Commercial Code enacted in the state whether
the Facility is located, as the same may be amended, supplemented or modified
from time to time.
8
<PAGE> 26
Schedule to Exhibit 10.65 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Shortfall Funding Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.66
MANAGEMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made as of February 6, 1998, between
BCC AT RAVENNA, INC., a Delaware corporation (the "MANAGEMENT FIRM") and
Extended Care Operators of Ravenna, LLC, a Delaware limited liability company
(the "LEASEHOLD TENANT").
WITNESSETH
WHEREAS, Lessee, Lessor, Senior Care Operators, LLC and Management Firm
executed and delivered an Assignment, Assumption and Amendment of Lease
Agreement dated as of February 6, 1998, wherein Manager assigned to Lessee that
certain Lease dated as of March 28, 1997 (the "LEASE") between Lessee and
Capstone Capital Corporation, a Maryland corporation (the "LESSOR"), whereby
Lessee leased from Lessor property, together with all improvements built or to
be built thereon, located in Dauphin County, Pennsylvania, as more fully
described in the Lease (the "PROPERTY"); and
WHEREAS, Balanced Care Corporation, a Delaware corporation ("BCC"),
Leasehold Tenant, and all equity owners of Leasehold Tenant (the "MEMBERS") have
entered into that certain Shortfall Funding Agreement dated as of February 6,
1998 (the "SHORTFALL AGREEMENT") whereby, among other matters, Members agreed to
fund a Working Capital Reserve, as more fully provided in the Shortfall
Agreement; and
WHEREAS, Leasehold Tenant is or will be the sole operator of the
Facility located on the Property; and
WHEREAS, the Management Firm is experienced in operating such
facilities and is willing to be the exclusive manager and operator of the
Facility on behalf of the Leasehold Tenant, as an independent contractor
pursuant to the terms and conditions set forth herein; and
WHEREAS, Leasehold Tenant, not having experience in managing and
operating the Facility, wishes to engage Management Firm as the sole and
exclusive operator and manager of the Facility; and
WHEREAS, during the term of this Agreement, the Management Firm shall
be the exclusive manager and operator of the Facility on behalf of and in the
name of the Leasehold Tenant.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
<PAGE> 2
1. SCOPE OF WORK. Leasehold Tenant hereby appoints Management Firm as the
exclusive operator and manager of the Facility during the term of this
Agreement. The Management Firm shall have full responsibility and authority in
the name and on behalf of Leasehold Tenant to operate and manage the Facility
and hereby covenants and agrees to take all actions necessary or desirable to
operate and manage the Facility and to fulfill its duties hereunder, including
without limitation to: (i) operate and maintain the Facility on behalf of the
Leasehold Tenant as a comprehensive residential care facility providing personal
care services; (ii) collect all room and board revenue, as well as other
revenue, and timely pay all debts and other obligations relating to the
Facility, including operating expenses, fixed expenses and taxes; (iii) request
from BCC funds held as Cash Collateral to apply toward the payment of any
obligation incurred in connection with the operation of the Facility, (iv)
ensure the Facility complies with applicable Federal, state and local laws and
regulations; (v) provide all necessary services to ensure that the Facility
provides quality care to its residents; (vi) recruit, hire and train personnel
as needed for the operation of all departments and services of the Facility;
(vii) maintain such bank accounts as may be necessary or desirable for the
operation of the Facility (the "OPERATING ACCOUNTS"); (viii) establish salary
levels, performance standards, personnel policies and employee benefits for the
Leasehold Tenant's employees; (ix) comply with all terms of the Lease; and (x)
to take all other actions necessary or desirable to operate and manage the
Facility in accordance with prudent practice and industry standards.
Without limiting the generality of the foregoing, Management Firm
shall, as part of its management duties hereunder and on behalf of (and at the
sole cost of) Leasehold Tenant, perform each and every obligation of Leasehold
Tenant under the Lease and the Lease Documents (exclusive of the Development
Agreement) through out the term thereof, including all representations and
warranties of Leasehold Tenant contained therein, to the extent applicable.
Additionally, the Management Firm shall collect all revenues of any kind or
nature from the Facility, and so long as any amounts are owing to Lessor under
the Lease and the other Lease Documents make payments of rent and other sums due
and owing to Lessor under the Lease from revenues of Facility or as otherwise
provided in the Transaction Documents.
In performing its duties, the Management Firm (through its in-house
corporate staff or independent contractors) shall perform the following with
respect to the Facility, as well as any other matters reasonably related thereto
commencing upon the date of this Agreement:
(a) MANAGEMENT INFORMATION SYSTEMS (MIS)
Support centralized Facility information system which
provides systems management for the following areas:
-- Accounts Payable
-- Payroll
2
<PAGE> 3
-- Financial Reporting
-- Marketing
-- General Ledger
The Management Firm shall be responsible for billing and collection
of accounts receivable generated in connection with the Facility.
(b) LEGAL COUNSEL
(i) Prepare or coordinate with outside legal counsel for
preparation of documents for operation of the Facility, including
resident agreements, supplier/vendor contracts, service contracts,
equipment leases and other ancillary contracts; (ii) prepare or
coordinate licensure and other regulatory applications; (iii)
coordinate all litigation involving the Facility with local counsel
or the insurance companies; (iv) coordinate with local counsel on
local law issues affecting the Facility; (v) process working
capital requests from the Working Capital Reserve or otherwise, and
apply for, negotiate and obtain letters of credit or other credit
enhancements from lending institutions; and (vi) provide legal
counsel or coordinate with local counsel to provide counsel to the
Facility's Human Resources Department.
Without limiting the generality of Section 2 and Section 10 below,
the parties acknowledge that all outside counsel expenses under the foregoing
paragraph shall be an expense of the Leasehold Tenant.
(c) ACCOUNTING/TAX
(i) Provide an accountant to supervise all accounting
activities; (ii) implement accounting policies and guidelines;
(iii) provide a centralized cash management system; (iv) deposit in
Operating Accounts established in the Facility's name all funds
received from the operations of the Facility, satisfy obligations
of the Facility from such Operating Accounts, and not commingle
funds in the Operating Accounts with any other funds; (v) negotiate
and administer working capital lines of credit available to the
Facility; (vi) supervise the Facility's internal control structure;
(vii) provide payroll, income and real estate tax support as
follows: prepare or supervise preparation of all tax returns,
assist the Facility in the event of a tax audit, assist the
Facility with technical issues relating to payroll, excise and
other taxes, and monitor pending and final Federal, State and local
tax Law changes; (viii) perform periodic site visits to review the
Facility's accounting and tax records; (ix) provide operations
expertise through site visits and
3
<PAGE> 4
strategies to maximize fiscal performance; and (x) develop and
implement a budget for operations, capital outlay and cash
requirements. All checks or other documents for withdrawal of funds
shall be signed by the appropriate officer of the Management Firm
or its designee. Deposits may be made by the appropriate officer of
the Management Firm or its designee.
(d) HUMAN RESOURCES
(i) Implement all personnel policies and guidelines; (ii)
recruit management personnel of the Facility, including the
community director of the Facility, which recruitment and the
salaries related thereto shall be an expense of the Leasehold
Tenant; (iii) provide on-going training for the Facility's Human
Resources Director; (iv) negotiate and administer all employee
benefit plans including health insurance, dental insurance, life
insurance, long-term disability insurance, and retirement/401K; (v)
negotiate and administer general and professional liability,
workers' compensation, property, and vehicular insurance plans;
(vi) monitor the Facility's compliance with Federal, State and
local employment Laws; (vii) respond to all government compliance
agencies and legal proceedings as necessary; (viii) implement and
monitor safety/loss control programs; (ix) develop and implement
career planning and manpower development strategies; (x) recruit,
employ and train personnel as needed for the operation of all
departments and services of the Facility; and (xi) establish salary
levels, performance standards, personnel policies and employee
benefits for all employees within applicable budgetary and
regulatory limits. Leasehold Tenant acknowledges and agrees that
all personnel employed at the Facility shall be deemed the
employees of the Management Firm, but shall be paid salaries and
wages (including employment taxes and the like) by Leasehold Tenant
as part of the expenses of the Facility.
(e) PROGRAM DEVELOPMENT
(i) Provide ongoing program development and management
consultation; (ii) supply select program manuals for local
modification and implementation; and (iii) provide program
development/management training. A community director shall be
engaged by the Management Firm for the Facility. Such community
director shall be an employee of the Management Firm, but his/her
salary and employee benefits shall be paid by the Leasehold Tenant
as an expense incurred in connection with the operations of the
Facility.
4
<PAGE> 5
(f) QUALITY MANAGEMENT
(i) Provide model quality management systems and implement
such including risk management, resident/family satisfaction,
licensing and accreditation, and program evaluation; and (ii)
provide ongoing monitoring of the Facility resident outcomes,
compare with regional and national norms, and make program
modifications.
(g) MARKETING/COMMUNICATION
(i) Hire, direct and supervise marketing department staff;
(ii) train staff (program managers, rehabilitation liaisons,
marketing representatives, etc.) in marketing skills; (iii)
organize strong sales efforts within the target area, develop
program mix strategies, and develop marketing plans for the
Facility; (iv) establish an intake/admission system and
continuously review the admission process; (v) develop image
building advertising strategies for the Facility; and (vi) develop
and produce Facility selected promotional literature. The director
of marketing shall be an employee of the Management Firm, but such
person's employee benefits and salary (including employment tax and
the like) shall be paid by the Leasehold Tenant as an expense
incurred in connection with the operations of the Facility.
(h) CONTRACTING
Negotiate and execute contracts and agreements related to the
Facility with third parties and parties affiliated with the
Management Firm; provided that all contracts and agreements with
parties affiliated with the Management Firm shall be on terms no
less favorable than terms for comparable contracts and agreements
with unaffiliated parties.
(i) MISCELLANEOUS
(1) Obtain and maintain in accordance with all applicable
____ laws and regulations all licenses, approvals and
certifications required for operation of the Facility
and use reasonable efforts to procure eligibility for
participation in other applicable referral or payor
programs. Comply with all notification and reporting
requirements imposed under _____ laws and regulations
in connection with the operation of the Facility.
(2) Purchase supplies, using procurement practices in
accordance with industry standards, and lease equipment
under national and
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<PAGE> 6
regional agreements or purchase contracts of the
Management Firm or its affiliated companies and
provide to the Leasehold Tenant all benefits resulting
therefrom to the extent permitted by their terms and
by Law. All such supplies so purchased shall become
property of the Leasehold Tenant. Once leases are
completed, equipment shall become property of the
Leasehold Tenant.
(3) Review and analyze the performance of ancillary
services under contract and negotiate contractual
arrangements therefor.
(4) Maintain books and records for the Facility at the
Management Firm's address herein for the purpose of
providing services under this Agreement. The Management
Firm shall make available to the Leasehold Tenant and
any lessor leasing the Facility to Leasehold Tenant,
and their respective agents, accountants, and attorneys
during normal business hours all books and records
pertaining to the Facility, and the Management Firm
shall promptly respond to any questions of the
Leasehold Tenant or any such lessor with respect to
such books and records and shall confer with the
Leasehold Tenant and any such lessor at all reasonable
times, upon request, concerning the operation of the
Facility.
(5) Order, supervise and conduct a program of regular
maintenance and repair of the Facility at the Leasehold
Tenant's cost and expense. So long as the Lease is in
full force and effect, such maintenance and repair
program shall comply with the requirements of the Lease
related thereto.
(6) Supervise and provide for the operation of food service
facilities for the Facility.
(7) Make periodic evaluations of the performance of all
departments of the Facility and investigate and report,
upon request, any inconsistency between expenditures
and budget.
(8) Implement all policies and procedures reasonably
necessary for the operation of the Facility consistent
with applicable regulations.
(9) Foster a working relationship between Management Firm
and any
6
<PAGE> 7
authorized volunteer or auxiliary groups interested in
providing support to the Facility and residents of the
Facility.
2. ADDITIONAL SERVICES. It is the intention of the parties that the Management
Firm be responsible for providing all service necessary or desirable for the
efficient and orderly management and operations of the Facility; provided, the
cost and expense of operating the Facility is to be paid by Leasehold Tenant.
The Management Firm shall actively utilize staff specialists in its employ or
that of its affiliates in such areas as accounting, budgeting, marketing,
reimbursement, dietary, housekeeping, clinical, pharmaceutical, purchasing and
third party payments in the management of the Facility when considered desirable
by the Management Firm. The expense of such personnel shall be the
responsibility of Leasehold Tenant.
3. FINANCIAL STATEMENT. The Management Firm shall prepare and deliver to the
Leasehold Tenant an unaudited balance sheet within forty-five (45) days after
the close of each fiscal quarter of the Leasehold Tenant. The Management Firm
shall also cause an unaudited annual statement to be made of the financial
records of the Facility and a copy of such report shall be provided to the
Leasehold Tenant as soon as it is available after the end of the fiscal year.
The cost of the reports shall be an expense of the Facility and shall be paid
for by the Leasehold Tenant. The fiscal year for the Facility shall coincide
with the Leasehold Tenant's fiscal year. All financial statements are to be
prepared in accordance with GAAP. The Management Firm shall be responsible for
preparing all financial statements required of Leasehold Tenant under the Lease
or the other Lease Documents (but the cost shall be allocated as an expense of
the Facility), and Lease hold Tenant shall appropriately certify as to the truth
and correctness of such financial statements.
4. PROPERTY INTERESTS/CONFIDENTIALITY. (a) The technical systems, methods,
policies, procedures and controls, copyrights, "know-how", tradenames,
trademarks, servicemarks, other registered names or marks and all other
intellectual property rights related thereto employed by the Management Firm
(the "INTANGIBLE RIGHTS") are to remain the property of the Management Firm and
are not, at any time, to be utilized, distributed, copied or otherwise employed
or acquired by the Leasehold Tenant except as authorized in writing by the
Management Firm or except as may be required by Law.
(b) Leasehold Tenant understands and acknowledges that Management
Firm has devoted substantial time, energy and expense to developing a process
and procedure to manage and operate facilities such as the Facility, and that
such processes, procedures, Intangible Rights and the information and materials
compiled or prepared in connection therewith, including without limitation
marketing plans, business plans, pricing information , information on
competition, demographics, suppliers and providers of services and financing
arrangements (collectively "CONFIDENTIAL INFORMATION") are proprietary to
Management Firm and the confidential information of the Management Firm.
Leasehold Tenant shall not disclose to any
7
<PAGE> 8
party any Confidential Information, without the prior written consent of
Management Firm, except as may be required by Law.
(c) The provisions of this Section shall survive the expiration or
sooner termination of this Agreement.
5. TERM OF AGREEMENT. The term of this Agreement shall commence upon the date
hereof, and continue for a period of nine (9) years thereafter. This Agreement
shall be automatically renewed for additional consecutive one (1) year terms
unless either party gives the other party notice of its intent not to renew,
which notice must be given at least ninety (90) days prior to the expiration of
the then current term.
6. TERMINATION. (a) The Leasehold Tenant may terminate this Agreement upon
written notice if the Management Firm defaults in the performance of any
material covenant, agreement, term or provision of this Agreement to be
performed by it and such default continues for a period of forty-five (45) days
after written notice to the Management Firm from the Leasehold Tenant stating
the specific default or, if such default is not subject to cure within
forty-five (45) days, such longer period as may be required to effect a cure,
provided Management Firm initiates curative action within forty-five (45) days
and thereafter is diligently and in good faith pursuing such cure.
(b) The Management Firm may terminate this Agreement upon written
notice in the event any one or more of the following events shall occur:
(1) If the Leasehold Tenant shall fail to timely pay to the
Management Firm any Management Fee required to be paid
in accordance with Paragraph 9 hereof and such failure
continues for ten (10) days after written notice to the
Leasehold Tenant; or
(2) If the Leasehold Tenant defaults in the performance of
any other material covenant, agreement, term or
provision of this Agreement to be performed by the
Leasehold Tenant and such default continues for a
period of forty-five (45) days after written notice to
the Leasehold Tenant from the Management Firm stating
the specific default or, if such default is not subject
to cure within forty-five (45) days, such longer period
as may be required to effect a cure, provided the
defaulting party initiates curative action within
forty-five (45) days and thereafter is diligently and
in good faith pursuing such cure; or
(3) If the Facility or a material portion thereof is
damaged or destroyed by fire or other casualty and the
Leasehold Tenant fails
8
<PAGE> 9
to commence to repair, restore, rebuild or replace any
such damage or destruction within ninety (90) days of
the occurrence of such damage or destruction, and
thereafter to complete such work within a reasonable
period of time.
In the event of termination of this Agreement by either party
pursuant to Section 6(a) or 6(b) above, the Management Firm shall have the right
to enter the Facility and remove all of its personal property and Intangible
Rights material.
7. LIABILITY AND INDEMNIFICATION/FORCE MAJUERE. (a) By the Management Firm. The
Management Firm shall indemnify, defend, save and hold harmless the Leasehold
Tenant, its shareholders, officers, directors, employees, or agents from and
against all demands, claims, actions, losses, damages, deficiencies,
liabilities, costs and expenses (including, without limitation, attorney's fees,
interest, penalties and all amounts paid in investigation, defense or settlement
of any of the foregoing) asserted against or incurred by the Leasehold Tenant,
its shareholders, officers, directors, employees, or agents, in connection with,
or arising out of, or resulting from (i) a breach of any covenant, agreement,
representation or warranty of the Management Firm or (ii) the negligent or
willful acts or omissions of Management Firm, its employees or agents. The
provisions of this Section shall survive the expiration or sooner termination of
this Agreement.
(b) By the Leasehold Tenant. The Leasehold Tenant shall indemnify,
defend, save and hold harmless the Management Firm, its shareholders, officers,
directors, employees, or agents from and against all demands, claims, actions,
losses, damages, deficiencies, liabilities, costs and expenses (including,
without limitation, attorney's fees, interest, penalties and all amounts paid in
investigation, defense or settlement of any of the foregoing) asserted against
or incurred by the Management Firm, its officers, directors, employees, or
agents, in connection with, or arising out of, or resulting from (i) a breach of
any covenant, agreement, representation or warranty of the Leasehold Tenant or
(ii) the negligent or willful acts or omissions of Leasehold Tenant, its
employees or agents. The provisions of this Section shall survive the expiration
or sooner termination of this Agreement.
Nothing contained herein shall preclude either party from asserting
any claims or suits against the other party which may arise out of the terms and
provisions of this Agreement.
(c) The Management Firm shall not be deemed to be in violation of
this Agreement, and its performance shall be excused, if it is prevented from
performing any of its obligations hereunder for any reason beyond its control,
including shortages in labor or supplies, war, acts of God, failure of the
Leasehold Tenant to advance funds, or changes in any Law of Federal, State or
local government, or any agency thereof.
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<PAGE> 10
8. RELATIONSHIP BETWEEN PARTIES. The relationship of the Management Firm to the
Leasehold Tenant shall be that of independent contractor.
9. MANAGEMENT FEE. The Management Firm for the services rendered hereunder shall
be entitled to six percent (6%) of all gross revenues of the Facility as its
sole compensation for management of the Facility (the "MANAGEMENT FEE"). The
Management Fee shall be paid monthly, and shall be based on the financial
operations of the Facility as of the end of each calendar monthly. To the extent
that the year-end audited financial statements for the Facility disclose that
the Management Fee actually received during the year than ended was greater or
less than what should have been received, Leasehold Tenant shall (in case of
underpayment) pay upon demand the shortfall and (in the case of overpayment)
shall be credited against the Management Fee due in the next succeeding quarter
such overpayment. In additional to the Management Fee, the Management Firm shall
be paid on a monthly basis beginning on that date which is six months prior to
substantial completion of the Facility the sum of $3,000 per month.
Notwithstanding the foregoing, the employee benefits and salary of the community
director and director of marketing for the Facility shall be paid by the
Leasehold Tenant, but such community director and director of marketing shall at
all times remain the employee of the Management Firm.
10. FUNDING OF COSTS AND EXPENSES BY THE LEASEHOLD TENANT. The Leasehold Tenant,
and not the Management Firm, shall be responsible for the costs and expenses of
all operations of the Facility. The Leasehold Tenant shall at all times provide
sufficient working capital for operation of the Facility and shall deposit such
capital from time to time into the Operating Accounts of the Facility in advance
of the time required to be disbursed by the Management Firm.
11. NO APPROVAL BY THE LEASEHOLD TENANT. The Management Firm shall operate the
Facility and the Leasehold Tenant act as a passive investor with respect
thereto. The Management Firm shall, not less frequently than annually, adopt a
plan of operation for the Facility which shall set forth proposed staffing,
budgets, program and related matters; such shall not, however, be subject to
approval of the Leasehold Tenant or its designee. The Leasehold Tenant shall not
participate in the day-to-day operation of the Facility.
12. OTHER FACILITIES. Leasehold Tenant understands and acknowledges that
Management Firm is in the business of operating facilities such as the Facility,
and that Management Firm intends to continue to manage and operate such other
facilities, which may or may not be in competition with the Facility. Nothing
contained herein shall be deemed to be construed as a restriction on the
Management Firm's right to so operate and manage such other existing facilities
or facilities that may be opened in the future, even if such facilities are in
competition with the Facility.
13. NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered in person, Federal
Express or other recognized overnight
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<PAGE> 11
courier or sent by registered or certified U.S. mail, return receipt requested
or sent by facsimile or telecopy transmission and addressed:
(i) If to the Management Firm, at:
BCC DEVELOPMENT & MANAGEMENT CO.
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Legal Department
(ii) If to the Leasehold Tenant, at:
----------------------------------
----------------------------------
or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.
14. ARBITRATION. Any controversy or dispute between the Management Firm and the
Leasehold Tenant with respect to the application or interpretation of the terms
of this Agreement, except failure of the Leasehold Tenant to pay compensation to
the Management Firm as required herein, will be submitted to mediation under the
National Health Lawyer's Association ("NHLA") Alternative Dispute Resolution
Service Rules of Procedure for Mediation. If any dispute is not resolved by
mediation no later than thirty (30) days after its submission to mediation, the
dispute shall be submitted to arbitration in accordance with the NHLA
Alternative Dispute Resolution Service Rules for Arbitration. The same person
may serve as both mediator and arbitrator. Any such arbitration shall be final
and binding upon the parties to the fullest extent permitted by Law. The cost of
mediation and/or arbitration shall be shared equally by the Leasehold Tenant and
the Management Firm; however, each party shall bear the expense of its own
attorneys, representatives and witnesses, and the cost of any transcripts or
related matters.
15. COMPLIANCE WITH FEDERAL RECORDS REQUIREMENTS. To the extent required under
applicable Law, the Management Firm shall, (and if Management Firm carries out
any of the duties under this Agreement through a subcontract with a related
organization and such subcontract has a value or cost of $10,000 or more during
any 12-month period, Management Firm shall cause such subcontract to contain a
clause to the effect that the subcontractor shall), until the expiration of four
(4) years after the furnishing of services hereunder, make available upon
written request by the Secretary of Health and Human Service or the Comptroller
General of the United States or any of their duly authorized representatives,
this Agreement and the books, documents and records of the Management Firm (or
such subcontractor) that are
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<PAGE> 12
necessary to verify the nature and extent of the costs furnished under this
Agreement.
16. SUCCESSORS AND ASSIGNS. Leasehold Tenant may not assign this Agreement,
expressly, by operation of law, or otherwise, without the prior written consent
of the Management Firm, which consent may be withheld in the sole discretion of
the Management Firm. Management Firm may not assign this Agreement, expressly,
by operation of law, or otherwise, without the prior written consent of the
Leasehold Tenant; provided, however, Management Firm may assign its rights and
obligations hereunder without consent to (i) any BCC Affiliate, (ii)
collaterally to any lender to the Management Firm or any entity affiliated with
the Management Firm and (iii) to the Lessor.
17. DEFINITIONS; INTERPRETATION; MISCELLANEOUS. Capitalized terms used but not
otherwise defined in this Agreement have the respective meanings specified in
Appendix 1 hereto; the rules of interpretation and other provisions set forth in
Appendix 1 hereto shall apply to this Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, intending to be legally bound hereby, the
parties hereto have affixed their names by their proper officers or duly
authorized representatives the day and year first above written.
MANAGEMENT FIRM: BCC AT RAVENNA, INC.
By: /s/ Signature Illegible
----------------------------------------
Name:
Title:
LEASEHOLD TENANT: EXTENDED CARE OPERATORS OF RAVENNA, LLC
By: /s/ Signature Illegible
----------------------------------------
Name:
Title:
13
<PAGE> 14
Schedule to Exhibit 10.66 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Management Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.;
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.67
This Instrument was prepared
and should be returned after
recording to:
Steven J. Adelkoff, Esq.
Kirkpatrick & Lockhart, LLP
1500 Oliver Building
Pittsburgh, PA 15222.
OPEN END LEASEHOLD MORTGAGE
THIS INSTRUMENTS SECURES FUTURE ADVANCES
THIS OPEN END LEASEHOLD MORTGAGE ("MORTGAGE") is made as of
February 6, 1998, between Extended Care Operators of Ravenna, LLC, a Delaware
limited liability company (MORTGAGOR") and Balanced Care Corporation, a Delaware
corporation ("MORTGAGEE").
W I T N E S S E T H
WHEREAS, Mortgagor is the assignee of that certain Lease dated as
of March 28, 1997, (the "LEASE") whereby Mortgagor leases from Capstone Capital
Corporation, a Maryland corporation (the "LESSOR") the Land and Improvements;
and
WHEREAS, a memorandum of lease concerning the Lease has been
filed in the Recorder's Office of Portage County, Ohio in Book Volume ___, page
___ and an Assignment, Assumption and Amendment of Lease has been filed in Book
Volume _____, page ___; and
WHEREAS, the Mortgagor and Mortgagee entered into that certain
Shortfall Funding Agreement dated as of February 6, 1998 (the "SHORTFALL
AGREEMENT"); and
WHEREAS, the Mortgagor desires to execute and deliver this
Mortgage to Mortgagee as additional security for the faithful and timely
performance of the obligations of Mortgagor under the Shortfall Agreement and
the other Transaction Documents.
NOW, THEREFORE, in consideration of the obligations of Mortgagee
under the Shortfall Agreement and as security for the Debt (as hereinafter
defined) and the due and punctual payment and performance of the obligations
incurred under the Shortfall Agreement, this Mortgage, and the other Transaction
Documents in accordance with the terms hereof and thereof, Mortgagor, intending
to be legally bound hereby, has given, granted, bargained and sold, aliened,
enfeoffed, released, conveyed, confirmed, mortgaged, assigned, transferred, and
set-over, and by these presents does give, grant, bargain and sell, alien,
release, convey, confirm, enfeoff, mortgage, assign, transfer, and set-over unto
Mortgagee, its successors and assigns forever:
ALL Mortgagor's estate, right, title, interest, claim and demand
in and with respect to the following property (hereinafter called the "MORTGAGED
PROPERTY"):
A. the Lease and the leasehold estate created by the Lease in and
to the parcel of land situate in Medina County, Ohio and more particularly
described in Exhibit "A" attached hereto
<PAGE> 2
and made a part hereof and all appurtenant rights thereto;
B. all existing and future amendments, modifications, extensions
and renewals of the Lease; and
C. the privileges, appurtenances, improvements, tenements and
hereditaments thereunto belonging and which may in the future attach to the
leasehold estate.
To have and to hold the same unto Mortgagee, its successors and
assigns, forever.
Mortgagor hereby warrants and covenants that it is the lawful
owner of the Mortgaged Property pursuant to the Lease; that Mortgagor has good,
right and lawful authority to convey and encumber the same; that the Mortgaged
Property is free and clear from all liens and encumbrances, other than Permitted
Encumbrances (as described in Exhibit "B" attached hereto); and that it will
warrant and defend such title to the Mortgaged Property against the claims of
all persons whomsoever.
This conveyance is intended as a mortgage and is given for the
purpose of securing the faithful performance of Mortgagor under the Transaction
Documents and the Debt (as hereinafter defined).
This Mortgage is executed and delivered subject to the following
covenants, conditions and agreements:
1. "DEBT", as used herein, means, collectively, (i) all
Indebtedness, obligations (including the Asset Purchase Option as provided in
Section 1.03 of the Shortfall Agreement and the Option as provided in the Option
Agreement) and liabilities of Mortgagor and the Members to Mortgagee or any BCC
Affiliate whether of principal, interest, fees, expenses, covenants, charges or
otherwise, now existing or hereafter incurred under this Mortgage and the other
Transaction Documents, together with any and all extensions, renewals,
refinancings or refunding thereof in whole or in part, and (ii) all costs and
expenses, liabilities, obligations and advances, including to the extent
permitted by Law, reasonable attorneys' fees and legal expenses, incurred by
Mortgagee in the collection or satisfaction of any of the Indebtedness or other
obligations referred to in clause (i) above.
2. Until payment in full of the Debt and termination of all
obligations, duties and commitments under the Transaction Documents, Mortgagor
shall (i) pay and discharge, when and as the same shall become due and payable,
all taxes, assessments, sewer and water rents, and any and all other charges,
claims and liens assessed, levied, imposed or created from time to time upon the
Mortgaged Property or any part thereof, (ii) pay all ground rents reserved from
the Mortgaged Property and pay and discharge all mechanics' liens which may be
filed against the Mortgaged Property, (iii) pay and discharge any documentary,
stamp or other tax, including interest and penalties thereon, if any, now or
hereafter becoming payable hereon, (iv) provide, renew and keep in force by
paying the necessary premiums and charges thereon such policies of hazard and
liability insurance upon the buildings and Improvements now or hereafter erected
upon the Mortgaged Property in such amounts as are required from time to time by
the Lessor under the Lease. All such insurance policies shall be underwritten by
companies licensed in the state where the Mortgaged Property is located to issue
insurance with a rating by Best's Insurance Rating Service (or such other rating
service as Mortgagee shall direct) of no less than B+, shall be endorsed with a
standard mortgagee clause in favor of Mortgagee as its interest may appear,
shall not be subject to contribution and shall provide (without qualification in
favor of the insurer to use "best efforts" or similar language) for at least
thirty (30) days
2
<PAGE> 3
prior written notice of modification or cancellation to Mortgagee. Mortgagor
shall provide certificates evidencing compliance with the foregoing insurance
requirements to Mortgagee promptly upon request.
3. Risk of loss of, damage to or destruction of the Mortgaged
Property is and shall remain upon Mortgagor. Mortgagor shall promptly give
written notice to Mortgagee of damage or destruction to the Mortgaged Property.
If Mortgagor fails to effect and keep in force insurance covering the Mortgaged
Property as required by Mortgagee, or fails to pay the premiums thereon when
due, Mortgagee may, but shall not be obligated to, do so for the account of
Mortgagor and add the cost thereof to the Debt.
4. Mortgagor shall maintain all buildings and Improvements
subject to this Mortgage in good working order and condition, ordinary wear and
tear excepted. Mortgagee shall have the right to enter upon the Mortgaged
Property at any time for the purpose of inspecting the order, condition and
repair of the buildings and Improvements erected thereon.
5. Mortgagor, at its sole cost and expense, shall promptly comply
with (i) all present and future Laws of any governmental authority exercising
jurisdiction over the Mortgaged Property and (ii) all covenants and obligations
of Mortgagor under the Lease.
6. Mortgagor shall ensure, at its sole cost and expense, that the
Mortgaged Property complies and continues to comply in all material respects
with all applicable federal, state and local Laws with respect to the existence
on, discharge from, or removal from the Mortgaged Property of solid wastes,
toxic or hazardous substances, waste, contaminants or other regulated substances
("Hazardous Substances") the release, storage, disposal or transportation of
which is regulated by any federal, state or local law (the "ENVIRONMENTAL
LAWS"). Mortgagor shall notify Mortgagee promptly and in reasonable detail in
the event that Mortgagor becomes aware of the presence of any violation of any
Environmental Law with respect to the Mortgaged Property. Mortgagee shall not be
liable for and Mortgagor shall indemnify, defend and hold Mortgagee harmless
from and against all losses, costs, liabilities, damages and expenses
(including, without limitation, attorneys' and engineers' fees and costs
incurred in the investigation, defense and settlement of claims) that Mortgagee
may suffer or incur (as holder of this Mortgage, as mortgagee in possession or
as successor in interest to Mortgagor as owner of the Mortgaged Property by
virtue of a foreclosure or acceptance of a deed in lieu of foreclosure) as a
result of or in connection with any Environmental Law (including the assertion
that any lien existing or arising pursuant to any Environmental Law takes
priority over the lien of this Mortgage) or breach of any covenant or
undertaking by Mortgagor in this Mortgage. Mortgagor hereby represents and
warrants to Mortgagee that, to the actual knowledge of Mortgagor after due
inquiry, no Hazardous Substances are present on the Mortgaged Property. The
provisions of this paragraph 6 shall survive the termination of this Mortgage,
the foreclosure of this Mortgage and/or the delivery of a deed in lieu of
foreclosure.
7. Mortgagor will, from time to time, make, do, execute and
acknowledge, as the situation may require, such further acts, deeds,
conveyances, mortgages, security agreements, financing statements, continuation
statements and other assurances as may be required for the purpose of
effectuating the intent hereof and for better assuring and confirming to
Mortgagee, its successors and assigns, the lien and security interest created by
this Mortgage.
8. In the event Mortgagor neglects or refuses to pay the charges
mentioned at paragraph 2 of this Mortgage, or fails to maintain the buildings
and Improvements as aforesaid,
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<PAGE> 4
Mortgagee may, but shall not be obligated to, do so, and add to the Debt the
cost thereof together with interest at the maximum lawful rate, and collect the
same as a part of said Debt.
9. Except for Permitted Encumbrances and any security interest in
favor of Lessor or Mortgagee, Mortgagor covenants and agrees not to create, nor
permit to accrue, upon all or any part of the Mortgaged Property, any debt, lien
or charge which would be prior to, or on a parity with, or subordinate to, the
lien of this Mortgage without the prior written consent of Mortgagee.
10. In the event Mortgagee pays any prior lien on the Mortgaged
Property, Mortgagee shall be subrogated to the rights of the holder of such
prior lien as fully as if such lien had been assigned to Mortgagee.
11. Mortgagor shall not lease, license, or sublease all or any
part of the Mortgaged Property, nor shall Mortgagor assign, pledge, hypothocate
or otherwise transfer the Lease, except in strict accordance with the
Transaction Documents and the Lease Documents.
12. This Mortgage and the indebtedness secured hereby may not be
assumed, and (except as otherwise expressly provided in the Transaction
Documents) Mortgagor shall not assign, sell, license, convey or otherwise
transfer the Lease or any interest in the Mortgaged Property, or agree to do so.
Any default under this paragraph 12 shall cause an immediate acceleration of the
Debt without any demand by Mortgagee.
13. "MORTGAGE EVENT OF DEFAULT" shall mean (i) a failure by
Mortgagor to pay when due all sums Mortgagor is obligated to pay pursuant to the
Notes, (ii) the Mortgagor shall breach any representation, warranty, covenant,
agreement or term under this Mortgage or the other Transaction Documents,
including the Lease; (iii) a breach by any Member of the covenants, agreements,
representations and warranties of the Members under the Option Agreement or (iv)
any other default (other than a default by the Lessor, BCC or a BCC Affiliate)
shall occur under any Transaction Document.
14. If a Mortgage Event of Default shall occur then, and in any
such event, all of the Debt shall become immediately due and payable without
presentment, demand or further notice, and Mortgagee shall have such rights,
remedies, powers and privileges as are set forth in this Mortgage and the other
Transaction Documents, or as otherwise provided by Law, including the right:
(i) to institute an action in mortgage foreclosure for
the enforcement of this Mortgage and to prosecute the same to
judgment, execution and sale of the Mortgaged Property, or any
part or parts thereof, until collection of the entire Debt is
realized, together with costs of suit and reasonable attorney's
fees for collection; and Mortgagor hereby waives and releases all
errors in said proceedings (including without limitation defects
in service of process), waives stay of execution, the right of
inquisition and extension of time of payment, agrees to
condemnation of any property levied upon by virtue of any such
execution, and waives all exemption from levy and sale of any
property that now is or hereafter may be exempted by law; and/or
(ii) to immediately sell the Mortgaged Property, or any
part or parts thereof, under power of sale, which power is hereby
granted to Mortgagee to the full extent permitted by law; and/or
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<PAGE> 5
(iii) to be appointed as receiver of the Mortgaged
Property, to enter into possession of the Mortgaged Property, or
any part or parts thereof, and to lease or operate the same and
collect all rents and profits therefrom and, after deducting all
costs of collection, carrying and administration expense, to
apply the net rents and profits to the payment of the Debt as
hereinafter provided.
15. Mortgagee shall apply the proceeds of any foreclosure sale
of, or other disposition or realization upon, or rents or profits from the
Mortgaged Property to satisfy the Debt in the following order:
(a) First: to the payment of all costs and expenses
incurred in connection with such sale or other realization;
(b) Second: to the payment of interest due upon the Note
and any other Debt;
(c) Third: to the payment of the principal due upon the
Note or any other Debt owed to Mortgagee; and
(d) Fourth: the balance (if any) of such proceeds shall be
paid to the Mortgagor subject to any duty imposed by law or otherwise to the
holder of any subordinate lien in the collateral known to the Mortgagee and
subject to the direction of a court of competent jurisdiction.
If any such proceeds from the Mortgaged Property, together with
the proceeds of any other collateral granted to the Mortgagee by Mortgagor,
shall be insufficient to pay the amounts secured hereby, Mortgagor shall be
liable for the deficiency, and any surplus will be distributed as required by
law.
16. Mortgagee shall have the right upon a Mortgage Event of
Default, in connection with the exercise of its remedies hereunder, to the
appointment of a receiver to collect the rents, issues, income and profits of
the Mortgaged Property without notice and without regard to the adequacy of the
Mortgaged Property to secure the Debt.
17. If at any time the Mortgaged Property, or any part thereof,
is taken or damaged by condemnation proceedings under right of eminent domain or
in any other manner, Mortgagee shall, subject to the rights of Lessor under the
Lease, be entitled to receive all compensation, damages, awards, or other
relief. Mortgagor shall promptly assign to Mortgagee all such proceeds to be
applied on account of the Debt after deducting therefrom all expenses incurred,
including reasonable attorneys' fees, and any balance thereafter to be paid to
Mortgagor, and Mortgagee shall be authorized, at its option, to commence, appear
in, and/or prosecute in its own name any action or proceeding or to make any
reasonable compromise or settlement in connection with such taking or damage.
18. Mortgagor will indemnify against, and on demand repay
Mortgagee for, any loss, damage, expense, or attorneys' fees which may be
incurred by reason of any action or proceeding affecting the Mortgaged Property
or the title thereto or Mortgagee's interest under this Mortgage, to which
Mortgagee is made a party (by intervention or otherwise), resulting from any
breach by Mortgagor of any covenant, agreement, representation or warranty under
this Mortgage or any other Transaction Document. Such indemnity obligation shall
be deemed Debt secured by this Mortgage upon demand for indemnification from
Mortgagee to Mortgagor. The provisions of this paragraph 18 shall survive the
termination of this Mortgage, the foreclosure of this Mortgage and/or the
delivery of a
5
<PAGE> 6
deed in lieu of foreclosure.
19. The agreements and obligations of Mortgagor hereunder are
continuing, absolute and unconditional irrespective of the genuineness, validity
or enforceability of the Notes or this Mortgage or any other instrument or
instruments now or hereafter evidencing the Debt or any part thereof, or of any
other agreement or agreements now or hereafter entered into by Mortgagee and
Mortgagor pursuant to which the Debt or any part thereof is issued, or of any
other circumstance which might otherwise constitute a legal or equitable
discharge of such agreements and obligations. Without limitation upon the
foregoing, such obligations will not be affected by (i) any renewal, refinancing
or refunding of the Debt in whole or in part, (ii) any extension of the time of
payment of any note or other instrument or instruments now or hereafter
evidencing the Debt or any part thereof, (iii) any amendment to or modification
of the terms of the Note, this Mortgage or other instruments now or hereafter
evidencing the Debt or any part thereof or of any other agreement or agreements
now or hereafter entered into by Mortgagee and Mortgagor pursuant to which the
Debt or any part thereof is issued or secured, (iv) any substitution, exchange
or release of, or failure to preserve, perfect or protect, or other dealing in
respect of, the Mortgaged Property or any other property or any security for the
payment of the Debt or any part thereof, (v) any bankruptcy, insolvency,
arrangement, composition, assignment for the benefit of creditors or similar
proceeding commenced by or against Mortgagor, or (vi) any other matter or thing
whatsoever whereby the agreements and obligations of Mortgagor hereunder would
or might otherwise be released or discharged.
20. The rights and remedies of Mortgagee as provided in this
Mortgage and in the other Transaction Documents, or contained in any of them,
shall be cumulative and concurrent, may be pursued separately, successively or
together against Mortgagor or against the Mortgaged Property at the sole
discretion of Mortgagee, and may be exercised as often as occasion thereof shall
arise. The failure to exercise any such right or remedy shall in no event be
construed as a waiver or release thereof. Any failure by Mortgagee to insist
upon strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a waiver of any of the terms or provisions of
this Mortgage, and Mortgagee shall have the right thereafter to insist upon
strict performance by Mortgagor of any and all of them.
21. Mortgagee may release, regardless of consideration, any part
of the security held for the Debt without, as to the remainder of the security,
in any way impairing or affecting the lien of this Mortgage or its priority over
any subordinate lien. For payment of the Debt secured hereby Mortgagee may
resort to any other security therefor held by Mortgagee in such order and manner
as Mortgagee may elect. All costs related to any release of the lien of this
Mortgage shall be paid by Mortgagor.
22. Mortgagor hereby waives and releases all benefit that might
accrue to Mortgagor by virtue of any present or future law exempting the
Mortgaged Property, or any part of the proceeds arising from any sale thereof,
from attachment, levy or sale on execution, or providing for any stay of
execution, exemption from civil process or extension of time for payment, and,
unless specifically required herein, all notices of Mortgagor's default or of
Mortgagee's election to exercise, or Mortgagee's actual exercise of any option
under this Mortgage or any Document.
23. All notices and other communications provided for under this
Mortgage or any other Transaction Documents shall be in writing and mailed or
delivered, if to the Mortgagor, at its address of: c/o Hakman Capital Corp.,
1350 Old Bayshore Highway, Suite 300, Burlingame, CA 94010, or, if to the
Mortgagee, at its address of: 5021 Louise Drive, Suite 200, Mechanicsburg, PA
6
<PAGE> 7
17055, or at such other address as shall be designated by such party in a
written notice to the other party from time to time. All such notices and
communications shall, when mailed, be effective three days after being deposited
in the mail.
24. This Mortgage shall be governed by and construed in
accordance with the laws of the State of Ohio. If any provision of this Mortgage
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Mortgage.
25. No provision of this Mortgage may be amended, supplemented,
waived or otherwise modified, except by means of a writing executed by each of
the parties hereto, and then only to the extent set forth in such writing.
26. The covenants, conditions and agreements contained in this
Mortgage shall bind, and the benefits thereof shall inure to, the parties hereto
and their respective successors and assigns; provided, however, that Mortgagor
may not, voluntarily or by operation of law, assign this Mortgage.
27. MORTGAGOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
FOR ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS MORTGAGE OR
THE NOTE, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
THE MORTGAGOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT THE
MORTGAGEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH 27 WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE MORTGAGOR TO THE WAIVER OF
ITS RIGHT TO TRIAL BY JURY.
28. Mortgagor hereby covenants and agrees to execute and deliver
unto Mortgagee such instruments and documents, and take such further actions, as
Mortgagee may request in connection with this Mortgage and the Notes.
29. Intentionally omitted.
30. This instrument is intended to be an Open-End Mortgage
pursuant to Ohio Rev. Code Ann. ss. 5301.23.2 (Anderson 1997) and, as such, is
entitled to the benefits thereof. The parties to this instrument intend that, in
addition to any other debt or obligations secured hereby, this instrument shall
secure unpaid balances of advances made pursuant to the Shortfall Agreement
after this instrument is left for record with the Recorder's Office of the
County where the Property is located, whether such advances are made pursuant to
an obligation of BCC or otherwise. The maximum principal amount of unpaid
indebtedness secured by this instrument is TEN MILLION DOLLARS ($10,000,000),
plus interest thereon, which indebtedness may consist of present and future
loans made under the Shortfall Agreement, fees payable pursuant thereto,
advances made with respect to any property for the payment of, among other
things, taxes, assessments, maintenance charges, insurance premiums and the
like, and costs and expenses, including but not limited to attorney's fees,
incurred for the protection of the Property or the lien and security of this
instrument or by reason of any default hereunder or under any other Transaction
Document.
31. Capitalized terms used but not otherwise defined in this
Mortgage have the respective meanings specified in Appendix 1 hereto; the rules
of interpretation and other
7
<PAGE> 8
provisions set forth in Appendix 1 hereto shall apply to this Mortgage.
32. Notwithstanding any provision to the contrary contained in
this Mortgage, in no event shall the actions or inactions of Mortgagor be deemed
a Mortgage Event of Default hereunder if and to the extent that such actions are
the responsibility of the Management Firm pursuant to the Management Agreement.
33. This Mortgage and the rights of Mortgagee hereunder are
subject in all respects to the Lease and that certain Subordination and
Standstill Agreement dated of even date herewith between Mortgagee and Lessor.
8
<PAGE> 9
WITNESS, intending to be legally bound hereby, the due execution
hereof the day and year first above written.
WITNESS: EXTENDED CARE OPERATORS OF
RAVENNA, LLC
By: /s/ Signature Illegible
- ----------------------------------- ------------------------
Title:
---------------------
- -----------------------------------
PRINT NAME
- -----------------------------------
- -----------------------------------
PRINT NAME
9
<PAGE> 10
Schedule to Exhibit 10.67 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Open-End Leasehold Mortgage
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.;
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.68
PROMISSORY NOTE
___________ ____, 199_
FOR VALUE RECEIVED, and intending to be legally bound hereby,
___________________________ ("MAKER"), promises to pay to the order of Balanced
Care Corporation, a Delaware corporation or the holder hereof ("PAYEE"), in
lawful money of the United States of America, the principal sum of ____________
Dollars and __/100 ($_______.__), together with interest thereon from and after
the date hereof at the rate specified herein.
If not sooner paid, Maker shall pay the entire principal amount
outstanding hereunder, together with all accrued but unpaid interest thereon,
upon demand. If not sooner paid, the accrued interest on the principal amount
outstanding under this Note shall be immediately due and payable in arrears on
the first day of each calendar quarter. Interest shall be payable in arrears on
the first day of each calendar quarter, beginning ________, 199_.
This Note is made in connection with Advances made by Payee to Maker
pursuant to the provisions of that certain Shortfall Funding Agreement by and
between Maker and Payee dated January _, 1998 (the "SHORTFALL Agreement"), the
terms of which are incorporated herein by reference. Capitalized terms not
otherwise defined herein have the meanings ascribed to such terms in Appendix 1
to the Shortfall Agreement; and the rules of interpretation and other provisions
provided for in such Appendix 1 shall be applicable to this Note.
Interest on the outstanding principal balance hereunder shall accrue at
a rate of 2% over the Prime Rate as announced from time to time in the Wall
Street Journal (or, in the event of the discontinuance of the publishing of the
Prime Rate in the Wall Street Journal, such other source as the holder may
determine) (the "CONTRACTUAL RATE"); provided, however, that upon an Event of
Default, whether by acceleration or otherwise, interest shall accrue at the
Contractual Rate plus two percent (2%) per annum (the "DEFAULT RATE") until all
sums due hereunder are paid. Interest shall continue to accrue after the entry
of judgment at the Default Rate until all sums due hereunder and/or under the
judgment are paid.
Maker waives presentment, demand, notice, protest, all rights of
set-off or counterclaim, and all other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note and
the Shortfall Agreement.
So long as Payee is the holder hereof, Payee's books and records shall
be presumed, except in the case of manifest error, to accurately evidence at all
times all amounts outstanding under this Note and the date and amount of each
payment made pursuant hereto.
The prompt and faithful performance of all of Maker's obligations
hereunder, including without limitation time of payment, is of the essence of
this Note.
Payee shall be entitled to exercise any right notwithstanding any prior
exercise, failure to
<PAGE> 2
exercise or delay in exercising any such right.
Payee shall retain the lien of any judgment entered on account of the
indebtedness evidenced hereby, as well as any security interest previously
granted to secure repayment of the indebtedness evidenced hereby, and Maker
warrants that Maker has no defense whatsoever to any action or proceeding that
may be brought to enforce or realize on such judgment or security interest.
If any provision hereof shall for any reason be held invalid or
unenforceable, no other provision shall be affected thereby, and this Note shall
be construed as if the invalid or unenforceable provision had never been a part
of it.
The rights and privileges of Payee contained in this Note shall inure
to the benefit of its successors and assigns, and the duties of Maker shall bind
all heirs, personal representatives, successors and assigns.
This Note shall in all respects be governed by the laws of the
Commonwealth of Pennsylvania, excluding its conflicts of laws.
PAYMENT OF THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
SUBORDIDNATION AND STANDSTILL AGREEMENT DATED AS OF FEBRUARY 6, 1998 BETWEEN THE
PAYEE AND CAPSTONE CAPITAL CORPORATION, A COPY OF SAID SUBORDINATION AND
STANDSTILL AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST OF ANY HOLDER OF THIS
NOTE FROM CAPSTONE CAPITAL CORPORATION, 1000 URBAN CENTER DRIVE, SUITE 630,
BIRMINGHAM, AL 35242.
Witness the due execution hereof.
WITNESS:
-----------------------------
By: /s/ Signature Illegible
- -------------------------- --------------------------
Title:
-----------------------
<PAGE> 3
Schedule to Exhibit 10.68 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Promissory Note
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Ravenna, OH BCC at Ravenna, Inc.;
Extended Care Operators of Ravenna LLC
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.;
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.69
RIGHT OF FIRST REFUSAL AGREEMENT
This Right of First Refusal Agreement (the "Agreement") is
entered into as of February 6, 1998, by and between Capstone Capital
Corporation, a Maryland corporation (the "Lessor") and BALANCED CARE
CORPORATION, a Delaware corporation ("BCC").
WITNESSETH:
WHEREAS, Extended Care Operators of Ravenna, LLC (the "Lessee"),
Lessor and BCC at Ravenna, Inc. (the "Manager") executed and delivered an
Assignment, Assumption and Amendment of Lease Agreement dated as of February 6,
1998, wherein Senior Care Operators, LLC assigned to Lessee that certain Lease
dated as of March 28, 1997 (the "LEASE") originally between Manager and Capstone
Capital of Pennsylvania, Inc., a Pennsylvania corporation (the "LESSOR"),
whereby Manager leased from Lessor property, together with all improvements
built or to be built thereon, located in Dauphin County, Pennsylvania, as more
fully described in the Lease (the "PROPERTY"); and
WHEREAS, Lessor, Lessee and BCC Development & Management Co., a
Delaware corporation ("BCC Development") entered into that certain Development
Agreement dated as of March 28, 1997 (as the same may be amended, modified,
altered or supplemented, the "Development Agreement"), whereby BCC Development,
as Developer under the Development Agreement, will cause to be constructed on
the Property a residential care facility of 51units providing personal care
services (the "Facility"); and
WHEREAS, Lessee and the Manager have entered into that certain
Management Agreement dated as of February 6, 1998 (as the same may be amended,
modified, altered or supplemented, the "Management Agreement"), whereby Lessee
has appointed Manager as the sole and exclusive manager of the Facility, on the
terms and conditions provided in the Management Agreement, the Lease, the other
Lease Documents (as defined in Appendix 1 to the Management Agreement) and the
other Transaction Documents (as defined in Appendix 1 to the Management
Agreement); and
WHEREAS, to protect the interests of BCC Development under the
Development Agreement and the Manager under the Management Agreement, Lessor has
agreed to grant to BCC on the terms and subject to the conditions contained
herein a right of first refusal with respect to the sale or other transfer of
all or any portion of the Property and/or the Facility.
NOW, THEREFORE, for good and valuable consideration, and
intending to be legally bound hereby, Lessor and BCC agree as follows:
1. (a) Commencing on the date hereof and terminating upon the
expiration or sooner termination of the Lease in accordance with its terms, and
subject to the terms hereof, Lessor hereby grants to BCC a right of first
refusal (the "Refusal Right") with respect to the Transfer (as hereinafter
defined) of all or any portion of the Property and/or the Facility on the
<PAGE> 2
terms and subject to the conditions contained herein. In the event Lessor
receives during the term of this Agreement a bona fide offer to receive a
Transfer of all or any portion of the Property and/or the Facility which Lessor
intends to accept (the "Offer"), Lessor shall promptly notify BCC in writing
(the "Selling Notice") of the purchase price (or other economic terms, as
appropriate) and all material terms of such Offer, together with a copy of such
Offer. Within 15 days after receipt by BCC of the Selling Notice, BCC shall have
the right and option to inform Lessor by written notice (the "Acceptance
Notice") that BCC wishes to receive a Transfer of the Property and/or the
Facility on the terms and conditions contained in the Offer. If BCC exercises
the Refusal Right and provides to Lessor the Acceptance Notice within the time
period provided in this paragraph, then such Transfer shall be consummated
within the time periods set forth in the Offer, and in accordance with the
Lease, as applicable. If the Acceptance Notice has not been provided to Lessor
within the time frame provided in this paragraph, Lessor shall be free to accept
the Offer at the price and terms set forth in the Offer, and all rights of BCC
shall terminate, except as provided in the next sentence of this paragraph. If
such Transfer is not consummated on the terms and conditions provided in the
Offer, BCC shall be entitled to exercise the Refusal Right as herein provided,
as to any subsequent Transfer of all or any portion of the Property and/or the
Facility during the term of this Agreement.
(b) As used in this Agreement, "Transfer" means (i) any sale,
ground lease, or other conveyance of all or any portion of the Property and/or
the Facility or (ii) the transfer of all or any portion of the issued and
outstanding common stock of Lessor.
2. Notwithstanding any provision herein to the contrary, in no
event shall BCC have the right to exercise the Refusal Right, and Lessor shall
be under no obligation to provide the Offer or Selling Notice to BCC, in the
event that at the time Lessor has received and is prepared to accept the Offer,
if there exists and is continuing a default or event of default under the Lease
or the Development Agreement.
3. Time shall be of the essence regarding this Agreement. This
Agreement shall be governed and construed in accordance with the laws of the
State of Maryland, exclusive of its conflicts of laws. This Agreement may not be
amended, except by a writing executed by both parties. Notices to be given
hereunder shall be provided in the manner provided in Section __ of the
Development Agreement; provided, the address for BCC Development shall be used
as the address for BCC. This Agreement may be recorded in the public records of
the County where the Property is located.
4. Lessor and BCC acknowledge and agree that any purchase or
other transfer of the Property and/or the Facility pursuant to this Agreement
shall be subject to the leasehold estate of Lessee in the Lease; provided,
however, in no event shall Lessee be deemed a third party beneficiary of this
Agreement.
2
<PAGE> 3
In witness whereof, the parties hereto have executed this
Agreement as of the date first written above.
WITNESS: Capstone Capital Corporation
By: /s/ Signature Illegible
- ------------------------------- -----------------------------------
Title:
- ------------------------------- --------------------------------
Print Name
- -------------------------------
- -------------------------------
Print Name
WITNESS: BALANCED CARE CORPORATION
By: /s/ Signature Illegible
- ------------------------------- -----------------------------------
Title:
- ------------------------------- --------------------------------
Print Name
- -------------------------------
- -------------------------------
Print Name
S-1
<PAGE> 4
Schedule to Exhibit 10.69 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Right of First Refusal Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.;
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.70
STOCK PLEDGE AGREEMENT
THIS AGREEMENT made and entered into as of February 6, 1998 (the
"AGREEMENT") by and between Extended Care Operators, a Delaware limited
liability company and Oakhaven Senior Living, Inc., a California corporation
(collectively, the "PLEDGOR"), Extended Care Operators of Ravenna, LLC, a
Delaware limited liability company (the "LESSEE"), and BALANCED CARE
CORPORATION, a Delaware corporation (the "SECURED PARTY").
WITNESSETH:
WHEREAS, Pledgor is the owner of the Equity Interests of Lessee, which
Equity Interests represent 100% of the equity interests in the Lessee;
WHEREAS, Pledgor and Secured Party have entered in to that certain
Option Agreement dated as of February 6, 1998 (the "OPTION AGREEMENT") whereby,
among other matters, Pledgor has granted Secured Party an Option to purchase all
of Pledgor's right, title and interest in and to the Equity Interests on the
terms and conditions provided therein;
WHEREAS, Secured Party and Lessee have entered into that certain
Shortfall Funding Agreement dated as of February 6, 1998 (the "SHORTFALL
AGREEMENT") whereby, among other matters, Secured Party has agreed to fund
certain Shortfalls by making loans to Lessee, as more fully provided in the
Shortfall Agreement;
WHEREAS, Pledgor being the Members of Lessee, shall receive a direct
benefit from the consummation of the transaction evidenced by the Shortfall
Agreement and other Transaction Documents; and
WHEREAS, it is a condition precedent to the willingness of the Secured
Party to enter into the Transaction Documents that Pledgor execute and deliver
this Agreement in favor of the Secured Party; and
WHEREAS, initially capitalized terms not defined herein shall have the
meanings ascribed to such terms in Appendix 1 attached hereto, and the rules of
interpretation in Appendix 1 shall be applicable to this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. STOCK PLEDGE. Pledgor hereby pledges, grants a security
interest in, mortgages, assigns, transfers, delivers, sets over and confirms
unto the Secured Party, its successors and assigns, all of Pledgor's right,
title and interest in and to all Equity Interests owned by Pledgor
(collectively, the "Pledged Interests"), and the certificates representing or
evidencing the Pledged Interests, with stock powers attached duly endorsed in
blank by Pledgor, receipt of which is
<PAGE> 2
acknowledged by the Secured Party, as security for Pledgor's complete payment
and performance under the Option Agreement and all of the Obligations.
2. REPRESENTATIONS AND WARRANTIES. The Pledgor and Lessee jointly
and severally represent and warrant to the Secured Party that:
(i) except as provided herein, there are no restrictions
upon the transfer of the Pledged Interests and that the Pledgor has good and
valid title to the Pledged Interests free and clear of any liens, charges or
encumbrances thereon or affecting tittle thereto;
(ii) each Pledgor (a) is a limited liability company duly
organized, validly existing and in good standing under the laws of the state of
Delaware, (b) has the power and holds all licenses necessary to carry on its
business as it is being conducted and (c) is duly qualified to transact business
in each jurisdiction in which qualification is required and where failure to do
so would have a material adverse effect on the business of the Pledgor;
(iii) the Lessee (a) is a limited liability company duly
organized, validly existing and in good standing under the laws of the state of
Delaware, (b) has the power and holds all licenses necessary to carry on its
business as it is being conducted and (c) is duly qualified to transact business
in each jurisdiction in which qualification is required and where failure to do
so would have a material adverse effect on the business of the Lessee;
(iv) no equity interests of the Lessee, other than the
Pledged Interests are outstanding;
(v) except as set forth in the Option Agreement, there
are no outstanding subscriptions, warrants, calls, options, rights, commitments,
securities or agreements calling for the issuance of, or convertible or
exchangeable into, any equity interests of the Lessee or for the issuance of any
securities convertible or exchangeable, actually or contingently, into such
equity interests;
(vi) each Pledgor and the Lessee have full power,
authority and legal right and any approval required by law to enter into and
carry out the terms, provisions and agreements hereof and to make the
representations and warranties contained herein;
(vii) the execution, delivery and performance of this
Agreement by each Pledgor and the Lessee and the delivery of the Pledged
Interests to the Secured Party by each Pledgor do not contravene and will not
result in the breach of any of the terms and provisions of, or constitute a
default under, the charter documents of each Pledgor or the Lessee or any note,
indenture, mortgage, deed of trust, other agreement, commitment, contract, or
other instrument, obligation or restriction affecting the Pledgor, the Lessee or
any property owned by either Pledgor or the Lessee, or violate any statute,
ordinance, by-law, code, rule, ruling, regulation, restriction, order, judgment,
decree, writ, judicial or administrative interpretation or injunction of any
Governmental Authority having jurisdiction over either Pledgor, the Lessee or
any property owned by the Pledgor or by the Lessee;
-2-
<PAGE> 3
(viii) 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 Entity or person and no waiver of any right by
any Entity or person is required to authorize or permit, or is otherwise
required as a condition to the delivery of the Pledged Interests to the Secured
Party by the Pledgor, the execution and delivery of this Agreement by the
Pledgor and/or the Lessee or any of the other Transaction Documents to which the
Pledgor and/or the Lessee is a party to and the performance of their respective
obligations thereunder or as a condition to the validity or enforceability of
any of the same;
(ix) this Agreement and the delivery of the Pledged
Interests to the Secured Party creates a duly perfected first and prior
possessory security interest in the Pledged Interests; and
(x) this Agreement represents the legal, valid and
binding obligation of the Pledgor and the Lessee enforceable against them in
accordance with its terms.
3. COVENANTS. Each Pledgor covenants that, until such time as the
Obligations have been fully paid and performed, each Pledgor:
(i) except as set forth in the Option Agreement, shall
not, directly or indirectly, sell, assign, exchange, convey, pledge, alienate,
hypothecate, gift, devise or otherwise transfer or grant any option with respect
to any of the Pledgor's rights to the Pledged Interests, whether voluntarily or
by operation of law;
(ii) shall not, directly or indirectly, create or suffer
to exist any lien, security interest or other charge or encumbrance against, in
or with respect to any of the Pledged Interests, whether voluntarily or by
operation of law, except for the pledge hereunder and the security interest
created hereby;
(iii) shall warrant and defend to the Pledged Interests and
the lien thereon conveyed to the Secured Party by this Agreement against the
claims of all Persons;
(iv) shall pay, when due, all taxes and any other charges
which may form the basis of a lien, claim or expense upon or in connection with
the Pledged Interests or any interest therein;
(v) without limiting the covenants set forth above in
clause (ii) of this Section 3, shall provide written notice to the Secured Party
of all encumbrances of any kind or nature hereafter placed on the Pledged
Interests, such notice to be delivered to the Secured Party within five (5) days
of the occurrence of any such encumbrance; and
(vi) shall keep in effect its existence and rights as a
limited liability company under the laws of the state of Delaware.
Each Pledgor and the Lessee jointly and severally covenant that (a)
they shall not either knowingly or negligently (with or without knowledge) take
any action which would in any
-3-
<PAGE> 4
manner impair the value of any of the Pledged Interests; (b) shall not agree to
a termination of, any supplement to or any amendment or modification of the
charter documents of the Lessee and (c) no additional equity interests of the
Lessee shall be issued, sold or otherwise disposed of by the Lessee after the
date hereof other than to the Pledgor.
4. PLEDGOR TO HOLD IN TRUST. Subsequent to the occurrence of any
Event of Default, and regardless of whether the Secured Party makes any demand
or request on each Pledgor, each Pledgor shall hold in trust for the Secured
party any and all cash, checks, drafts, items, or other instruments or writings
for the payment of money which may be received by either Pledgor as dividends or
otherwise with respect to the Collateral, in precisely the form received. The
Pledgor shall immediately upon request by the Secured Party endorse, transfer
and deliver any and all such payments to the Secured Party for application
against the Secured Obligations.
5. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an
Event of Default, the Secured Party, in its sole discretion and without further
notice or demand, may (i) declare the Secured Obligation to be immediately due
and payable; (ii) proceed immediately to exercise any and all of a secured
party's rights, powers and privileges with respect to the Collateral, including,
without limitation, the right to sell or otherwise dispose of the Collateral or
any part thereof in such manner as the Secured Party, in its sole discretion may
choose, or (iii) exercise any other right or remedy not inconsistent with the
foregoing which is available to the Secured Party under the UCC or otherwise
available by agreement or under federal or state law.
The Secured Party shall act as the authorized agent and
attorney-in-fact of each Pledgor in disposing of the Collateral, and in that
capacity it is authorized to take such action on behalf of the Pledgor as will
further such a disposition, including, without limitation, any necessary
endorsement or signature in its or the Pledgor's name. Each Pledgor expressly
acknowledges that compliance with federal and state securities and other laws
may limit the disposition of the Collateral by the Secured Party. No disposition
of the Collateral by the Secured Party upon a default shall be deemed to be a
breach of duty to the Pledgor or to be commercially unreasonable because a
better sales price might have been attained through an alternative disposition,
if the Secured Party in good faith has determined that the alternative
disposition may constitute a violation of state or federal laws. Without
limiting the generality of the foregoing, the Secured Party may at any sale of
the Collateral restrict the prospective bidders or purchasers of the Collateral
to persons who will represent and agree that they are purchasing the Collateral
for their own account for investment, and not with a view to distribution or
sale. Any purchaser at a sale conducted pursuant to the terms of this Agreement
shall hold the property sold absolutely, free from any claim or right on the
part of each Pledgor and each Pledgor hereby waives any right of redemption,
stay or appraisal under present or future law. Each and every purchaser of any
of the Collateral shall be vested with shareholder's rights provided by the
stock purchased, including, without limitation, all voting and dividend rights.
Each Pledgor agrees that the Secured Party may purchase the Collateral or any
part thereof at any sale.
6. APPLICATION OF PROCEEDS. No disposition of any of the
Collateral shall extinguish any obligation of the Pledgor except to the extent
that the net proceeds are applied
-4-
<PAGE> 5
thereto, such proceeds to be applied first to the payment of all costs and
expenses of disposition of the Collateral, and then toward payment of the
Secured Obligations in such order of application as the Secured Party may from
time to time elect, and any remaining balance paid to the Pledgor.
7. MISCELLANEOUS. This Agreement and the construction and
enforcement thereof shall be governed in all respects by the laws of the State
of {Pennsylvania}. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Pledgor and the Secured Party have caused this
Agreement to be duly executed and delivered under hand and seal, all as of the
day and year first above written.
BALANCED CARE CORPORATION
By: /s/ Signature Illegible
------------------------------
Its:
------------------------------
EXTENDED CARE OPERATORS, LLC
By: /s/ Signature Illegible
------------------------------
Its:
------------------------------
OAKHAVEN SENIOR LIVING, INC.
By: /s/ Signature Illegible
------------------------------
Its:
------------------------------
EXTENDED CARE OPERATORS OF RAVENNA, LLC
By: /s/ Signature Illegible
------------------------------
Its:
------------------------------
S-1
<PAGE> 7
Schedule to Exhibit 10.70 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Stock Pledge Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.;
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.71
WORKING CAPITAL ASSURANCE AGREEMENT
(Ravenna, Ohio)
THIS AGREEMENT is made as of February 6, 1998, by and among BALANCED
CARE CORPORATION, a Delaware corporation, with a principal place of business at
5021 Louise Drive, Suite 200, Mechanicsburg, PA 17055 ("BCC") and Capstone
Capital Corporation, a Maryland corporation, with a principal place of business
at 1000 Urban Center Drive, Suite 630, Birmingham, Alabama 35242, Attn: Daryl D.
McCombs (the "Lessor").
W I T N E S S E T H:
WHEREAS, the Lessor and BCC at Ravenna, Inc., entered into that certain
Lease Agreement dated as of March 28, 1997 (the "Lease") relating to certain
premises located in Ravenna, Ohio, which Lease was assigned to Extended Care
Operators of Ravenna, LLC, a Delaware limited liability company (the "Lessee")
pursuant to that certain Assignment, Assumption and Amendment of Lease Agreement
(the "Assignment"), and all capitalized terms used herein and not otherwise
defined herein shall have the same meanings as ascribed to such terms in the
Lease; and
WHEREAS, pursuant to a Shortfall Funding Agreement dated of even date
herewith (the "Shortfall Agreement"), and a Deposit Pledge Agreement dated of
even date herewith (the "Deposit Pledge"), each among the Members (as defined in
Appendix 1 to the Shortfall Agreement) Lessee and BCC, Lessee has or will
deposit funds into the Working Capital Reserve (as defined in the Shortfall
Agreement) to fund certain operational losses anticipated in connection with the
Project; and
WHEREAS, as additional security for the obligations of Lessee under the
Lease Documents, as defined in Appendix 1 attached to the Shortfall Funding
Agreement (the "Lease Obligations"), the Lessor has requested the execution and
delivery of this Agreement.
NOW THEREFORE, for good and valuable consideration paid by each of the
parties hereto to the other, the receipt and sufficiency of which is hereby
acknowledged and in consideration of the covenants and agreements set forth
herein, the parties hereto agree as follows:
1. Subject to the terms of Section 4 hereof, from the date hereof
until the complete payment and performance of the Lease Obligations, BCC
unconditionally agrees to loan to the Lessee, sufficient funds, by means of
working capital loans (collectively, the "Working Capital Loans"), to pay and
satisfy the amount by which the Lessee's cash requirements to meet its
obligations (including, without limitation, operating expenses, debt service and
the Lease Obligations) due and payable during any month exceed the gross
revenues received by the Lessee
<PAGE> 2
during such month (the "Shortfall"). Such Working Capital Loans shall be made
pursuant to the Shortfall Agreement.
2. Subject to the terms of Section 4 hereof, but without regard
to any bankruptcy, default, breach of condition or failure to satisfy any
condition under the Shortfall Agreement, BCC shall, without further direction,
advance to the Lessee the amount equal to the Shortfall in a timely fashion so
that the Lessee is able to meet all of its working capital obligations
(including, without limitation, the Lease Obligations) when due. Without
limiting the generality of foregoing, BCC shall make Working Capital Loans to
Lessee to fund Shortfalls even if Lessee fails to make contributions on a timely
basis to the Working Capital Reserve as provided in Section 1.01 of the
Shortfall Agreement.
3. BCC acknowledges that the covenants and agreements made
hereunder by BCC are being made to induce the Lessor to enter into and accept
the Lease and enable the Lessee, upon the complete disbursement of the Working
Capital Reserve, to fulfill its working obligations, including, without
limitation, the Lease Obligations. Accordingly, it is expressly intended by BCC
that the covenants and agreements by BCC hereunder may be relied upon and
enforced by the Lessor.
4. Notwithstanding anything to the contrary set forth herein,
BCC's obligation to provide the Working Capital Loans, and advance Shortfalls,
to the Lessee shall not commence until such time as the full amount actually
deposited by Lessee in the Working Capital Reserve has been depleted.
5. The obligations of BCC hereunder shall not be affected by the
termination, discontinuance, release or modification of any agreement from any
endorser, surety or guarantor of the Lease Obligations. Notwithstanding anything
to the contrary contained herein or in the Lease, the Lessor hereby covenants
and agrees with BCC that the Lessor shall not amend, modify or otherwise alter
the Lease or any other document executed in connection therewith (collectively,
the "Lease Documents") without BCC's prior written consent, in each instance,
which consent, shall not be unreasonably withheld, conditioned or delayed.
In addition, the Lessor hereby covenants and agrees with BCC that,
except in connection with the exercise of any of its rights and/or remedies
under the Lease Documents, the Lessor shall not terminate the Lease without the
prior written consent of BCC, which consent shall not be unreasonably withheld,
conditioned or delayed.
6. The obligations of BCC hereunder shall not be affected by any
change in the beneficial ownership of the Lessee or by reason of any disability
of the Lessee. 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 security. This Agreement
shall continue to be effective or be reinstated, as the case may be, if, at any
time, any payment of the Lease Obligations is rescinded or must otherwise be
returned by the Lessor upon the insolvency, bankruptcy or reorganization of the
Lessee or otherwise, all as though such payment had not been made.
-2-
<PAGE> 3
7. (a) Without limiting BCC's obligation to provide the
Working Capital Loans, upon the occurrence of any default under any of the Lease
Documents, BCC shall have the right, but not the obligation, to cure such
default within any applicable notice and grace periods (or in the event of no
grace period, within 3 days after receipt by BCC of notice of such default) and,
to the extent permitted by law, enter upon the Property, if necessary, for such
purpose and take all such actions as BCC may deem necessary or appropriate to
remedy such default. The Lessor agrees to give written notice to BCC of any
default by Lessee under the Lease or any other Lease Document for which Lessor
becomes aware. The Lessor agrees to accept any remedy performed by BCC as if the
same had been performed by the Lessee.
(b) Lessor acknowledges that BCC has the right to acquire
all of the assets of Lessee pursuant to the Shortfall Agreement or all of the
Equity Interests (as defined in the Shortfall Agreement) pursuant to the Option
Agreement (as defined in the Shortfall Agreement).. In the event that BCC or an
affiliate of BCC exercises its rights to acquire either the assets or the Equity
Interests, (A) Lessor hereby consents to the transfer of the Lease to BCC or the
BCC Affiliate, and shall recognize such purchaser as Lessee under the Lease and
other Lease Documents so long as (i) such purchaser executes and delivers to
Lessor such documents, instruments, affidavits and opinions as Lessor may
reasonably request and (ii) in the event the purchaser is an affiliate of BCC,
BCC shall provide a guaranty of the Lease Obligations in form and substance
reasonably satisfactory to Lessor and (B) Lessor shall release Lessee and any
guarantor of Lessee's obligations upon the consummation of such transfer.
8. 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 BCC: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: President
WITH COPIES TO: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: General Counsel
and
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Steven J. Adelkoff, Esq.
-3-
<PAGE> 4
IF TO THE LESSOR: Capstone Capital Corporation
1000 Urban Center Drive, Suite 630
Birmingham, AL 35242
Attn: Daryl D. McCombs
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 BCC or the
Lessee by the Lessor at any time shall not imply that such notice or any further
or similar notice was or is required.
9. This Agreement shall be construed, and the rights and
obligations of the Lessor and BCC shall be determined, in accordance with the
laws of the State of Maryland.
10. This Agreement and BCC's obligations hereunder shall
automatically terminate upon BCC's purchase of all of the issued and outstanding
equity of the Lessee or substantially all of the assets of Lessee.
11. The Lessor covenants and agrees with BCC that the Lessor shall
not consent to any assignment of the Lessee's interest under the Lease (except
to BCC or an affiliate of BCC, or as otherwise expressly provided in Section
7(b) of this Agreement) or any transfer of substantially all of the Lessee's
assets or any transfer of the issued and outstanding equity of the Lessee
without the prior written consent of BCC, which consent, BCC may withhold in its
sole and absolute discretion. In addition, in the event that, in violation of
the terms of the Lease, (A) the Lessee attempts to assign its interest in the
Lease (or transfer substantially all of its assets), (B) the current holders of
the issued and outstanding equity of the Lessee attempt to transfer any such
equity or (C) if any of the events described in Section {ADD SECTION IN LEASE ON
BANKRUPTCY AS DEFAULT) of the Lease occurs with respect to Lessee, the Lessor
covenants and agrees with BCC that, subject to applicable law, the Lessor shall
terminate the Lease (in accordance with the terms thereof) and shall enter into
a new lease of the Property with BCC (or any of its wholly-owned subsidiaries,
provided, that, BCC executes and delivers a guaranty of any such lease, in form
and substance acceptable to the Lessor), in form and substance acceptable to the
Lessor; provided, however, that any such lease shall be substantially similar to
the Lease. In connection with the execution and delivery of any such lease, (Y)
BCC and its Subsidiaries shall execute and deliver any additional documents that
the Lessor may request, in form and substance similar to the Lease Documents and
(Z) BCC shall deliver to the Lessor such evidence as Lessor shall request, in
form and substance acceptable to the Lessor, that the new lease and all other
documents executed and delivered in connection therewith have been duly
authorized, executed and delivered and are enforceable. BCC agrees to pay all of
the costs and expenses reasonably incurred by the Lessor (including, without
limitation, attorneys' fees and expenses) in connection with the performance of
the Lessor's obligations under this Section 11.
12. (a) Entire Agreement . This Agreement contains the entire
understanding among the parties hereto with respect to its subject matter and
supersedes any prior understandings or agreements between the parties with
respect to such subject matter.
-4-
<PAGE> 5
(b) Amendments. This Agreement may be modified or amended
only by a written instrument executed by the Lessor, the Lessee and BCC.
(c) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
(d) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute but a single instrument.
(e) Future Cooperation. Each party covenants and agrees
to take such further action and execute such further documents as may be
necessary or appropriate to carry out the intention of this Agreement.
(f) Successors and Assigns. This Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns.
(g) Certain Covenants. BCC and BCC's Affiliates shall
maintain, on a consolidated basis, 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 or
waiver of which shall not be unreasonably withheld (and for purposes of this
Subsection, the line item identified as "Mandatorily Redeemable Preferred B
Stock" reflected on BCC's consolidated financial statements shall be included in
BCC's shareholder equity; and
(iii) a Consolidated Cash Flow Coverage not less
than 1.0 to 1.0, where "Consolidated Cash Flow Coverage" shall mean a ratio of
(A) earnings before interest, taxes, depreciation, amortization, rent and its
home expense minus an assumed {five} percent (5%) management fee to (B) all
interest and rent payments.
-5-
<PAGE> 6
EXECUTED as a sealed instrument as of the date first written above.
WITNESS: BCC:
BALANCED CARE CORPORATION, a
Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ------------------------------ ------------------------------
Name: Name:
Title:
WITNESS: LESSOR:
CAPSTONE CAPITAL CORPORATION
/s/ Signature Illegible By: /s/ Signature Illegible
- ------------------------------ ------------------------------
Name: Name:
Title:
S-1
<PAGE> 7
Schedule to Exhibit 10.71 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Working Capital Assurance Agreement
<TABLE>
<CAPTION>
Location Entities
<S> <C>
Harrisburg, PA BCC at Harrisburg, Inc.;
Extended Care Operators of Harrisburg LLC
Greensboro, NC BCC at Greensboro, Inc.;
Extended Care Operators of Greensboro LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.72
ASSIGNMENT AND ASSUMPTION OF LEASES
This ASSIGNMENT AND ASSUMPTION OF LEASES ("Assignment") is entered into
as of this 30th day of December, 1997 by and among BCC at Ravenna, Inc., a
Delaware corporation, BCC at Greensboro, Inc., a Delaware corporation and BBC at
Harrisburg, Inc., a Delaware corporation (collectively, "Assignor") and Senior
Care Operators, LLC, a Delaware limited liability company ("Assignee").
WITNESSETH:
WHEREAS, Assignor is the holder of certain leasehold estates pursuant
to leases, each dated as of March 28, 1997 (collectively, the "Leases") granted
by the landlords identified on Exhibit A attached hereto (collectively, the
"Landlords") in certain properties, also more fully described on Exhibit A
attached hereto (collectively, the "Premises"); and
WHEREAS, Assignor wishes to assign and set over to Assignee, and
Assignee wishes to assume, all of Assignor's rights, title, interests and
obligations in and pursuant to the Leases.
NOW, THEREFORE, for ten dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Assignor assigns, sets over and transfers unto Assignee all of
Assignor's rights, title, interest and obligations under the Leases. Assignee
accepts the Assignment of the Leases from Assignor and agrees to assume all of
Assignor's obligations under the Leases which accrue on or after the date hereof
("Assignee's Obligations"). As between Assignor and Assignee, Assignor shall
remain liable for all obligations under the Leases which accrued prior to the
date hereof ("Assignor's Obligations").
2. Assignor represents and warrants that as of the date hereof,
the Leases are in full force and effect, and have not been modified or amended.
3. All terms and conditions of the Leases shall remain and
continue in full force and effect. Assignee shall not further assign, transfer,
encumber or pledge the Leases, or sublet the Premises, except in strict
accordance with the terms and conditions of the Leases.
-1-
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Assignment of
Lease on the date and year first written above.
ASSIGNOR:
BCC AT RAVENNA, INC.
BY:________________________
TITLE:_____________________
BCC AT GREENSBORO, INC.
BY:________________________
TITLE:______________________
BCC AT HARRISBURG, INC.
BY:________________________
TITLE:_____________________
ASSIGNEE:
SENIOR CARE OPERATORS, LLC
BY:________________________
TITLE:_____________________
-2-
<PAGE> 3
EXHIBIT A
DESCRPTION OF ASSIGNOR, LEASE AND PROPERTY
ASSIGNOR LEASE LANDLORD PROPERTY
BCC at 3/28/97 Capstone Capital Ravenna, Ohio
Ravenna, Inc. Corporation, a
Maryland corporation
BCC at 3/28/97 Capstone Capital Greensboro,
Greensboro, Inc. Corporation, a North Carolina
Maryland corporation
BCC at 3/28/97 Capstone Capital Harrisburg,
Harrisburg, Inc. of Pennsylvania, Inc., Pennsylvania
a Pennsylvania
corporation
-3-
<PAGE> 1
EXHIBIT 10.73
================================================================================
FACILITY AGREEMENT
by and between
AMERICAN HEALTH PROPERTIES, INC.,
a Delaware corporation ("American Health")
and
BALANCED CARE CORPORATION,
a Delaware corporation ("Balanced Care").
-----------------------
January 30, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions and Construction...........................................................1
2. Term; Limitation of Funding............................................................7
3. Pre-Development Services...............................................................8
4. Acquisition of Qualified Properties....................................................10
5. Development, Lease and Operation of Qualified Property.................................15
6. Title Insurance; Status of Title.......................................................16
7. Option Agreement.......................................................................16
8. Representations of Balanced Care.......................................................20
9. Representations of American Health.....................................................21
10. Conditions to Obligations of American Health and AHP..................................22
11. Conditions to Obligations of Balanced Care and BCC....................................22
12. Covenants of Balanced Care............................................................22
13. Default...............................................................................22
14. Calculation of Days...................................................................25
15. Miscellaneous.........................................................................25
LIST OF EXHIBITS
Exhibit A - Form of Completion Guarantee
Exhibit B - Form of Development Agreement
Exhibit C - Form of Environmental Indemnity
Exhibit D - Form of Lease
Exhibit E - Form of Management Agreement
Exhibit F - Form of Leasehold Mortgage
Exhibit G - Form of Management Guarantee
Exhibit H - Form of Shortfall Funding Agreement
Exhibit I - Form of Assignment of Acquisition Rights
Exhibit J - Form of Option Agreement
Exhibit K - Form of Working Capital Assurance Agreement
Exhibit L - Exceptions to Representations and Warranties
Exhibit M - Form of Non-Competition Agreement
Exhibit N - Form of Security and Subordination Documents:
Exhibit N-1 - Guaranty of Payment and Performance
Exhibit N-2 - Subordination and Standstill Agreement
Exhibit N-3 - Security Agreement
Exhibit N-4 - Assignment of Leases, Rents and Receivables
</TABLE>
<PAGE> 3
FACILITY AGREEMENT
THIS FACILITY AGREEMENT is made and entered into this 1st day of
February, 1998, to be effective for all purposes as of the 30th day of January
1998 by and between BALANCED CARE CORPORATION, a Delaware corporation ("BALANCED
CARE") and AMERICAN HEALTH PROPERTIES, INC., a Delaware corporation ("AMERICAN
HEALTH") with reference to the following facts:
A. Balanced Care is in the business of operating and managing assisted
living, senior independent living and skilled nursing facilities and providing
patients services to the residents of those facilities including therapies,
pharmacy, medical supplies and rehabilitation services.
B. Balanced Care wants American Health and/or one or more of its
wholly-owned subsidiaries (which subsidiaries are referred to herein,
individually and collectively, as "AHP") to develop up to five (5) new assisted
living facilities (each, a "FACILITY" and collectively, the "FACILITIES") for an
aggregate cost to AHP of no more than Thirty Five Million Dollars ($35,000,000)
in the aggregate, each of which shall be leased by AHP to a special purpose
limited liability company ("TENANT"), as tenant, with (i) each such Tenant
solely owning and incurring liabilities solely related to the leasehold interest
in the Facility and personal property relating to the operation thereof, and
(ii) the outstanding ownership interests in Tenant at all times held 99% by
Assisted Care Operators, L.L.C., a Delaware limited partnership ("PRIMARY
PARENT") and 1% by Oakhaven Senior Living, Inc., a California corporation
("SECONDARY PARENT") (Primary Parent and Secondary Parent being referred to
herein as "TENANT PARENT") and (iii) such Facility operated, pursuant to a
written management agreement with Tenant, by a wholly owned subsidiary of
Balanced Care as manager ("MANAGER") and AHP wants to develop the Facilities on
the terms and subject to the conditions provided in this Agreement.
C. AHP wants to engage BCC DEVELOPMENT AND MANAGEMENT CO., a Delaware
corporation ("DEVELOPER") as the developer of each of the Facilities and
Balanced Care wishes (i) to cause Developer to accept such engagement and (ii)
to cause Manager to accept Tenant's engagement of Manager as the manager of each
Facility and (iii) to cause Manager and Balanced Care to commit to provide
additional capital and services to Tenant or any successor owner or lessee of
each Facility, on the terms and subject to the conditions hereinafter provided.
All of Balanced Care's wholly-owned subsidiaries acting as Manager or Developer
with respect to any Project or Facility (as defined below) are referred to
herein, individually and collectively, as "BCC".
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally and equitably bound,
do hereby agree as follows:
1. Definitions and Construction.
1.1 Definitions. Each of the following terms, when used in this
Agreement, shall have the meaning indicated below:
1
<PAGE> 4
(a) "APPLICABLE LAWS" shall mean all local, city, county,
state and federal laws, codes, rules, regulations, ordinances and directives,
covenants, easements and restrictions of record, statutes, decisional case
authority and administrative authority, permits, and any requirements of any
applicable fire insurance underwriter or rating bureau, relating in any manner
to a Qualified Property, a Facility, or to the use, ownership or operation of
either of the foregoing or to any activities conducted thereon or thereabout,
including, without limitation, any laws relating to planning, zoning or
Hazardous Substances, now in effect or which may hereafter come into effect.
(b) "ASSIGNMENT OF ACQUISITION RIGHTS" shall have the
meaning ascribed thereto in Section 4.2.
(c) "BEST KNOWLEDGE" of a Person as to any matter shall
mean that knowledge which is actually known regarding the matter or which would
have been acquired if a responsible and prudent representative had made a
reasonable inquiry and investigation of such matter.
(d) "CHANGE IN CONTROL" shall mean the acquisition of by
any Person or group of Persons acting in concert (other than the current
management of the corporation) of the beneficial interest in sufficient Voting
Stock of a corporation to permit the Person(s) acquiring such beneficial
interests to vote for the majority of the board of directors of the corporation.
(e) "CLOSING" shall mean the acquisition of fee simple
title to a Qualified Property in accordance with the Assignment of Acquisition
Rights and the Property Acquisition Agreement contemplated therein.
(f) "COLLATERAL ASSIGNMENT" shall mean an assignment from
Tenant to AHP and American Health of the Tenant's rights under the Management
Agreement and the Shortfall Funding Agreement with respect to each Facility,
which Collateral Assignments shall also include the direct assurance of Balanced
Care to provide such funding to successor tenants of the Facility and each of
which shall be substantially in the form attached to each Lease as Exhibit C
thereto.
(g) "COMMENCE CONSTRUCTION" shall mean the mobilization of
the Prime Contractor (as defined in the Development Agreement), commencement of
site and other work and, at the time of determination, the continuing diligent
prosecution of the Substantial Completion (as defined in the Development
Agreement) of the Project to be constructed on a Qualified Property in
accordance with sound construction industry practice.
(h) "COMPLETION GUARANTEE" shall mean the written
guarantee of Balanced Care with respect to each Facility, guaranteeing to
American Health and AHP (i) the Final Completion of each Facility at a cost to
AHP less than or equal to the Approved Budget (as such term is defined in the
Development Agreement and (ii) the complete and timely performance by Developer
of all of its obligations under the Development Agreement applicable to each
Facility, with each such Completion Guarantee to be substantially in the form of
Exhibit A attached hereto.
2
<PAGE> 5
(i) "DEPOSIT PLEDGE AGREEMENT" shall mean the Deposit
Pledge Agreement to be entered into by the Tenant of each Facility in the form
attached to the Lease as Exhibit J thereto.
(j) "DEVELOPMENT AGREEMENT" shall mean the agreement with
respect to each Facility entered into by and between Developer and AHP and
providing for the development of each Facility upon the Qualified Property, each
of which shall be substantially in the form attached hereto as Exhibit B.
(k) "ENVIRONMENTAL INDEMNITY" shall mean the agreement
entered into with respect to each Facility by Balanced Care in favor of AHP,
each of which shall be in the form attached hereto as Exhibit C .
(l) "FINAL COMPLETION" of a Facility shall mean "Final
Completion" as defined in the Development Agreement.
(m) "FINANCIAL STATEMENTS" of a Person shall mean audited
financial statements of that Person (with the exception that Financial
Statements of Tenant shall be certified by Tenant and Manager as true, correct,
accurate, complete and fairly presenting the financial condition of Tenant by a
representative of Tenant authorized to make such certification), prepared in
accordance with GAAP, which fairly present that Person's financial condition as
at the dates of such Financial Statements and results of operations, properties
or prospects of that Person, including at a minimum 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 the Person to the
end of such period, a statement of cash flows for the period(s) then ended and
the related balance sheet as at the end of such period together with the notes
thereto (which shall include reasonable detail regarding any and all contingent
liabilities of the Person), all in reasonable detail and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year of the Person.
(n) "GAAP" shall mean generally accepted accounting
principles applied consistently from period to period.
(o) "GOVERNMENTAL AUTHORITY" shall mean (a) any government
or municipality or political subdivision of any government or municipality, (b)
any assessment, improvement, community facilities or other special taxing
district, (c) any governmental or quasi-governmental agency, authority, board,
bureau, commission, corporation, department, instrumentality or public body, (d)
any court, administrative tribunal arbitrator, public utility or regulatory
body, or (e) any central bank or comparable authority.
(p) "HAZARDOUS SUBSTANCES" shall mean any hazardous or
toxic material or waste which is regulated by any authority of or operating
under the authority of any local or municipal government, the State, or the
United States of America or which may require remediation at the behest of any
governmental or quasi-governmental agency or which may cause a detriment to or
impair the value or beneficial use of the Land or Improvements or cause a
health, safety or environmental hazard on, under or about any portion of the
Property, including, without limitation, any material or substance which is: (1)
petroleum or a petroleum by-product or a fraction, derivative or product of the
decay or decomposition thereof; (2) asbestos or an
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asbestos containing material in any form; (3) a hydrocarbon or similar
substance; (4) PCB; (5) formaldehyde; (6) medical waste, (7) radioactive, (8)
flammable or explosive; (9) leaked or released from any underground storage
tanks; (10) listed as a "toxic pollutant" pursuant to Section 311 of the Federal
Pollution Control Act (33 U.S.C. Section 1317) including any amendments thereto;
(11) defined as a "hazardous waste" pursuant to Section 1004 of the Federal
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42
U.S.C. Section 6903) including any amendments thereto; (12) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9601) including
any amendments thereto; (13) listed in the United States Department of
Transportation Table (49 CFR ss. 172.101) or by the U.S. Environmental
Protection Agency as a hazardous substance; (14) any material, waste or
substance which is governed, regulated, listed and/or defined under any
Applicable Laws of the State or in the regulations or judicial or administrative
orders, decisions or decrees promulgated pursuant to any of the foregoing State
or federal laws. The foregoing list of definitions and statutes is intended to
be illustrative and not exhaustive, and such list shall not be deemed to include
all definitions and laws applicable to the subject matter contained herein, all
such laws being included within the definition of Applicable Laws.
(q) "INSTITUTIONAL PROJECT FINANCE" shall mean the funding
of the construction and development costs of a Facility (as a single project and
without direct recourse to or security interests in the assets of a Person other
than the Qualified Property, the Facility to be constructed thereon and deposit
accounts of the proposed tenant thereof) by any of (i) a real estate investment
trust, (ii) a commercial bank or its regulated subsidiary or affiliate (but if
via loans or mortgage financing, only to the extent such bank provides such
financing with a maturity of no less than 10 years after completion of the
Facility) or (iii) an insurance company, to the extent such Persons are
regularly engaged in the funding of similar construction or development
projects.
(r) "LEASE" shall mean the lease to be entered into with
respect to each Facility by and between AHP as landlord and Tenant as tenant,
each of which shall be substantially in the form attached to this Agreement as
Exhibit D attached hereto.
(s) "LEASEHOLD MORTGAGE" shall mean the Revolving
Credit/Future Advance Leasehold Mortgage with respect to each Facility, each of
which shall be substantially in the form of Exhibit F attached hereto and shall
encumber each Tenant's leasehold interest in a Facility as security for the
obligations of Tenant and Tenant Parent to Balanced Care and Manager pursuant to
the Shortfall Funding Agreement, Working Capital Assurance Agreement and the
Option Agreement.
(t) "MANAGEMENT AGREEMENT" shall mean the agreement to be
entered into with respect to each Facility between Tenant and Manager providing
for the management and operation of each Facility by Manger, each of which shall
be substantially in the form of Exhibit E attached hereto.
(u) "MANAGEMENT GUARANTEE" shall mean the written
obligation of Balanced Care that Manager shall timely, fully and faithfully
perform all of its obligations under
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the Management Agreement for each Facility, each of which shall be substantially
in the form of Exhibit G attached hereto
(v) "NON-COMPETITION AGREEMENT" shall mean the agreement
entered into by and among American Health, AHP, each Tenant and Tenant Parent
with respect to each Facility, each of which shall be substantially in the form
attached hereto as Exhibit M.
(w) "OPTION AGREEMENT" shall mean an agreement between
each owner of an interest in Tenant and Balanced Care granting to Balanced Care
(or a BCC subsidiary) the right to purchase all interests in Tenant, which
Option Agreement shall be in the form attached hereto as Exhibit J.
(x) "PERMITTED EXCEPTIONS" shall have the meaning ascribed
to that term in Section 6.2
(y) "PERSON" shall mean any natural person or legal
entity, whether an individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated organization,
bank, business association or firm, joint venture, Governmental Authority or
otherwise.
(z) "PROJECT" shall mean each project to be completed upon
a Qualified Property in accordance with the Development Agreement to be entered
into with respect to that Qualified Property pursuant to this Agreement and the
other Transaction Documents.
(aa) "PROPERTY ACQUISITION AGREEMENT" shall mean the real
property purchase and sale agreement, option agreement or other agreement
providing for the acquisition by Balanced Care or BCC of property which has been
approved by AHP as Qualified Property in accordance with this Agreement.
(bb) "QUALIFIED PROPERTY" shall mean up to five (5)
individual parcels of land (i) as to which BCC or Balanced Care has the right to
purchase the fee interest thereto pursuant to a binding contract of sale or
binding option to purchase, and (ii) upon which a Facility is proposed to be
constructed, which Tenant will lease from AHP upon Final Completion thereof and
(iii) which AHP approves for acquisition in the exercise of its reasonable
business discretion (and for the avoidance of doubt, but without limitation on
the right of AHP to approve or disapprove any real property as Qualified
Property AHP shall have the right to determine that any proposed real property
is not Qualified Property based upon its reasonable determination that the
demographics of the proposed vicinity of the property or other market conditions
including such items as the degree of existing, proposed or potential
competition within an area makes it unlikely that a Person could operate the
Facility profitably).
(cc) "SECURITY AND SUBORDINATION DOCUMENTS" shall mean,
collectively, (i) the Guaranty of Payment and Performance made with respect to
each Lease by Tenant Parent, as Guarantor, in favor of AHP, as Landlord, each of
which shall be substantially in the form attached hereto as Exhibit N-1, (ii)
the Subordination and Standstill Agreement entered into with respect to each
Lease by and among AHP, as landlord, each Tenant, as tenant and Tenant Parent,
as Guarantor, each of which shall be in substantially the form attached hereto
as Exhibit N-2, (iii) the Security Agreement executed with respect to each
Facility by Tenant in
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favor of AHP, as landlord, each of which shall be in the form attached hereto as
Exhibit N-3 and (v) the Assignment of Leases, Rents and Receivables made by with
respect to each Facility by Tenant in favor of AHP, as Landlord, each of which
shall be in the form attached hereto as Exhibit N-4.
(dd) "SELLER" shall mean the Person selling a Qualified
Property in accordance with a Property Acquisition Agreement.
(ee) "SHORTFALL FUNDING AGREEMENT" shall mean the
agreement of Balanced Care to fund deficits in the working capital required for
Tenant to operate any one or more of the Facilities, substantially in the form
attached hereto as Exhibit I.
(ff) "STATE" shall mean, with respect to each Qualified
Property, the State in which the Qualified Property is located.
(gg) "TRANSACTION DOCUMENTS" means, collectively, this
Agreement and each and every one of the Development Agreements, Assignments of
Acquisition Rights, Non-Competition Agreements, Completion Guarantees,
Management Agreements, Management Guarantees, Security and Subordination
Documents, Working Capital Documents, and Leases executed and delivered with
respect to each Facility and any and all documents, instruments or agreements
delivered to AHP or American Health pursuant to any one or more of the
foregoing.
(hh) "WORKING CAPITAL ASSURANCE AGREEMENT" shall mean the
undertaking of Balanced Care in favor of American Health, obligating Balanced
Care, among other things, to fund deficits in the working capital required for
Tenant to operate any one or more of the Facilities, substantially in the form
attached hereto as Exhibit K
(ii) "WORKING CAPITAL DOCUMENTS" shall mean, with respect
to each Tenant and each Facility, the Shortfall Funding Agreement, Deposit
Pledge Agreement, Working Capital Assurance Agreement, Option Agreement,
Leasehold Mortgage and all notes or other similar instruments to be delivered in
connection with any one or more of the foregoing.
1.2 Terms Not Defined. All accounting terms which are not
otherwise defined in this Agreement shall have the meanings ascribed to such
term under GAAP.
1.3 Additional Rules of Construction. The terms "including" and
"include" mean "including without limitation" and "including, but not limited
to". The term "any" as a modifier to any noun, shall be construed to mean "any
and/or all" preceding the same noun in the plural The terms "herein" "hereunder"
and other similar compounds of the word "here" refer to the entire document in
which the term appears and not to any particular provision or section of the
document in which the term appears and not to any particular provision or
section of the document. References herein to a Section, paragraph or subsection
shall refer to the indicated provision of this Agreement unless referred to
herein to the contrary. In all cases where American Health's approval or consent
is required hereunder, such approval or consent must be in writing and may be
withheld in American Health's sole and absolute discretion.
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1.4 Incorporation of Exhibits and Schedules. All Exhibits and
schedules attached to this agreement or otherwise referred to herein are
incorporated herein and made an integral part of this Agreement by this
reference as if fully set forth herein at length.
2. Term; Limitation of Funding.
2.1 Term. The term of this Agreement (the "TERM") shall commence
on January 30, 1998 and unless sooner terminated in accordance with the terms of
the Transaction Documents (including this Agreement) shall expire upon the
earlier of July 31, 1999 and the date on which Developer Commences Construction
with respect to the fifth Project to be acquired and developed pursuant to this
Agreement. Neither American Health nor AHP shall have any obligation to consider
or acquire Qualified Properties nor to enter into any Transaction Documents with
respect to any property, Project or Facility upon the expiration or sooner
termination of this Agreement.
2.2 Limitation on Funding. Notwithstanding any provision of this
Agreement or any Transaction Document to the contrary, American Health shall not
be obligated to fund (whether directly or indirectly, through one or more AHP
subsidiaries, by Construction Advance or otherwise) more than Thirty Five
Million Dollars ($35,000,000) in the aggregate pursuant to this Agreement and
the other Transaction Documents, inclusive of all fees paid to Developer, other
Costs of the Work, any other Advances (as defined in the Development Agreement)
and Imputed Interest thereon (as defined in the Development Agreement).
3. Pre-Development Services.
Prior to proposing the acquisition by AHP of any site as a
Qualified Property or proposing the development of any Facility upon such
property, Balanced Care shall have performed or have caused Developer to perform
each of the following services (collectively, the "PRE-DEVELOPMENT SERVICES"):
3.1 completing a market analysis to confirm bed need,
3.2 determining that the proposed property is a suitable site for
a Facility and obtaining the right to acquire (i) good, marketable and
indefeasible fee simple title to the site subject only to the Permitted
Exceptions and (ii) any related or appurtenant rights, easements or other
property desirable for the development of a Facility upon a site;
3.3 obtaining architectural plans for the Project to be
constructed upon the proposed site, which plans shall be based on the prototype
plans for the Facilities previously delivered to American Health by Balanced
Care,
3.4 retaining to the extent reasonably required for the
development of a Project on the proposed site, engineers, architects, 1and
planners, surveyors, consultants, independent contractors, subcontractors,
attorneys, service agents, suppliers and other providers of materials or
services,
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3.5 obtaining preliminary site and other plans or surveys showing
any easements, plats, maps, subdivisions, plans, declarations of covenants and
restrictions, right-of-way deeds and other similar instruments and obtaining any
and all other entitlements and permits necessary to the development of the
Project, and
3.6 performing such other investigations and other tasks as may
reasonably be requested by American Health or AHP in connection with the
proposed site, including but not limited to soil and geotechnical testing,
environmental site assessments (including without limitation obtaining a Phase I
Environmental Report and completing any Phase II Environmental Report
recommended therein), determining that storm water, surface and other drainage
on the proposed site is adequate for the proposed Project, that utilities
adequate to service the Project will be made available by reliable utility
providers and confirming that planning, zoning and other Applicable Laws or
restrictions will permit the operation of the Facility upon the proposed site.
4. Acquisition of Qualified Properties.
Upon (i) the performance by Balanced Care of each of the
Pre-Development Services set forth in Sections 0 through 0 above, (ii) AHP
receiving each of the items listed in subparagraphs (0) through (0) of Section 0
below and (iii) AHP delivering to Balanced Care its written approval of the
performance of the Pre-Development Services and the items required to be
delivered to it pursuant to Section 0 and its approval of a proposed property as
a Qualified Property in the manner contemplated in Section 0 below (provided,
however, that no such approval shall be construed as a warranty as to any such
matters by AHP, shall not relieve Balanced Care from any of its obligations
under any Transaction Document, including but not limited to the obligation of
Balanced Care and BCC to cause the Final Completion of each Facility at a cost
to AHP and American Health not to exceed the Maximum Project Amount with respect
to each Facility, nor subject American Health or AHP to any liability
whatsoever), AHP shall acquire each approved Qualified Property, subject to the
terms of the applicable Property Acquisition Agreement, the Assignment of
Acquisition Rights, this Agreement and the other Transaction Documents.
4.1 Identification of Qualified Properties to American Health.
Balanced Care shall deliver written notice (the "IDENTIFICATION NOTICE") to
American Health of any land which Balanced Care desires AHP to acquire as a
Qualified Property. The Identification Notice shall include each of the
following items, each of which shall be delivered by Balanced Care in form and
substance satisfactory to AHP:
(a) a legal description, street address or other
reasonable identification of the particular property which Balanced Care
proposes AHP approve as a Qualified Property,
(b) a description of and preliminary plans and
specifications for the Facility which BCC proposes to construct upon the
Property pursuant to a Development Agreement and which Tenant will lease and BCC
will manage in accordance with the terms of this Agreement, the Lease and the
Management Agreement,
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(c) a description of the demographic characteristics of
the vicinity of the proposed Qualified Property and of the area which will be
serviced by the proposed Facility to be constructed thereupon;
(d) a description of existing or proposed facilities which
are reasonably anticipated to compete with the proposed Facility including a
description of the bed capacity of each such competitive facility, the services
to be provided therein, and the anticipated and/or existing operator and manager
thereof;
(e) a description of the results of and information
obtained in connection with the performance by Balanced Care and BCC of the
Pre-Development Services described in Section 3.
(f) a copy of the Property Acquisition Agreement pursuant
to which BCC or Balanced Care has the right to acquire the fee interest in and
to the proposed Qualified Property;
(g) a preliminary budget for the project showing in
reasonable detail the anticipated costs of development, construction and opening
costs of the Facility proposed to be constructed upon the proposed Qualified
Property;
(h) preliminary projections of revenue and operating
expenses for no less than the first five (5) years of operations of the Facility
proposed to be constructed upon the proposed Qualified Property, including
reasonable details regarding the underlying operating and financial assumptions
used to arrive at such projections;
(i) the written commitment of Tenant to enter into a Lease
of the Facility proposed to be constructed on the proposed Qualified Property at
the Closing;
(j) Financial Statements of Tenant showing, among other
things, that Tenant has sufficient working capital or the ability to obtain
sufficient working capital for the operation of the proposed Facility, including
without limitation funding of all pre-opening expenses and start up losses (with
the sole exception that with respect to the single Facilities to be located in
Jackson, Tennessee and Anderson, Indiana, such Financial Statements shall be
delivered no later than March 30, 1998); and
(k) such other information regarding the proposed
Qualified Property, the vicinity of that property, the Tenant, proposed Facility
and any other information reasonably related to the proposed Qualified Property
or the development thereof as American Health may reasonably request.
4.2 Notice of Approval. Within 20 business days after its receipt
of the Identification Notice and the last to be received of the items listed in
subparagraphs (0) through (0) of Section 0, American Health shall deliver
written notice to Balanced Care stating whether the property identified therein
is approved by American Health as a Qualified Property. If American Health
delivers notice that it has not approved the property as a Qualified Property or
if American Health fails to respond to the Identification Notice within the 20
business day period identified above, the property identified in the
Identification Notice shall not constitute Qualified Property and neither
American Health nor AHP shall have any obligation to acquire such
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property or to develop any improvement or Facility thereon. American Health may,
but shall not be obligated to, specify in any notice of disapproval the reasons
for disapproving any proposed property as a Qualified Property and if a specific
reason is so specified, Balanced Care may, but shall not be obligated to,
resubmit the proposed property upon rectifying the item noted as the basis for
disapproval. If, however, American Health timely approves the property
identified in the Identification Notice as Qualified Property then American
Health (or the AHP subsidiary designated by American Health) shall, subject to
the terms of this Agreement, acquire the right of Balanced Care or BCC (as the
case may be) to acquire the Qualified Property on the terms and subject to the
conditions of the Property Acquisition Agreement and this Agreement with respect
to such Qualified Property pursuant to the terms and subject to the conditions
of a written Assignment ("ASSIGNMENT OF ACQUISITION RIGHTS") to be entered into
between AHP and the Balanced Care or BCC entity who holds the rights to acquire
the Qualified Property with each such Assignment of Acquisition Rights to be
substantially in the form attached hereto as Exhibit H.
4.3 Failure to Acquire Qualified Property. If, in accordance with
and pursuant to the terms and conditions of this Agreement or the Property
Acquisition Agreement, AHP shall not acquire any Qualified Property and the
Assignment of Acquisition Rights with respect to that property is terminated,
such property shall cease to be Qualified Property unless and until Balanced
Care delivers a subsequent Identification Notice to American Health and American
Health again approves that property as a Qualified Property in accordance with
Section 4.2.
5. Development, Lease and Operation of Qualified Property.
5.1 Delivery of Transaction Documents. In addition to all other
conditions set forth in this Agreement, the Property Acquisition Agreement and
the Assignment of Acquisition Rights, concurrently with, and as a condition to
the Closing of each Qualified Property acquired by AHP:
(a) Development Agreement., BCC and AHP shall have entered
into a Development Agreement, substantially in the form of Exhibit B to this
Agreement and otherwise in form and substance satisfactory to AHP, regarding the
Facility to be developed and constructed upon the Qualified Property.
(b) Completion Guarantee. Balanced Care shall have entered
into a Completion Guarantee, substantially in the form of Exhibit A to this
Agreement and otherwise in form and substance satisfactory to AHP, regarding the
Facility to be developed and constructed upon the Qualified Property.
(c) Environmental Indemnity. Balanced Care shall have
entered into an Environmental Indemnity, substantially in the form of Exhibit C
to this Agreement and otherwise in form and substance satisfactory to AHP,
regarding the Qualified Property.
(d) Lease. AHP and Tenant shall have entered into a Lease
of the Qualified Property and the Facility to be developed and constructed
thereon, substantially in the form of Exhibit D to this Agreement and otherwise
in form and substance satisfactory to AHP;
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(e) Management Agreement. Tenant and Manager shall have
entered into a Management Agreement, substantially in the form of Exhibit E to
this Agreement and otherwise in form and substance satisfactory to AHP,
for the Facility proposed to be constructed on the Qualified Property;
(f) Security and Subordination Documents. Tenant, Tenant
Parent, Manager, Developer, Balanced Care and BCC, on the one hand and American
Health and AHP, on the other, shall have entered into each of the Security and
Subordination Documents, substantially in the form of Exhibit N to this
Agreement and otherwise in form and substance satisfactory to AHP, regarding the
Facility to be developed and constructed upon the Qualified Property;
(g) Non-Competition. BCC, Balanced Care, Tenant Parent and
each existing Tenant shall have entered into a Non-Competition Agreement
regarding the Facility to be developed and constructed upon the Qualified
Property, substantially in the form of Exhibit M to this Agreement and otherwise
in form and substance satisfactory to AHP;
(h) Management Guaranty. Balanced Care shall have entered
into a Management Guarantee, substantially in the form of Exhibit G to this
Agreement and otherwise in form and substance satisfactory to AHP, regarding the
Facility to be developed and constructed upon the Qualified Property.
(i) Working Capital Documents. Tenant, Tenant Parent and
Balanced Care shall, with respect to the Facility to be developed and
constructed upon the Qualified Property, have entered into the Working Capital
Documents, including without limitation the Working Capital Assurances
Agreement, substantially in the form of Exhibit K to this Agreement and
otherwise in form and substance satisfactory to AHP, and the Shortfall Funding
Agreement, substantially in the form of Exhibit H to this Agreement and
otherwise in form and substance satisfactory to AHP;
(j) Collateral Assignment. Tenant shall have entered into
the Collateral Assignment to AHP and American Health and Balanced Care and
Manager shall have executed and delivered their written consent thereto in the
form contemplated in the Collateral Assignment, substantially in the form of
Exhibit C to the Lease and otherwise in form and substance satisfactory to AHP.
5.2 Conditions to Be Satisfied at Assumption of Property
Acquisition Agreement. AHP's obligation to assume each Property Acquisition
Agreement is conditioned upon the complete satisfaction or written waiver by AHP
of each and every one of the following conditions:
(a) Conditions to Assumption of Property Acquisition
Agreement. Compliance with Law. AHP shall have satisfied itself that the
Property is then in full compliance with all Applicable Laws (as defined
herein).
(b) Contracts. Developer shall have entered into contracts
for labor, materials and services in connection with the Final Completion of the
Project, each of which
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shall be acceptable to AHP, as contemplated in this Agreement, the Development
Agreement and the other Transaction Documents,
(c) Zoning and Subdivision. Developer shall have obtained
and filed all plans, surveys, plats, maps, subdivisions, use permits,
declarations of covenants and restrictions, right-of-way deeds and other similar
instruments and shall have obtained any and all other entitlements and permits
necessary to the development of the Project
(d) Environmental Condition. AHP shall have approved in
writing a Phase I Environmental Assessment Report ("Phase I Report") addressed
to AHP and dated as of a recent date and prepared by a qualified geotechnical
firm acceptable to AHP concerning the absence of Hazardous Substances (as
defined herein) on, in, under or about the Property (AHP reserving the right to
require and approve in writing a Phase II Environmental Assessment Report
("Phase II Report"), at AHP's expense, if a Phase II Report is recommended in
the Phase I Report), with copies of all such reports to be provided to BCC upon
BCC's request therefor.
(e) Title Commitment and Policy. AHP shall have received a
title commitment covering the Property issued by the Title Company, together
with legible copies of all underlying documents referred to therein
(collectively, the "Commitment") and shall have approved in writing the form and
substance of the Commitment and the form of "Title Policy" (as defined in
Section 0) to be issued to the AHP at Closing pursuant thereto, and the Title
Policy shall be issued in the form previously approved, and neither the "Survey"
(as defined in Section 0(0)) nor Title Policy shall contain any exception other
than the "Permitted Exceptions" (as defined in Section 0) and without limitation
on the foregoing, the Title Policy shall include no material exception disclosed
by the Survey, and at or prior to Closing Seller shall have removed any items
affecting title to or use of the Property which are disapproved by AHP and which
Seller agrees to remove in accordance with this Section 0(0). If, AHP shall
disapprove any exception to title noted in the Commitment by delivery of notice
of disapproval to Seller and BCC, BCC and/or Seller shall notify AHP, within
five (5) business days after receipt of such notice of disapproval, as to
whether Seller or BCC will remove such item from title to the Property. If
Seller or BCC elects to remove such item, the transaction will proceed to
Closing subject to the other conditions stated herein. If Seller or BCC shall
notify AHP within the foregoing five (5) business day period that neither it nor
Seller will remove such exception, or Seller and BCC fail to respond during the
foregoing five (5) business day period, AHP shall have the option either to
accept such disapproved exception as a Permitted Exception and thus continue to
proceed to the Closing subject to the other conditions stated herein, or, to
terminate this Agreement by written notice to BCC delivered within five (5)
business days after AHP's receipt of notice from that neither Seller nor BCC
will remove a disapproved item from title to the Property.
(f) Survey. AHP shall have received and approved in
writing a current survey of the Property certified to Title Company and to AHP
(which certification shall be in the form of Exhibit B and shall be certified as
of a date no earlier than fifteen (15) business days prior to Closing) (the
"Survey"), to be procured by BCC, and fulfilling (and certified to AHP's
reasonable satisfaction as fulfilling) the requirements for an ALTA Survey, the
current surveyor's association standards applicable in the State, if any, and
Specifications for a Category
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1A Condition II Survey, ACSM 1992 Minimum Detail Requirements and all other
requirements imposed by the Title Company in connection with the issuance to AHP
of the Title Policy.
(g) Structural and Conditions Reports. AHP shall have
received and approved in writing one or more geological, physical condition and
structural inspection, soils, foundations and other report(s) regarding the
physical condition of the Property from architectural or engineering firm(s)
approved by AHP in it reasonable business discretion (collectively, the
"Structural Report").
(h) Tenant Financial Statements. AHP shall have received
Financial Statements of Tenant, dated as of the last day of the second to last
full calendar month ending prior to the proposed date of Closing, acceptable to
AHP and showing, among other things, that Tenant has sufficient working capital
to support the payment and performance by Tenant under all existing Leases of
Facilities and the obligations which Tenant will undertake to pay and perform
under the Lease of the Facility to be constructed upon the Property.
(i) Appraisal. AHP shall have received an appraisal from
an independent MAI appraiser selected by AHP and reasonably acceptable to Seller
("Appraisal") stating that, based upon the projected cash flow of the Facility
to be constructed upon the Property pursuant to the Development Agreement (net
of all capital and operating expenditures), the fair market value of the
Property and the Facility to be constructed thereupon will be no less than the
Maximum Project Amount (as defined in the Development Agreement), upon Final
Completion of the Facility.
(j) Performance. Seller shall have performed all of
Seller's obligations under the Property Acquisition Agreement, and each of
Tenant, Balanced Care and BCC shall have performed each of their respective
obligations (i) pursuant to this Agreement and any and all Transaction Documents
delivered with respect to the Qualified Property to be acquired and the Facility
to be constructed thereon and (ii) all Transaction Documents then in effect with
respect to all other Qualified Property, Projects and Facilities.
(k) Representations and Warranties. The representations
and warranties of Seller made pursuant to the Property Acquisition Agreement and
the representations and warranties of Tenant, Balanced Care and BCC made
pursuant to (i) this Agreement, the Property Acquisition Agreement, and all
Transaction Documents delivered with respect to the Qualified Property to be
acquired and the Facility to be constructed thereon and (ii) all Transaction
Documents then in effect with respect to all other Qualified Property, Projects
and Facilities, shall continue to be true and correct as of the Closing.
(l) Board Approval. The acquisition of the Qualified
Property and development of the Project and Lease to Tenant shall each have been
approved by the Board of Directors of AHP and the Board of Directors of American
Health (collectively, the "Board Approvals"), such Boards to have complete and
absolute discretion to approve or disapprove this Agreement. American Health
acknowledges and agrees that the required Board Approvals have been obtained
with respect to the Qualified Property located in Jackson, Tennessee and
Anderson, Indiana.
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5.3 Conditions to Be Fulfilled at Closing. In addition to the
conditions set forth in Section 0, AHP's obligation to purchase each Qualified
Property is further conditioned upon the complete satisfaction of each and every
one of the following conditions at the Closing thereof:
(a) No Change in Conditions. Each of the items approved or
conditionally approved by AHP in accordance with Section 0 above shall continue
at the Closing in the condition previously approved by AHP. Without limiting the
generality of the foregoing condition:
(i) the Title Company shall be in a position to
issue the Title Policy to AHP upon the Closing as contemplated in Section 0 with
no exceptions other than the Permitted Exceptions and in the form contemplated
in Section 6.1,
(ii) no new violation of Applicable Law shall have
occurred on the Property after the satisfaction of the condition set forth in
Section 5.2(a) above,
(iii) no new adverse environmental condition shall
have occurred on the Property after the date of the Phase I Report (and, if
applicable, Phase II Report) approved by AHP as contemplated in Section
5.2(d) above, and
(iv) the physical condition of the Property shall
not have changed in any material respect from the condition stated in the
Structural Report approved by AHP as contemplated in Section 5.2(g) above.
(b) Consents for Sale. AHP shall have received
satisfactory written evidence that (i) Seller has obtained any and all consents
required for Seller lawfully and rightfully to close the transactions
contemplated in the Property Acquisition Agreement and this Agreement, (ii) BCC
has obtained any and all consents required for it lawfully and rightfully to
close the transactions contemplated in the Property Acquisition Agreement and
this Agreement and (iii) all such consents remain in full force and effect
without revocation or modification as of the Closing.
(c) Additional Actions. Seller, BCC and Balanced Care
shall have taken such additional actions and shall have delivered such
additional items as may be required to fulfill all conditions to AHP's
obligation to purchase the Qualified Property and delivered all affidavits,
certificates, statements and other items as may be required for the Title
Company to deliver the Title Policy required to be delivered to AHP pursuant to
Section 0 of this Agreement.
(d) Vendor's Affidavit. To the extent required by
Applicable Law of the State, a vendor's affidavit together with disclosure of
sales information on the form promulgated by the State department of revenue.
(e) UCC Searches. Seller shall have delivered to AHP, at
Seller's cost and expense, Uniform Commercial Code financing statement searches
covering Seller and its general partners for the State and the County in which
the Qualified Property is located, showing that all of the personal property to
be transferred pursuant to the Property Acquisition Agreement
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(the "PERSONAL PROPERTY") and all property which may constitute a fixture in the
Property is free and clear of all liens and encumbrances other than any
Permitted Exceptions approved by AHP.
(f) Tax Receipts. Not later than two (2) business days
prior to the Closing, Seller shall deliver to AHP receipts showing the payment
of all taxes levied and payable on the Property.
(g) Assignment/Termination of Contracts. At least five (5)
business days prior to Closing, Seller shall have delivered to AHP a proposed
assignment of contracts, if any, relating to the Qualified Property and, at
Closing, shall have delivered to AHP reasonable evidence of the termination of
any of such contracts which AHP notifies Seller to terminate prior to Closing.
(h) Performance. The condition stated in Section 5.2(j)
shall continue to be true in all respects.
(i) Representations and Warranties. The condition stated
in Section 5.2(k) shall continue to be true in all respects.
(j) Development Items. BCC shall have caused Developer to
execute and deliver the Development Agreement and Initial Budget and Project
Schedule required thereunder to AHP.
(k) Transactional Documents. Balanced Care shall have
caused each of Manager, Developer, Tenant and Tenant Parent, to the extent each
is a party thereto, to have executed and delivered to AHP each of the
Transaction Documents (including without limitation the Lease, Shortfall Funding
Agreement, Working Capital Documents and Environmental Indemnity) and (ii) each
Transaction Document shall be in full force and effect without breach or default
or claim of default thereunder.
(l) Closing Statements. AHP shall have received a closing
statement in form and substance acceptable to AHP.
(m) Opinions of Counsel. Legal Counsel to BCC (which legal
counsel shall be reasonably acceptable to AHP) shall have delivered to AHP a
legal opinion substantially in the form attached hereto as Exhibit O-1 and legal
counsel to Tenant (which legal counsel shall be reasonably acceptable to AHP)
shall have delivered to AHP a legal opinion substantially in the form attached
hereto as Exhibit O-2.
5.4 AHP's Benefit. The conditions set forth herein are for the
sole and express benefit of AHP. No action or inaction shall be deemed a waiver
or estoppel of AHP's enforcement of any of the foregoing conditions, and each
and every such condition may only be waived by a writing executed by AHP
expressly waiving such condition. AHP's failure to give any written notice of
approval of any item shall, at AHP's option, be deemed disapproval of such item
and a failure of such condition.
6. Title Insurance; Status of Title.
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6.1 Title Insurance. Title to each Qualified Property to be
acquired by AHP pursuant to this Agreement and any Property Acquisition
Agreement shall be evidenced by an ALTA Owner's Policy of Title Insurance issued
by a title company duly authorized to issue such insurance within the State and
otherwise acceptable to AHP in the exercise of its reasonable discretion (the
"Title Company") together with such revisions and endorsements thereto as are
available in the State which AHP requires in its reasonable discretion, in the
full amount of the Purchase Price ("Title Policy") insuring good and
indefeasible title to the Property as vested in AHP (or AHP's assignee), subject
only to the Permitted Exceptions.
6.2 Status of Title. Good, marketable and indefeasible title to
the Property in fee simple absolute shall be conveyed at the Closing to AHP by
the deed required under the Property Acquisition Agreement. Title to the
Property shall be conveyed to AHP free and clear of all liens, covenants,
conditions, restrictions, encumbrances, mortgages, deeds of trust,
encroachments, leases, rights, rights of way, rights of occupancy or possession,
and other matters affecting title to or use of the Property, except the
following exceptions (collectively, the "Permitted Exceptions"):
(a) Liens to secure payment of real property taxes and
assessments for the year of Closing and subsequent years, each of which are a
lien not yet payable;
(b) Any and all matters affecting the condition of title
created by the act of AHP or created with the written consent of AHP;
(c) The Lease; and
(d) Any matters disclosed by the Commitment or the Survey
which are approved by AHP in writing as contemplated in Section 5.2(e) above.
AHP hereby disapproves of, and title to the Property at the Closing shall be
free and clear of, (a) all monetary liens and encumbrances and (b) any leases
other than the Lease.
7. Option Agreement.
American Health acknowledges and agrees that Balanced Care (or
its duly designated wholly-owned BCC subsidiary) shall have the right to acquire
the issued and outstanding interests in each Tenant at the time and in the
manner and subject to the terms and conditions of the Option Agreement and that
the exercise of the option granted thereunder will not constitute an assignment
of the Lease or an Event of Default thereunder so long as Tenant continues to
perform all covenants and obligations required of Tenant and to fulfill all
conditions applicable under the Lease.
8. Representations of Balanced Care.
Balanced Care warrants and represents to each of American Health
and each AHP subsidiary that, as of the date of this Agreement and on the date
of each Closing, the following shall be true and correct (and the warranties and
representations set forth in this Section 8 shall survive each Closing):
8.1 Due Formation; Solvency; etc. Balanced Care is a corporation
which is duly organized validly existing and in good standing under the Laws of
the State of Delaware
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and is qualified to do business under the laws of each State where its
properties, the nature of its activities or business require such qualification.
Each BCC subsidiary is duly organized, validly existing and in good standing
under the Laws of its state of organization and is qualified to do business in
each State where the nature of its activities requires such qualification.
Balanced Care has full power, capacity, authority and legal right to execute and
deliver this Agreement and all Transaction Documents to be delivered by Balanced
Care. Each BCC subsidiary has full power, capacity, authority and legal right to
execute and deliver the Transaction Documents required to be delivered by that
Person pursuant to this Agreement. Each of Balanced Care and BCC has full power,
capacity, authority and legal right to perform all transactions (including the
execution and delivery of all documents contemplated hereunder and to cause the
delivery by each BCC subsidiary of such documents) required of Balanced Care or
the BCC subsidiaries for the performance of this Agreement (including all
performance required under the documents to be delivered hereunder) and the
Transaction Documents. Each of Balanced Care and each BCC subsidiary is solvent
and (i) has filed all tax returns which are required to be filed by it and (ii)
is not in default in the payment of any taxes levied or assessed against it or
any of its assets, or under any judgment, order, decree, rule or regulation of
any court, arbitrator, administrative agency or other governmental authority to
which it may be subject which would, in each case or in the aggregate,
materially and adversely affect the transactions contemplated by this Agreement.
8.2 Due Authorization, Execution and Delivery. This Agreement and
each Transaction Document executed and delivered by Balanced Care has been duly
authorized and, when executed and delivered, shall constitute the legal, valid
and binding obligation of Balanced Care. Each Transaction Document executed and
delivered by BCC has been duly authorized and, when executed and delivered,
shall constitute the legal, valid and binding obligation of BCC.
8.3 No Conflicts. The execution and delivery of this Agreement by
Balanced Care and the execution and delivery of the other documents hereunder by
BCC and the performance by Balanced Care and BCC of all transactions
contemplated hereunder or thereunder (including the execution and delivery of
all documents required by this Agreement to be executed and delivered by
Balanced Care or BCC):
(i) shall not breach any contracts, covenants or
restrictions between or binding upon Balanced Care or BCC and any third party or
affecting any Qualified Property; shall not create or cause to be created any
mortgage, lien, encumbrance or charge on any Qualified Property; and shall not
conflict with or otherwise violation any Applicable Laws or result in a breach
or violation of (a) any law or governmental rule or regulation applicable to
Balanced Care or BCC now in effect, (b) any provision of Balanced Care's or
BCC's corporate charter or other organizational documents, or (c) any judgment,
order or decree of any court, arbitrator, administrative agency or other
governmental authority binding upon Balanced Care or BCC.
(ii) do not require any consent or approval of
any public or private authority (including any legislative or judicial body)
which has not already been obtained (provided, however, that approval of the
completion of development of a Facility and issuance of approval for the
occupancy and use thereof may require the obtaining of approvals in the future,
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which future approvals Balanced Care and Manager shall be obligated to obtain in
all events); and
(iii) are not threatened with invalidity or
unenforceability by any action, proceeding, including bankruptcy or insolvency
proceedings, or investigation pending or threatened by or against Balanced Care,
BCC or the seller of any Qualified Property.
8.4 Governmental Approvals. No consents, approvals or other
authorizations of any Governmental Authority is required for the due and valid
execution and delivery of this Agreement or any other agreement described herein
to which Balanced Care or BCC is a party.
8.5 Litigation. Except as included within the exceptions to
representations attached hereto as Exhibit L (i) no litigation or proceedings
are pending or threatened relating to Balanced Care, BCC or the Qualified
Property and (ii) there are no actions, proceedings or investigations pending
or, to its Best Knowledge, threatened against Balanced Care or BCC, before or by
any court, arbitrator, administrative agency or other governmental authority
which are expected, in its reasonable judgment, to materially and adversely
affect its financial condition or operations or its ability to carry out the
transactions contemplated by this Agreement or any other document contemplated
hereby to which it is a party.
8.6 Obligations and Liabilities of Balanced Care Relating to
Qualified Property. Neither Balanced Care nor BCC has incurred any other
obligation or liability which could individually or in the aggregate adversely
affect its ability to transfer its interest in the Qualified Property.
8.7 No Brokers. No Person is entitled to receive any commission
or finder's fee payable by American Health or AHP in connection with the
execution or delivery of this Agreement by reason of any action or commitment
made by Balanced Care or BCC.
8.8 Ownership of Each Tenant. Except to the extent the interests
in a Tenant are acquired by Balanced Care or its wholly-owned BCC subsidiary in
accordance with the terms and conditions of the Option Agreement, each Tenant
shall at all times be owned 99% by Primary Parent and 1% by Secondary Parent. No
change shall occur in the certificate of organization, management agreement or
other organizational documents of any Tenant or of Primary Parent and no change
shall occur in the certificate of incorporation, bylaws or other organizational
documents of Secondary Parent. Primary Parent shall at all times have a single
class of ownership interests representing ownership in the entirety of Primary
Parent.
8.9 With respect to each Qualified Property to be acquired by AHP
in accordance with this Agreement and any Property Acquisition Agreement,
Balanced Care shall be conclusively deemed to have made the following warranties
and representations (and AHP shall be entitled to rely fully on such warranties
and representations in proceeding to fund the Closing of any Qualified
Property):
(a) To BCC's Best Knowledge, no person other than the
Seller of the Qualified Property holds any right, title and interest in and to
the Qualified Property.
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(b) To BCC's Best Knowledge, there are no causes of
action, suits, or judgments pending, or threatened by any entity, person,
governmental authority, or agency against all or any portion of the Qualified
Property or against any interest of Seller in or to all or any portion of the
Qualified Property.
(c) BCC has received no notice of any violations of any
Applicable Laws (as defined herein) with respect to the Qualified Property or
any portion thereof and to the Best Knowledge of BCC there are no material
violations of any Applicable Laws with respect to the Qualified Property.
(d) There are no leases, tenancies, licenses or rights of
use or occupancy in effect pertaining to the Qualified Property or any portion
thereof, or agreements or contracts affecting or related to the Qualified
Property not disclosed in the Property Acquisition Agreement or in the
Commitment with respect to that Qualified Property.
(e) BCC is not a party to any oral contracts and is not
aware of any other oral contracts affecting the Property Acquisition Agreement
or the Qualified Property to which it pertains or any portion thereof.
(f) BCC has received no notice of outstanding claims
against, or liens, assessments or encumbrances upon or against the Qualified
Property, or any portion thereof, nor to its Best Knowledge do any such claims,
liens, assessments or encumbrances exist.
(g) To the Best Knowledge of BCC, there are no intended
public improvements which will result in any charge being levied upon or
assessed against the Qualified Property or any portion thereof, or which will
result in the creation of any lien upon the Qualified Property or any portion
thereof.
(h) BCC has not received notice or and to the Best
Knowledge of BCC, there are no pending or threatened proceedings in eminent
domain which could affect the Qualified Property or any portion thereof, and BCC
has no actual knowledge of any fact which might give rise to any such action or
proceeding.
(i) To BCC's Best Knowledge, there have been no releases
nor are there existing any threatened releases of any Hazardous Substances in,
on, under or about the Property, or any portion thereof. Seller has not used the
Property, or any portion thereof and, to its Best Knowledge, neither the
Property, nor any portion thereof. has been used by any third party, for the
deposit, storage, handling, use or discharge of any Hazardous Substances, except
for the use of those Hazardous Substances commonly used in standard commercial
office uses, and then only in strict accordance with all Applicable Laws.
(j) The Property Acquisition Agreement with respect to the
Qualified Property is in full force and effect without modification and without
default or claim of default by any party thereunder. Any option to purchase
granted under the Property Acquisition Agreement has not been exercised by BCC
and may be exercised by AHP after its assumption of the Property Acquisition
Agreement and AHP shall bear no liability to Seller under the Property
Acquisition Agreement unless and until AHP exercises any such option in
accordance with this Agreement and the Assignment of Acquisition Rights relating
to the Property Acquisition Agreement.
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8.10 Full Disclosure. Neither this Agreement nor any other
document submitted to American Health or AHP and executed or authorized by
Balanced Care or any BCC subsidiary in connection herewith contains an untrue
statement of a material fact or omits a material fact which would make the
statements contained herein or in such documents misleading.
9. Representations of American Health.
American Health warrants and represents to each of Balanced Care
and each BCC subsidiary that, as of the date of this Agreement and on the date
of each Closing, the following shall be true and correct (and the warranties and
representations set forth in this Section 9 shall survive each Closing):
9.1 Due Formation; Solvency; etc. American Health is a
corporation which is duly organized validly existing and in good standing under
the Laws of the State of Delaware and is qualified to do business under the laws
of each State where its properties, the nature of its activities or business
require such qualification. Each AHP subsidiary is duly organized, validly
existing and in good standing under the Laws of its state of organization and is
qualified to do business in each State where the nature of its activities
requires such qualification. American Health has full power, capacity, authority
and legal right to execute and deliver this Agreement and to perform all
transactions (including the execution and delivery of all documents contemplated
hereunder and to cause the delivery by each AHP subsidiary of such documents)
required of American Health or the AHP subsidiaries for the performance of this
Agreement (including all performance required under the documents to be
delivered hereunder). Each of American Health and each AHP subsidiary is solvent
and (i) has filed all tax returns which are required to be filed by it and (ii)
is not in default in the payment of any taxes levied or assessed against it or
any of its assets, or under any judgment, order, decree, rule or regulation of
any court, arbitrator, administrative agency or other governmental authority to
which it may be subject which would, in each case or in the aggregate,
materially and adversely affect the transactions contemplated by this Agreement.
9.2 Due Authorization, Execution and Delivery. This Agreement has
been duly authorized and, when executed and delivered, shall constitute the
legal, valid and binding obligation of American Health.
9.3 No Conflicts. The execution and delivery of this Agreement by
American Health and the execution and delivery of the other documents hereunder
by AHP and the performance by American Health and AHP of all transactions
contemplated hereunder or thereunder (including the execution and delivery of
all documents required by this Agreement to be executed and delivered by
American Health or AHP):
(i) shall not breach any contracts, covenants or
restrictions between or binding upon American Health or AHP; and shall not
conflict with the Laws or result in a breach or violation of (a) any law or
governmental rule or regulation applicable to American Health or AHP now in
effect, (b) any provision of American Health's or AHP's corporate charter or
other organizational documents, or (c) any judgment, order or decree of any
court, arbitrator, administrative agency or other governmental authority binding
upon American Health or AHP.
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(ii) do not require any consent or approval of
any public or private authority (including any legislative or judicial body)
which has not already been obtained; and
(iii) are not threatened with invalidity or
unenforceability by any action, proceeding, including bankruptcy or insolvency
proceedings, or investigation pending or threatened by or against American
Health or AHP.
9.4 Governmental Approvals. No consents, approvals or other
authorizations of any Governmental Authority is required for the due and valid
execution and delivery of this Agreement or any other agreement described herein
to which American Health or AHP is a party.
9.5 No Brokers. No Person is entitled to receive any commission
or finder's fee payable by Balanced Care or BCC in connection with the execution
or delivery of this Agreement by reason of any action or commitment made by
American Health or AHP.
9.6 Full Disclosure. Neither this Agreement nor any other
document submitted to Balanced Care or BCC and executed or authorized by
American Health or any AHP subsidiary in connection herewith contains an untrue
statement of a material fact or omits a material fact which would make the
statements contained herein or in such documents misleading.
10. Conditions to Obligations of American Health and AHP. Neither
American Health nor any AHP subsidiary entity shall have any
obligations under this Agreement or with respect to any property, Qualified
Property or development of any Facility, whether under this Agreement or under
any document contemplated to be delivered hereunder or otherwise unless each of
the following conditions are fulfilled both at the execution and delivery of
this Agreement and at the Closing of each Qualified Property:
10.1 Performance of Obligations. Balanced Care and BCC shall have
performed all of its obligations to be performed at a particular point in time
under this Agreement, each Transaction Document and each document to be
delivered pursuant hereto or thereto.
10.2 Truth of Representations and Warranties. All representations
and warranties of or made by Balanced Care or BCC in this Agreement and in any
other Transaction Document shall be true and correct.
10.3 Completion of Initial Public Offering. Balanced Care shall
have successfully completed the sale of the shares of its common stock for
aggregate proceeds Balanced Care of not less than $60,000,000 as contemplated in
its Registration Statement (Form S-1, Registration No. 333-37833) as filed with
the Securities and Exchange Commission on December 9, 1997 as from time to time
amended. Notwithstanding the foregoing to the contrary, the condition set forth
in this Section 10.3 shall not apply with respect to the acquisition, funding
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and development of the first two parcels of Qualified Property (located in
Jackson, Tennessee and Anderson, Indiana) nor the development or leasing of the
Facility to be constructed thereon.
10.4 Approval by Boards of Directors. The acquisition of such
Qualified Property and the development of the Facility thereon has been approved
and authorized by the Board of Directors of American Health and the Board of
Directors of the AHP subsidiary which is acquire and develop the Facility upon
the Qualified Property in question.
11. Conditions to Obligations of Balanced Care and BCC.
Neither Balanced Care nor any BCC subsidiary entity shall have
any obligations under this Agreement or under any document contemplated to be
delivered hereunder or otherwise unless each of the following conditions are
fulfilled both at the execution and delivery of this Agreement:
11.1 Performance of Obligations. American Health and AHP shall
have performed all of its obligations to be performed at a particular point in
time under this Agreement and each document to be delivered pursuant hereto.
11.2 Truth of Representations and Warranties. All representations
and warranties of or made by American Health or AHP in this Agreement and in any
other Transaction Document shall be true and correct.
12. Covenants of Balanced Care.
12.1 Fulfillment of Conditions. Balanced Care shall use all
commercially reasonable efforts to cause each condition to the obligations of
AHP and American Health under this Agreement and the Transaction Documents to be
fulfilled with respect to each Qualified Property and each Project and Facility.
12.2 Further Assurances. Balanced Care and BCC shall execute and
deliver any and all additional papers, documents, and other assurances, and
shall do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of the
parties hereto.
13. Default.
13.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) Any representation or warranty of Developer or
Guarantor contained in this Agreement or any Transaction Document or made in
connection with the Project, this Agreement or any Transaction Document proves
to have been incorrect in any material respect when made;
(b) Any one or more of Developer, Manager, BCC or Balanced
Care is enjoined by any court or other Governmental Agency from constructing the
Project, managing
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the Facility, leasing the Property or otherwise is enjoined or prevented from
entering into or performing its obligations under this Agreement or any other
Transaction Document or Tenant is enjoined from performing any of its
obligations under the Lease and such injunction continues unreleased and
unstayed for a period of forty five (45) days from the date of issuance;
(c) Without American Health's consent, any one or more of
Tenant, Primary Parent, Secondary Parent, Manager, Developer or Balanced Care is
dissolved or liquidated or merged with or into any other Person or any election
is made or proceedings commenced in furtherance of any such dissolution or
liquidation or any one or more of Tenant, Primary Parent, Secondary Parent,
Manager, Developer or Balanced Care otherwise ceases to continue to validly
exist and remain in good standing under the Laws of the state of its
organization or fails to remain duly qualified and in good standing under the
Laws of the State or all or substantially all of the assets of any one or more
of Tenant, Primary Parent, Secondary Parent, Manager, Developer or Balanced Care
are sold or otherwise transferred (except in accordance with the terms of the
Option Agreement or the Shortfall Funding Agreement);
(d) Balanced Care ceases to own 100% of the capital stock
of Manager and Developer or Balanced Care suffers a Change in Control occurring
after the completion of the initial public offering contemplated in Section
10.3;
(e) Any one or more of Tenant, Primary Parent, Secondary
Parent, Manager, Developer or Balanced Care files for protection under the U.S.
Bankruptcy Code or under any similar Laws regarding insolvency or protection of
debtors from claims of creditors;
(f) Any one or more of Tenant, Primary Parent, Secondary
Parent, Manager, Developer or Balanced Care is subject to an order for relief by
the bankruptcy court or is unable or admits in writing its inability to pay its
debt as they mature or makes an assignment for the benefit of creditors or any
one or more of Tenant, Primary Parent, Secondary Parent, Manager, Developer or
Balanced Care applies for or consents to the appointment of any receiver,
trustee or similar official for it or for all or any part of its property (or
any such appointment is made without its consent and the appointment continues
undismissed, undischarged or unstayed for sixty (60) days from commencement
thereof); or any one or more of Tenant, Primary Parent, Secondary Parent,
Manager, Developer or Balanced Care institutes or consents to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
custodianship, conservatorship, liquidation, rehabilitation or similar
proceeding relating to it or to all or any part of its property under the Laws
of any jurisdiction (or any such proceeding is instituted without its consent
and continues undismissed for sixty (60) days from commencement); or any
judgment, writ, warrant of attachment or execution or similar process is issued
or levied against any property of Developer or any Guarantor and is not
released, vacated or fully bonded within sixty (60) days after its initial issue
or levy;
(g) Balanced Care and BCC shall have failed to Commence
Construction of five Facilities on five Qualified Properties on or prior to the
expiration or sooner termination of the Term; provided, however, that if either
(I) Balanced Care presents eight or more properties for consideration as
Qualified Properties which are (a) properties on which a Balanced Care "Outlook
Pointe" facility having 60, 80 or 106 units is to be constructed within a market
having market demographics and bed need relative to the market which is no less
favorable to the proposed Project than was the case with respect to both the
Project to be
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constructed in Jackson, Tennessee and the Project to be constructed in Anderson,
Indiana, (b) rejected as Qualified Properties by American Health in accordance
with this Agreement and (c) subsequently developed with the Project as proposed
to American Health, with the costs of such Project funded by Institutional
Project Financing, or (II) if the condition set forth in Section 0 is not
fulfilled and is not thereafter waived by American Health prior to the
expiration of the Term, and both the Project to be constructed in Jackson,
Tennessee and the Project to be constructed in Anderson, Indiana have been
Finally Completed in accordance with the Transaction Documents applicable
thereto, Balanced Care shall not have suffered an Event of Default by reason of
this Section 0(0).
(h) An Event of Default shall have occurred and shall be
continuing under any Transaction Document other than this Agreement; and
(i) Balanced Care or BCC shall fail to perform any other
material term, covenant or condition of this Agreement or any Transaction
Document or other documents executed in connection herewith or therewith and
such failure is not cured by Developer within a period of thirty (30) days after
receipt by Developer of notice thereof from American Health, unless such failure
cannot with reasonable due diligence be cured within a period of thirty (30)
days, in which case such failure shall not be deemed to continue if Developer
proceeds promptly and with reasonable due diligence to cure the failure and
thereafter diligently completes the curing thereof as soon as reasonably
possible but in all events within a period of ninety (90) days after receipt by
Developer of the notice referred to above in this subparagraph.
13.2 Remedies of American Health. Upon the occurrence of any
Event of Default hereunder, American Health may, without further notice to or
demand, if any, upon Balanced Care, which are expressly waived by Balanced Care,
exercise any one or more of the following remedies as American Health may
determine:
(a) American Health may exercise all remedies granted to
American Health or AHP in any one or more of the Transaction Documents;
(b) American Health may terminate Balanced Care's rights
under this Agreement upon notice to Balanced Care and upon such termination may
require Balanced Care to purchase all Qualified Property previously acquired by
AHP for a purchase price equal to the total amounts expended with respect to (i)
the cost of the acquisition of all Qualified Property plus all Costs of the Work
(inclusive of all Hard Costs and Soft Costs advanced by AHP under the
Development Agreement), (ii) all transaction expenses and other costs advanced
by AHP or American Health with respect to the development and construction of
each Project and the Facility constructed upon any such Qualified Property
(whether or not such Project or Facility is in the course of construction) and
(iii) all costs and expenses incurred by American Health in the negotiation and
preparation of the Transaction Documents
(c) American Health may perform any of Balanced Care's
obligations at the costs and expense of Balanced Care in such manner as American
Health may reasonably determine; or
(d) American Health may proceed to protect, exercise and
enforce any and all other remedies provided under the Transaction Documents or
by applicable Laws.
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All actual and reasonable costs, expenses, charges and advances of American
Health in exercising any such remedies (including without limitation costs of
attorneys' and staff fees including costs of preparation for litigation
computerized research, telephone, fax, mileage, depositions, postage,
photocopies, process service, video tapes and similar expenses) shall be payable
to American Health as transaction expenses in accordance herewith.
13.3 Remedies Cumulative. Each of the remedies of American Health
provided in the Transaction Documents is cumulative and not exclusive of, and
shall not prejudice, any other remedy provided in the Transaction Documents or
by applicable Laws. Each remedy may be exercised from time to time as often as
deemed necessary by American Health, and in such order and manner as American
Health may determine. No failure or delay on the part of American Health in
exercising any remedy shall operate as a waiver of such remedy; nor shall any
single or partial exercise of any remedy preclude any other or further exercise
of such remedy or of any other remedy. No application of payments, or any
advances or other action by American Health, will cure or waive any Event of
Default or prevent acceleration, or continued acceleration, of amounts payable
under the Transaction Documents or prevent the exercise, or continued exercise,
of any remedies of American Health.
14. Calculation of Days.
For purposes of this Agreement, all references to "days" shall
mean calendar days, except where expressly referred to as "business days".
"Business days" shall mean Monday through Friday only, except for holidays on
which Banks in San Francisco, California are required or permitted to close for
business.
15. Miscellaneous.
15.1 Notice. Any notices, demands, approvals and other
communications provided for herein shall be in writing and shall be delivered by
telephonic facsimile and by 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 American Health: American Health Properties, Inc.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Attention: President and General Counsel
If to Balanced Care: BCC Development and Management Co.
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Karen Connelly, Esq
With copies to: Kirkpatrick and Lockhart, L.L P
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attention: Steven J. Adelkoff, Esq.
25
<PAGE> 28
Addresses for notice may be changed from time to time by written notice to all
other parties. Any communication given by mail wil1 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 evidenced 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
above.
15.2 Governing Law This Agreement shall be interpreted according
to the laws of the Commonwealth of Pennsylvania. All disputes hereunder shall be
adjudicated in the federal courts sitting in the State of Colorado, or should
such courts refuse to recognize jurisdiction over such matters, the courts of
the State of Colorado.
15.3 Press Releases. Prior to any party issuing a press release
regarding this Agreement or the transaction contemplated hereunder, the parties
shall consult and confer with one another regarding the form and content of any
such press release; provided, however, the provisions of this Paragraph 15.3
shall not prevent any party from issuing such releases or filing such documents
as either reasonably believes in the exercise of its good faith business
judgment to be necessary or desirable under applicable federal or State
securities laws.
15.4 Assignment. Neither party shall assign its rights and
obligations under this Agreement without the prior written approval of the other
party.
15.5 Entire Agreement. This Agreement (including all items
incorporated herein pursuant to Section 1.4) constitutes the entire Agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes all prior agreements, oral or written and all other communications
between the parties relating to such subject matter. Except as set forth in this
Agreement, neither party has made any representations or promises with respect
to the subject matter hereof.
15.6 Amendments. This Agreement shall not be modified or amended
except by mutual written agreement.
15.7 Waiver of Breach. The waiver by either party of a breach or
violation of any provisions of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or other
provision.
15.8 Severability. In the event any provision of this Agreement
is held to be unenforceable or invalid for any reason, this Agreement shall
remain in full force and effect and enforceable in accordance with its terms
disregarding such enforceable or invalid provision; provided, however, that in
the event that a provision of this Agreement is rendered invalid or
unenforceable and its removal has the effect of materially altering the
obligations or benefits to either party, the party so affected shall have the
right to terminate this Agreement upon thirty (30) days prior written notice to
the other party.
26
<PAGE> 29
15.9 Captions and Headings. The captions or headings in this
Agreement are made for convenience and general reference only and should not be
construed to describe, define or limit the scope and intent of the provisions of
this Agreement.
15.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
15.11 Binding Effect. This Agreement shall be binding and shall
inure to the benefit of the parties hereto, and their respective heirs,
legatees, executors, administrators, legal representatives, successors and
assigns.
15.12 No Rule of Construction. The parties acknowledge that all
parties hereto, and their counsel, have read and fully negotiated all of the
language used in this Agreement. The parties acknowledge that, because all
parties and their counsel participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which construes
ambiguous and unclear language in favor of or against any party because such
party drafted this Agreement.
15.13 Time is of the Essence. With respect to all provisions of
this Agreement, time is of the essence.
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
27
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
AMERICAN HEALTH PROPERTIES, BALANCED CARE CORPORATION
INC., a Delaware corporation a Delaware corporation
By: /s/ Signature Illegible By: /s/ Signature Illegible
------------------------------ ---------------------------------
Name: Name:
Title: Title:
<PAGE> 1
EXHIBIT 10.74
DEVELOPMENT AGREEMENT
by and between
AHP OF INDIANA, INC.,
an Indiana corporation ("Owner")
and
BCC DEVELOPMENT AND MANAGEMENT CO.,
a Delaware corporation ("Developer").
-----------------------
January 30, 1998
<PAGE> 2
TABLE OF CONTENTS
1. DEFINITIONS................................................................2
2. THE PROJECT................................................................9
3. DEVELOPER FEES............................................................13
4. FUNDING OF CONSTRUCTION ADVANCES..........................................14
5. REPRESENTATIONS AND WARRANTIES............................................22
6. DEVELOPER'S COVENANTS.....................................................24
7. EVENTS OF DEFAULT AND REMEDIES OF OWNER...................................30
8. PERMITTED CONTESTS........................................................32
9. GUARANTY OF COMPLETION....................................................32
10. GUARANTY OF PROJECT COSTS................................................33
11. TERM.....................................................................33
12. MISCELLANEOUS............................................................34
List of Exhibits
- ----------------
Exhibit A - Legal Description Of Property
Exhibit B - Initial Budget
Exhibit C - Plans And Specifications For Project
Exhibit D - Contractors Agreement
Exhibit E - Assignment Of Architect Agreement
Exhibit F - Assignment Of Contractor Agreement
Exhibit G - Assignment Of Warranties
Exhibit H - Form Of Requisition
Exhibit I - Form Of Prime Architect Certificate
<PAGE> 3
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (this "Agreement") is made and entered into
as of _______________, 1998, by and between AHP OF INDIANA, INC., an Indiana
corporation ("Owner") and BCC DEVELOPMENT AND MANAGEMENT CO., a Delaware
corporation ("Developer").
RECITALS
WHEREAS, Balanced Care Corporation, a Delaware corporation
("GUARANTOR") and American Health Properties, Inc., a Delaware corporation
("AMERICAN HEALTH") the sole shareholder of Owner, have entered into that
certain Facility Agreement dated as of January 30, 1998 (the "FACILITY
AGREEMENT")(all capitalized terms used herein being defined as stated in the
Facility Agreement except as expressly provided herein to the contrary);
WHEREAS, concurrently herewith, at the request of Guarantor made to
American Health pursuant to and in accordance with the requirements of the
Facility Agreement, Owner is purchasing certain real estate located in
[Evansville, Indiana] (the "PROPERTY"), more particularly described on Exhibit A
attached hereto and incorporated herein by this reference, on which it plans to
construct a [____]-unit licensed assisted living facility consisting of a
[one]-story building containing approximately [35,735] square feet (which
facility together with all related improvements upon the Property is referred to
herein as the "FACILITY") for lease to ________________ (the "TENANT"), which
Facility shall be operated and managed by BCC at ______________, Inc., a
Delaware corporation, and a wholly-owned subsidiary of Guarantor, as manager
("MANAGER"); and
WHEREAS, Developer has experience and knowledge in the areas of
development, construction and operation of assisted living facilities such as
the Facility and has successfully developed and constructed such facilities for
operation and management by Manager and other wholly-owned subsidiaries of
Guarantor, and
WHEREAS, Owner wishes to develop the Facility with Developer's
assistance (which Facility, including all affixed personal property necessary
and appropriate for the use and operation of the proposed Facility is referred
to herein as the "PROJECT");
WHEREAS, Owner shall administer and fund disbursements from Owner to
Developer for payment of costs of the work of constructing the Project up to
100% of the approved, budgeted development costs set forth in the Approved
Budget on the terms and conditions hereinafter set forth, and
WHEREAS, Owner wishes to employ Developer to provide Owner with
assistance in the development of the Project and Developer wishes to accept such
employment and to develop the Project for Owner so that it can function as a
completed Facility, all on the terms and conditions set forth in this Agreement.
1.
<PAGE> 4
WITNESSETH
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Owner and Developer,
intending to be legally and fully bound, do hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings: 1.1. "ADVANCE RATE" means the prime rate of interest as reported by
the Wall Street Journal on the date of each advance plus two percent (2%).
1.2. "AGREEMENT" means this agreement as the same may be amended or
supplemented from time to time by any written amendment thereto and all exhibits
and schedules attached hereto.
1.3. "APPROVED BUDGET" means the final detailed line-item budget for
the development of the Project approved by Owner and Developer in accordance
with Section 2.1((a)), which shall be based upon the Initial Budget attached to
this Agreement as Exhibit B.
1.4. "ARCHITECT" shall mean, collectively, the architects and
engineers engaged to design and engineer the Project. Developer has engaged
__________________________ as the primary Architect (the "PRIME ARCHITECT") for
the Project.
1.5. "ARCHITECT AGREEMENT" shall mean, collectively, all contracts,
agreements and other covenants with the Architect (and all amendments thereto)
relating to the design, engineering, construction or completion of the Work,
including without limitation, that certain Owner-Architect Agreement entered
into by and between Prime Architect and Developer on ___________, 19___.
1.6. "AUTHORIZATION" means any authorization, consent, approval,
order, license, permit, exemption or other action by or from, or any filing,
registration or qualification with any Governmental Agency or other Person.
1.7. "CHARTER DOCUMENT" means (a) in the case of a corporation, its
articles or certificate of incorporation and bylaws, (b) in the case of a
partnership, its partnership agreement and any certificate or statement of
partnership, and (c) in the case of a trust or any other entity, its formation
documents, in each case as amended from time to time.
1.8. "COMMITMENT FEE" shall mean an amount equal to one percent of
the total amount incurred by Owner with respect to the Project, including
without limitation the aggregate sum of (i) all costs incurred by Owner in
connection with the administration, operation, preparation and negotiation of
the Transaction Documents (including this Agreement) and (ii) each and every
Construction Advance, for the period beginning on the date of each such cost is
2.
<PAGE> 5
incurred or each such Construction Advance is made (as applicable) through and
including the date of determination, and (iii) all Imputed Interest. Owner shall
not be obligated to make any cash disbursements of the Commitment Fee.,
1.9. "COMPLETION DATE" shall mean ____________, 1998; provided,
however that such date shall be extended one day (but shall not be extended by
more than 180 days in the aggregate) for each day of delay caused entirely by an
Unavoidable Delay.
1.10. "CONTRACTOR" shall mean, collectively, the contractors,
subcontractors, materialmen and suppliers and other persons supplying labor,
equipment, materials or supplies to the Work which are engaged in connection
with the Work. The Contractor shall be fully qualified to perform the Work and
shall be duly licensed to perform the Work in accordance with all applicable
Laws. Developer has engaged ______________ as the primary contractor (the "PRIME
CONTRACTOR") for the Work.
1.11. "CONTRACTOR AGREEMENT" shall mean, collectively, all contracts,
agreements and other covenants with the Contractor (and all amendments thereto)
relating to the Work, including without limitation, that certain
Owner-Contractor Agreement entered into by and between the Prime Contractor and
Developer on _____________, 19___ (the "PRIME CONTRACT").
1.12. "COST OF THE WORK" means solely those Hard Costs and Soft Costs
(including the Developer Fee and Developer Incentive Fee) necessarily incurred
in the proper performance of the Work which are paid or incurred under the
Architect Agreement, the Contractor Agreement and any other agreement relating
to the Work which is approved by Owner, which costs shall be in accordance with
the Approved Budget; provided that Developer shall endeavor to cause the amount
paid for any item or service to be at rates not higher than the standard pay in
[Vanderburgh County, Indiana] for similar projects. The Cost of the Work as
defined herein shall mean only the actual costs paid or incurred, less any and
all discounts, rebates and salvages. All of the Cost of the Work is included
within and subject to the Maximum Project Amount, whether paid or incurred
before or after the execution of this Agreement. The term "Cost of the Work"
shall specifically exclude (and AHP shall not be obligated to make Construction
Advances with respect to) (i) expenses, salaries or other compensation of the
Developer's personnel at the Developer's principal office and branch offices,
(ii) expenses, salaries and other compensation of the Contractors' personnel at
the Contractors' principal and branch offices, (iii) any portion of the
Developer's capital expenses, including interest on the Developer's capital
employed for the Work, (iv) overhead or general expenses of any kind, (v) costs
arising due to the negligence of the Developer, Contractor, Architect, any
subcontractor, or any one directly or indirectly employed by any of the
foregoing, or for whose acts any of them may be liable, including but not
limited to correction of defective or nonconforming work, disposal of materials
and equipment wrongly supplied, or making good any damage to the Property, (vi)
the cost of any line-item in excess of 105% of the amount stated in the Approved
Budget therefor (provided that Developer shall not be precluded from receiving
Construction Advances for a line-item to the extent that Developer requests a
Construction Advance therefor from the undisbursed balance of the line-item
shown on the Approved Budget for "Construction Contingency" or "Contingency-Soft
Costs") or the cost of any line-item not specifically and expressly included in
the Approved Budget, and (vii) premiums and all other costs
3.
<PAGE> 6
of insurance which Developer or Contractor is required to purchase and maintain
to the extent not included within the definition of Soft Costs.
1.13. "DEFAULT RATE" means the Advance Rate otherwise applicable plus
four percent (4%).
1.14. "DEVELOPER FEE" means an amount equal to six percent (6%) of the
lesser of (a) the Maximum Project Amount (as determined without including the
Developer Fee or Developer Incentive Fee) and (b) the Cost of the Work
(excluding the Developer Fee or Developer Incentive Fee) actually incurred to
achieve Final Completion of the Project.
1.15. "DEVELOPER INCENTIVE FEE" means an amount equal to one percent
(1%) of the lesser of (a) the Maximum Project Amount (as determined without
including the Developer Fee or Developer Incentive Fee) and (b) the Cost of the
Work actually incurred to achieve Final Completion of the Project.
1.16. "EVENT OF DEFAULT" means any one or more of the events set forth
in Section 7.1.
1.17. "FACILITY AGREEMENT" means that certain Facility Agreement
entered into by and between American Health Properties, Inc., a Delaware
corporation and Guarantor.
1.18. "FINANCIAL STATEMENTS" means for any Fiscal Year or other
accounting period for a Person, audited statements(with the exception that
Financial Statements of Tenant shall not be required to be audited and shall be
certified as true, correct, accurate, complete and fairly presenting the
financial condition of Tenant by a representative of Tenant authorized to make
such certification) 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 that Person to the end of such period and the related
balance sheet as at the end of such period together with the notes thereto, all
in reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding Fiscal Year of the Person,
and prepared in accordance with generally accepted accounting principles
consistently applied, except as noted.
1.19. "FISCAL YEAR" means the financial accounting year for a Person.
Developer's and Guarantor's Fiscal Year ends on June 30 of each calendar year.
1.20. "FINAL COMPLETION" or "FINALLY COMPLETED" and words of similar
effect shall mean the fulfillment of all of the following conditions:
(a) Substantial Completion of the Work in accordance with
the Plans and Specifications;
(b) expiration of all statutory periods for the filing of
any mechanics', materialmens', suppliers' or similar liens without any
such liens being filed and the receipt by Owner of an endorsement to the
title policy referred to in Section 4.1((c))((9)) in form and substance
satisfactory to Owner, issued by the Title Company insuring Owner
against
4.
<PAGE> 7
any loss Owner may sustain by reason of any statutory liens for labor or
material arising out of any Work;
(c) an affidavit of the Architect, in form satisfactory to
Owner , that all payrolls, bills for materials, supplies, labor,
services, equipment and other indebtedness or obligation connected with
the Work for which Owner, Developer or the Property might in any way be
responsible, have been paid or otherwise satisfied;
(d) consent of the surety, if any, to final payment; and
(e) any other data which may be required by Owner to
establish the issuance of the Government Approvals (excluding a medicare
provider number from the Health Care Financing Administration of the
United States Department of Health and Human Services) and the payment
or satisfaction of all such obligations including, without limitation,
receipts, releases and waivers of liens which might arise out of the
performance of the Work and other documentation, to the extent and in
such form as may be designated by Owner.
1.21. "GOVERNMENTAL AGENCY" means, as relates to the Project, (a) any
government or municipality or political subdivision of any government or
municipality, (b) any assessment, improvement, community facilities or other
special taxing district, (c) any governmental or quasi-governmental agency,
authority, board, bureau, commission, corporation, department, instrumentality
or public body, (d) any court, administrative tribunal arbitrator, public
utility or regulatory body, or (e) any central bank or comparable authority.
1.22. "GOVERNMENT APPROVALS" shall mean all certificates, permits and
licenses required to be obtained from any Governmental Agency or other
governmental authority or instrumentality, necessary or desirable in connection
with the beneficial use and occupancy of the Project and the operation of the
Facility as a [____]-unit assisted living facility, including without
limitation, a certificate of occupancy for the Facility (or other similar
evidence of the right to legally occupy the Project), a license as a [____]-unit
assisted living facility from the appropriate Governmental Agency(ies), if
required to obtain payment for services to be rendered by or at the Facility, a
medicare provider number from the Health Care Financing Administration of the
United States Department of Health and Human Services and all other approvals
required by any applicable Laws for the operation of the Facility as a fully and
duly licensed, [___]-unit assisted living facility, including without
limitation, approvals required by state and federal environmental protection
agencies and the Federal Flood Plane Protection Act of 1973, as amended.
1.23. "HARD COSTS" means the costs incurred or paid by Developer in
connection with the Work and in accordance with the Approved Budget and this
Agreement for (a) costs of materials, supplies and equipment incorporated into
the Work (including the costs of transportation thereof), (b) payments made by
the Developer to the Contractor or to the subcontractors thereof for Work
performed pursuant to the Contractor Agreement or other construction contracts
or subcontracts entered into in accordance with this Agreement, (c) wages paid
for labor in the direct employ of the Contractor in the performance of the Work
and the costs of contributions, assessments or taxes incurred during the
performance of the Work for such items as unemployment compensation and
5.
<PAGE> 8
social security, insofar as such cost is based on wages, salaries or other
remuneration to employees of the Contractor which are otherwise included within
the Cost of the Work and (d) other costs incurred for labor, equipment,
materials or supplies which are incurred in the performance of the Work, if and
to the extent specifically listed as a line item in the Approved Budget or
otherwise approved in advance in writing by Owner.
1.24. "HAZARDOUS SUBSTANCES" means any hazardous or toxic material or
waste which is regulated by any authority of or operating under the authority of
any local or municipal government, the State, or the United States of America or
which may require remediation at the behest of any governmental or
quasi-governmental agency or which may cause a detriment to or impair the value
or beneficial use of the Land or Improvements or cause a health, safety or
environmental hazard on, under or about any portion of the Property, including,
without limitation, any material or substance which is: (1) petroleum or a
petroleum by-product or a fraction, derivative or product of the decay or
decomposition thereof; (2) asbestos or an asbestos containing material in any
form; (3) a hydrocarbon or similar substance; (4) PCB; (5) formaldehyde; (6)
medical waste, (7) radioactive, (8) flammable or explosive; (9) leaked or
released from any underground storage tanks; (10) listed as a "toxic pollutant"
pursuant to Section 311 of the Federal Pollution Control Act (33 U.S.C. Section
1317) including any amendments thereto; (11) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903) including any amendments
thereto; (12) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.
Section 9601) including any amendments thereto; (13) listed in the United States
Department of Transportation Table (49 CFR ss. 172.101) or by the U.S.
Environmental Protection Agency as a hazardous substance; (14) any material,
waste or substance which is governed, regulated, listed and/or defined under any
Laws of the State or in the regulations or judicial or administrative orders,
decisions or decrees promulgated pursuant to any of the foregoing State or
federal laws. The foregoing list of definitions and statutes is intended to be
illustrative and not exhaustive, and such list shall not be deemed to include
all definitions and laws applicable to the subject matter contained herein, all
such laws being included within the definition of Laws.
1.25. "IMPOSITIONS" means all (A) taxes (including without limitation
(i) all real property taxes imposed upon the Property, Facility or the Project
(ii) all personal property taxes imposed upon any portion of the Property,
Facility or Project, and (iii) all ad valorem, sales, use, single business,
gross receipts, transaction privilege, rent or similar taxes relating to or
imposed upon the Property, or, Tenant or its business conducted upon any portion
of the Property or from within the Facility), (B) assessments (including without
limitation all supplemental real property tax assessments or assessments for
public improvements or benefit, whether or not commenced or completed prior to
the date hereof), (C) any other covenants, conditions or restrictions of record
with respect to the Property, water, sewer or other rents and charges, excises,
tax levies, fees (including without limitation license, permit, franchise,
inspection, authorization and similar fees) and (D) all other governmental,
quasi-governmental or private charges, in each case whether general or special,
ordinary or extraordinary, foreseen or unforeseen, of every character or nature
whatsoever with respect to or connected with the Property, the Facility, the
Project or
6.
<PAGE> 9
the business conducted thereon or therein by Tenant (including all interest and
penalties thereon due to any failure or delay in payment thereof) which at any
time may be assessed or imposed on or with respect to, or may be a lien upon (a)
Owner's interest or investment in the Property, (b) the 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, or sales from, or activity
conducted on or in connection with the Property or the leasing or use of the
Property or any part thereof by Tenant. For the purposes of this definition, the
term "real property tax" shall mean all taxes which are imposed, levied or
assessed upon or with respect to the Property, the Building, the Land, or any
portion thereof (including increases in real property taxes which are imposed as
a result of a transfer, either partial or total, of Landlord's interest in the
Property or which are added to a tax or charge hereinbefore included within the
definition of real property tax by reason of such transfer or which are imposed
by reason of this transaction, any modifications hereto, or any transfers hereof
or which are caused by reason of any new construction in or to the Property).
Notwithstanding the foregoing provisions of this definition to the contrary,
"Impositions" shall not include (1) any tax based on the net income of Landlord,
unless such tax is levied, assessed or imposed expressly in lieu of a charge,
tax or assessment which otherwise would constitute an Imposition, in which case
the substitute tax, assessment, tax levy or charge shall constitute an
Imposition even if it is measured by the net income of Landlord or (2) a real
property stamp, documentary transfer or similar tax payable with respect to the
conveyance to a Person other than Tenant, Balanced Care or the wholly-owned
subsidiary or 100% shareholder of either.
1.26. "IMPUTED INTEREST" shall mean an amount, calculated by applying
the Advance Rate (or if applicable the Default Rate) to the sum of (i) costs
incurred by Owner in connection with the administration, operation, preparation
and negotiation of the Transaction Documents (including this Agreement) and (ii)
each and every Construction Advance, for the period beginning on the date of
each such cost is incurred or each such Construction Advance is made (as
applicable) through and including the date of determination, and aggregating the
results so obtained. Owner shall not be obligated to make any cash disbursements
of imputed interest.
1.27. "INSPECTING ARCHITECT" means those employees, representatives,
architects, engineers or other agents of Owner who may, from time to time,
inspect the Project or offer other services related thereto, before, during and
after the construction of the Project and the performance of the Work
1.28. "LAWS" means all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
common law, decrees and injunctions affecting the Property, the Project or the
Facility or the maintenance, construction, use, alteration, occupancy or
operation of any of the foregoing, whether now or hereafter enacted and in force
(including any of the foregoing which may require repairs, modifications or
alterations in or to the Work or the Project), all permits, licenses,
franchises, authorizations, land use entitlements, zoning and regulations
relating thereto, and all covenants, conditions, agreements, restrictions,
obligations and encumbrances contained in any instruments, either of record or
known to Developer, Guarantor or either of their shareholders or Affiliates, at
any time in force affecting the Project or the Work, including, without
limitation, the Americans with Disabilities Act and regulations thereunder, the
7.
<PAGE> 10
Fair Housing Act and regulations thereunder, and all Laws, ordinances and
regulations relating to zoning, building codes, set back requirements and
environmental matters..
1.29. "LEASE" means that certain Lease Agreement of even date herewith
between Owner and Tenant.
1.30. "LIEN" means any lien, mortgage, deed of trust, pledge, security
interest, equitable or other charge or encumbrance, or the option or right to
acquire any such item, except for ad valorem real estate taxes that are timely
paid.
1.31. "MAXIMUM PROJECT AMOUNT" means the maximum project amount stated
on the Approved Budget, subject to any increases, reallocations or other
modifications as shall be made only upon Owner's prior written consent, which
consent may be given or withheld in Owner's sole discretion.
1.32. "PERSON" means any natural person or legal entity, whether an
individual, trustee, corporation, partnership, limited liability company, joint
stock company, trust, unincorporated organization, bank, business association or
firm, joint venture, Governmental Agency or otherwise.
1.33. "PLANS AND SPECIFICATIONS" means the plans and specifications
for the construction of the Project referred to and defined in Section2.1 ((d))
and Section2.2((d)) and listed on Exhibit C attached hereto.
1.34. "REMEDY" means any right, power or remedy whether available to a
Person at law, in equity or otherwise.
1.35. "SHORTFALL FUNDING AGREEMENT" means that certain Shortfall
Funding Agreement between Balanced Care and Tenant of even date herewith.
1.36. "SOFT COSTS" means costs incurred or paid in connection with the
Work, in accordance with the Approved Budget and this Agreement, for the
Commitment Fee, Developer Fee, Developer Incentive Fee, title insurance
premiums, survey charges, engineering fees, architectural fees, real estate
taxes during the period of construction, premiums for insurance during
construction to the extent required to be maintained pursuant to this Agreement,
legal fees and other expenses (other than the Hard Costs of the Work) which are,
in accordance with sound accounting practices, capital expenditures.
1.37. "SUBSTANTIAL COMPLETION" means the occurrence of both (a) the
completion of all Work required under the Plans and Specifications (excluding
minor mechanical adjustments and minor touch-ups and finishing details which
would not interfere with the occupancy and use of the Project as an assisted
living facility) in conformity with the Plans and Specifications and (b) the
issuance of all Government Approvals.
8.
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1.38. "TAXES" means all taxes, assessments, charges, fees and levies
(including interest and penalties) and other Impositions imposed, assessed or
collected by any Governmental Agency.
1.39. "TENANT" means Assisted Living Operators at ____________, a
Delaware limited liability company.
1.40. "UNAVOIDABLE DELAY" means delays which occur in the performance
of the Work due to causes beyond Developer's control such as strikes, acts of
God, war, civil unrest, natural disaster, insurrection, unforeseeable shortages
of material or labor, or other causes similarly beyond the control of Developer
(financial inability of Developer or Guarantor excepted).
1.41. "VOTING SHARES" of any corporation means shares any class or
classes (however designated) having ordinary voting power for the election of at
least a majority of the members of the board of directors (or other governing
bodies) of such corporation, other than shares having such power only by reason
of the happening of a contingency.
1.42. "WORK" means all work required in accordance with the Plans and
Specifications to Finally Complete the Project.
2. THE PROJECT.
2.1. Development of Project. Developer shall:
(a) prepare a final, accurate, itemized breakdown of the costs of
construction of the Project on a line-item by line-item basis (the "INITIAL
BUDGET"), a true and correct copy of which is attached hereto as Exhibit B,
submit the Initial Budget for review and comment by Owner and thereafter to
revise the Initial Budget to reflect the reasonable comments and revisions
proposed by Owner until both Owner and Developer have approved the Initial
Budget as so revised (and upon such approval the approved budget shall be the
"APPROVED BUDGET" for all purposes of this Agreement); provided that in no event
shall the Cost of the Work payable with respect to the acquisition or
installation or delivery of unaffixed personal property exceed ten percent (10%)
of the total of all Hard Costs;; and
(b) prepare a detailed, itemized time schedule for the completion of
each phase of construction of the Project and an itemized breakdown of the
estimated times of commencement and completion of the Work on a trade-by-trade
basis , submit the proposed schedule to Owner for its review and comment and
thereafter revise the proposed schedule to reflect the reasonable comments and
suggestions of Owner until both Owner and Developer have approved the schedule
as so revised (and upon such approval the approved schedule shall be the
"PROJECT SCHEDULE" for all purposes of this Agreement); and
(c) develop, construct and Complete the Project for a cost to Owner
(as set forth on the Approved Budget) of less than or equal to the Maximum
Project Amount, including all Costs, Developer's Fees, Developer's Incentive
Fee, Contingency, Fees and accrued Imputed Interest on Construction Advances
made by Owner (which interest shall accrue, in the absence of
9.
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any Event of Default, at the Advance Rate and, during the continuation of any
Event of Default, at the Default Rate, on all sums advanced or deemed to be
advanced and shall be posted on the first of each month),; and
(d) cause the construction of the Project to proceed in accordance
with the requirements of this Agreement and in accordance with the plans and
specifications reviewed and approved by Owner, as described in Exhibit C (the
"Plans and Specifications") as modified from time to time with Owner's approval
as contemplated in Section 2.2((d)); and
(e) obtain or execute a Contractor Agreement for the Project with
the Contractor, which Contractor Agreement shall state a fixed price (stipulated
sum) or guaranteed maximum amount (cost plus fee subject to guaranteed maximum
amount) for the performance of all Work required to open the Facility, such
contract to be substantially in the form set forth in Exhibit D; and
(f) satisfy any requirements set forth in the Lease (including
without limitation the fulfillment to the occurrence of the "Commencement Date"
thereunder) or sought to be imposed by Tenant relating to acceptance of
occupancy of the Property, the Project or any portion of either or commencement
of rent; and
(g) obtain all building permits and other permits and authorizations
required to commence the construction of the Project and commence construction
of the Project within [four (4)] months after the closing of the acquisition of
the Property by Owner; and
(h) cause Substantial Completion of construction and equipping of
the Project on or prior to the Completion Date, in accordance with the Plans and
Specifications, free and clear of all liens or claims therefor, in accordance
with all Laws and any licensure requirements, and so as to permit the "Primary
Intended Use" described in the Lease. Developer shall comply with and timely
satisfy each of the terms and conditions (including, but not limited to, the
conditions for obtaining Construction Advances from Owner) pursuant to this
Agreement for the Final Completion of the Project and the opening of the
Facility, all as more particularly hereinbelow set forth.
2.2. Developer's Services. Until Final Completion of the Project or
termination as provided in Sections 7.2((b)), 11.2 or 12.8 below, Developer,
acting within the parameters of the Approved Budget and the Plans and
Specifications covenants and agrees to perform, fully, timely and completely,
the following duties for the benefit of Owner:
(a) Negotiation of Contracts. Cause the preparation and negotiation
of all contracts, purchase orders, change orders and similar documents necessary
to construct the Improvements and complete them in accordance with the Plans and
Specifications;
(b) Obtaining Permits. To coordinate with all applicable federal,
state, county and city Governmental Agency the obtaining and securing of all
necessary permits, authorizations and approvals to permit the Primary Intended
Use of the Project as stated in the Lease; and
10.
<PAGE> 13
(c) Negotiating of Utility Service. To negotiate the provision of
utilities to serve the Property and the Project as required in accordance with
the Plans and Specifications; and
(d) Plans and Specifications. To submit any revisions to the Plans
and Specifications to Owner for its approval in accordance with this Agreement,
and to execute and cause the Prime Architect to execute and deliver to Owner an
assignment of the Architect Agreement and consent thereto (the "ARCHITECT
ASSIGNMENT") in the form attached hereto as Exhibit E;
(e) Supervision; Payment and Completion of Work. (a) to cause the
Contractor to perform all of the Work required to Finally Complete the Project,
(b) to cause the preparation and negotiation of all contracts, purchase orders,
change orders and similar documents necessary to construct the Project and
Finally Complete the Project in accordance with this Agreement and the Plans and
Specifications, (c) to supervise and monitor the construction of the Project and
the compliance by the Contractor, the Architect and all other persons supplying
labor, equipment or materials to the Work with all terms and conditions of their
respective contracts and with all applicable Laws, using Developer's best skill
and attention, (d) to execute and cause the Prime Contractor to execute and
deliver to Owner an assignment of the Contractor Agreement and consent thereto
(the "CONTRACTOR ASSIGNMENT") in the form attached hereto as Exhibit F, (e) to
pay, as and when due, all of the Cost of the Work and all other costs or
expenses required to cause Substantial Completion of the Project prior to the
Completion Date and thereafter to cause the Final Completion of the Project,
from Construction Advances required to be made hereunder but to the extent such
Construction Advances are not so required, then regardless of whether the
Construction Advances hereunder are sufficient therefor and (f) to cause
Substantial Completion of the Project to be free and clear of any and all Liens
or other encumbrances, prior to the Completion Date, in strict accordance with
the Plans and Specifications (and without limitation on the foregoing, Developer
shall be responsible for assuring that all building permits and other Government
Authorizations have been obtained and the Project is commenced within four (4)
months of acquisition of the Property by Owner and is completed, licensed and
certified for occupancy as an assisted living center within the earlier of
twelve (12) months (unless extended by Owner in Owner's reasonable discretion)
from commencement of construction or the date required by any regulatory
approvals, and the Contractor's Agreement will obligate the general contractor
to Finally Complete the Project;
(f) Labor and Disputes. To make recommendations and render
assistance for the development and administration of an effective labor
resolutions program for the Work and the avoidance of labor disputes during
construction;
(g) Compliance with Laws. (a) to cause the construction of the
Project (and all of the Work) to comply with all requirements of any federal,
state or local Laws applicable to the construction, Final Completion and
operation of the Project, so that the completed Project will qualify for (i) all
Government Approvals, including without limitation, permits, certificates or
accreditations necessary for the occupancy and licensure of the Facility as a
duly licensed and medicare-approved [____]-unit assisted living facility and
(ii) approval of fire underwriters upon Substantial Completion, and (b) to
assist Tenant, as the Operator of the Facility, in obtaining all Government
Approvals, including without limitation, a license therefor from the appropriate
11.
<PAGE> 14
Governmental Agencies and any other permits or certificates required to be
obtained by the operator of such a Facility;
(h) Co-ordination with Architect. To coordinate with the Architect
and any Inspecting Architect which Owner may retain from time to time for
periodic inspections of the Project and the Work, in order to confirm that the
materials furnished to the Work and the Work performed are in strict accordance
with the Plans and Specifications and all Laws and that the Work continues to be
performed in accordance with the Approved Budget and the Project Schedule;
(i) Applications for Payment. To review and approve, in writing, and
to obtain the Architect's (and, if required, the Inspecting Architect's)
certification of all applications for payment submitted pursuant to the
Contractor Agreement and this Agreement and prepare and submit to Owner
requisitions for Construction Advances of the Costs of the Work in accordance
with this Agreement;
(j) Correction of Work. To cause the prompt and complete correction
of any defect in the Work (including without limitation any defect in materials
or workmanship provided by any Contractor or any subcontractor thereof) and to
take appropriate steps to remedy the failure of the Contractor or any other
person supplying labor, equipment or materials to the Work to perform all of
such person's obligations under its agreement with Developer or Owner or Tenant;
(k) Contracts. To make available to Owner true and correct copies of
all contracts, subcontracts and material agreements and other agreements
relating to the Work and the Project;
(l) Assignment of Warranties. To deliver to Owner promptly upon
receipt thereof true and complete copies of (a) all Government Approvals
required in connection with the Project and the opening, use and occupancy of
the Facility, (b) all warranties and guaranties received from any Person with
respect to the Work or the Project and (c) duly executed and fully effective
assignments of all guaranties and warranties issued for any Work performed or
machinery, equipment or appliances incorporated into the Project and, in
addition, to deliver to Owner, upon Substantial Completion of the Project an
assignment of warranties in the form attached hereto as Exhibit G (the
"Assignment of Warranties");
(m) Construction Information. To furnish to Owner, within ten (10)
days after the end of each calendar month prior to Final Completion of the
Project a report in form and content satisfactory to Owner, certified as true,
accurate and complete by Prime Contractor and Owner describing the current
progress of the Work, a schedule of all Costs of the Work incurred through the
date of such report and anticipated to be incurred during the forthcoming month
(which schedule shall be itemized as to trade description and item (and itemized
as to Soft Costs and any Contractor's overhead, administrative, mobilization and
general conditions costs) and shall show the name of the Contractors providing
work, labor, equipment or materials with respect thereto and a summary of all
changes from previous reports delivered under this subparagraph; and,
(n) Performance of Agreements. (a) to perform all of the other
covenants and obligations of Developer under this Agreement and (b) to do all
other things, undertake any and
12.
<PAGE> 15
all other actions and cause any and all third parties to undertake any and all
other actions as may be required to Finally Complete the Project in a lien-free
manner in accordance with the Plans and Specifications and the Approved Budget
on or prior to the Completion Date.
2.3. Trust Relationship. Developer accepts the relationship of trust
and confidence established between it and Owner by this Agreement. Developer
covenants with Owner to furnish its best skill and judgment and to cooperate
with the Architect and Owner (and any Inspecting Architect engaged by Owner) in
furthering the interests of Owner. Developer shall furnish efficient business
administration and superintendence and shall cause (subject to Unavoidable
Delay) the Contractor to furnish, at all times, an adequate supply of workmen
and materials, and to perform the Work in the best way and in the most
expeditious and economical matter, consistent with the interests of Owner.
Except as expressly authorized in this Agreement, Developer has no right or
authority of any kind for or on behalf of Owner.
2.4. Guarantee. All obligations of the Developer under this Agreement
are unconditionally guaranteed by Guarantor pursuant to the Completion
Guarantee. Pursuant to the Completion Guarantee, the obligations of each of
Developer and Guarantor shall be joint, several and primary and not secondary.
2.5. Owner Cooperation. Owner shall take all reasonable and necessary
steps to cooperate with Developer as necessary to enable Developer to discharge
its obligations hereunder, provided, however, that Owner shall not be required
to expend funds not provided for in the Approved Budget unless consented to by
Owner in the exercise of its sole and absolute discretion.
3. DEVELOPER FEES.
In consideration of the Services to be provided by Developer pursuant to
this Agreement, Owner shall pay to Developer the Developer Fee and, if earned,
the Developer Incentive Fee at the times provided in this Section 3.
3.1. Payment of Developer Fee.
(a) Upon the later to occur of the execution and delivery of this
Agreement or the approval by Owner and Developer of the Approved Budget, Owner
shall pay to Developer an amount equal to eighty-five percent (85%) of the
Developer Fee as determined by reference to the Approved Budget; and
(b) On the date the Final Construction Advance is paid to Developer
in accordance with Section 4.4 , Owner shall pay the balance of the unpaid
Developer Fee.
3.2. Payment of Developer Incentive Fee. If both (a) the sum of all
costs incurred by Owner in connection with the administration, operation,
preparation and negotiation of the Transaction Documents (including this
Agreement), plus all Construction Advances, plus Imputed Interest is less than
or equal to the Maximum Project Amount and (b) the Project is Finally Completed
on or prior to the Completion Date as revised by the final Project Schedule
approved by Owner, then Owner shall pay to Developer, on the date the Final
Construction
13.
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Advance is paid to Developer in accordance with Section 4.4 an amount equal to
the Developer Incentive Fee.
3.3. Limitation on Payment of Developer Fees. Notwithstanding the
provisions of Sections 3.1 and 3.2 to the contrary, Owner shall not be obligated
to pay the Developer Fee or the Developer Incentive Fee if such payment would
increase the total amount paid or incurred by Owner under this Agreement to an
amount in excess of the Maximum Project Amount unless Developer or Balanced Care
(as guarantor under the Completion Guarantee) has funded the amounts required
under Section 4.2((b)) of this Agreement.
4. FUNDING OF CONSTRUCTION ADVANCES.
4.1. General Conditions to Owner's Obligations. Owner's obligations
under this Agreement, including its obligations to fund the first Construction
Advance and all subsequent Construction Advances to Developer, are subject to
the full and complete satisfaction of each and every one of the following
conditions precedent:
(a) Maintenance of Title and Leasehold. (1) Owner shall be entitled
to the full use and possession of the Property pursuant to its Acquisition of
the Property under the Property Acquisition Agreement and Assignment of
Acquisition Rights without claim against Owner's title thereto for any reason
and (2) Tenant shall be entitled to the full use and possession of the Property
pursuant to the Lease, free and clear of all liens and encumbrances except such
as have been approved by Owner in writing.
(b) Maintenance of Agreements. The Contractor Agreement, the
Architect Agreement and any other contracts or agreements relating to the Work
shall be in full force and effect, without claim of default or modification,
except as approved by Owner in writing. Owner shall have approved the form and
substance of the Plans and Specifications, the Contractor Agreement and the
Architect Agreement.
(c) Delivery of Documents. Tenant and Developer, as appropriate,
shall execute and deliver to, procure for and deposit with, and pay to, Owner,
from time to time, in form satisfactory to Owner, and, if appropriate, record in
the proper records with all filing and recording fees paid:
(1) The Transaction Documents, duly executed by the parties
thereto, each dated the Closing Date, the Assignment of Warranties, the
Architect Assignment and the Contractor Assignment, duly executed by
Developer and all other parties to the Architect Agreement and the
Contractor Agreement;
(2) If requested by Owner, a report by an examiner
satisfactory to Owner of a search of the Uniform Commercial Code records
of the [Indiana] Secretary of State and the County Clerk and County
Recorder or County Register of [Vanderburgh] County, [Indiana], which
shall show that, as of the date immediately preceding the date of each
Construction Advance, there exist no security interests in the Property,
except as approved by Owner in writing;
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<PAGE> 17
(3) If requested by Owner, a copy of a soils and geological
report prepared by a qualified geotechnical engineer addressed to Owner
and a letter from Architect in form and content satisfactory to Owner
stating that the structural foundations for the Project have been
adequately designed considering soil conditions at the site, permitting
assignment of the Plans and Specifications to Owner for their use in the
Event of Default without responsibility on the part of Owner for the
Architect's fees, and certifying as to compliance of the Plans and
Specifications with applicable Laws, ordinances and regulations and such
other matters as Owner shall reasonably request;
(4) If requested at any time in writing by Owner, such
information, including without limitation (a) true and correct copies of
contracts and subcontracts, as Owner shall request relating to any
Contractor or other person supplying equipment, labor or materials to
the Work (including all Contractor Agreements and Architect Agreements)
and (b) a list of all subcontractors engaged or to be engaged in
connection with the Work, the form (approved by Owner) of the
subcontract to be used to engage such subcontractor, the date of any
subcontract entered into with such subcontractor, the scope of each
subcontractor's work under each such subcontract, and a statement of the
percentage of such work which has been completed at the time such
information is provided to Owner;
(5) Financial Statements of Tenant and Developer, in form
and substance satisfactory to Owner, including a balance sheet and
profit and loss statement, as of a date not more than 90 days prior to
the Closing Date, together with affidavits from appropriate officers of
each such party, each dated the Closing Date, to the effect that the
same are accurate and that no material adverse change has occurred as of
the Closing Date;
(6) Such written opinions of Tenant and Developer's counsel,
dated as of the Closing Date, in form and substance satisfactory to
Owner and its counsel, to such effect as Owner may require;
(7) The Approved Budget, and any revisions or updates
thereto required under this Agreement, including: (i) breakdowns of the
costs of all of the Work by trades, jobs and trade contractors and
subcontractors, (ii) a breakdown of Soft Costs and Hard Costs and, (iii)
if the Work is to be done in more than one stage, a separation of the
costs of the elements of the Work by stage.
(8) Policies of insurance as required in Paragraph 6.5
hereof;
(9) An ALTA Extended Coverage Owner's Policy of title
insurance (1970 Form) with respect to the Property, insuring or
committing to insure that Owner has a valid fee interest in and to the
Property and the Project, having the priority required by Owner, subject
only to such exceptions and encumbrances which Owner may, in its sole
discretion, approve in writing (the "Permitted Exceptions"), along with
(i) such endorsements and reinsurance as Owner may require and (ii) the
issuer's commitment to endorse, extend and date down such policy of
title insurance as of the date of each Construction Advance under this
Agreement, as made, up to the sum of the Maximum Project Amount and
Transactional Costs, such policy to be issued by First American Title
15.
<PAGE> 18
Insurance Company or other carrier or carriers acceptable to Owner (the
"TITLE COMPANY");
(10) An ALTA survey of the Property certified by a civil or
registered engineer or land surveyor acceptable to Owner and showing (i)
the locations of any buildings, easements, rights of way and
encroachments affecting the Property, (ii) all improvements therein are
within the lot lines and in compliance with any restrictions of records
or Laws relating to the location thereof, (iii) the location of set-back
lines, (iv) no easements or other conditions exist which would preclude
the Final Completion of the Project in accordance with all Laws, and (v)
such other details related thereto as Owner may request, which survey
shall be acceptable to Owner in all respects and which shall be updated
from time to time as may be reasonably requested by Owner;
(11) Evidence satisfactory to Owner that all utility services
necessary to obtain the Governmental Approvals or otherwise necessary
for the Final Completion of the Project in accordance with the Plans and
Specifications and the effective operation of the Facility, including
without limitation water, storm and sanitary sewer, oil or gas, electric
and telephone facilities, are available at the boundary of the Property
and are of sufficient capacity to adequately service the Property in
accordance with all Laws and requirements of all Governmental Agencies
having jurisdiction over the Property or the operation of the Facility;
(12) Evidence satisfactory to Owner of compliance of the
Plans and Specifications with all lease, deed, zoning and plan
restrictions and with all applicable building, zoning, subdivision,
land-use, health, sanitation, environmental protection and other Laws,
ordinances and regulations of Governmental Agencies;
(13) The written report of (i) a qualified geotechnical or
engineering firm approved by Owner concerning the presence of Hazardous
Substances on or in the Property, such report to disclose, at a minimum
(1) the results of a review of prior uses of the Property disclosed by
local public records, (2) contacts with local officials to determine
whether any record exists with respect to the disposal of Hazardous
Substances at, on or in the Property, (3) if deemed necessary by such
firm, or by Owner, the results of soil samples and groundwater samples
consistent with the highest recognized standard of engineering practice
and (4) evaluation of the surrounding areas for sensitive environmental
receptors, such as drinking water wells or aquifers, hospitals and
schools and for potential environmental hazards of any nature. In
addition, such report shall confirm that there is no condition existing
on or about the Property which is likely to require remediation and (ii)
a registered soils engineer, approved by Owner, containing the results
of appropriate soils tests and foundation recommendations;
(14) Three complete sets of the Plans and Specifications in
final form approved and initialed by Tenant and Developer and Owner or
letter identifying and approving same and signed by said parties;
(d) Transaction Documents. The Transaction Documents shall be in
full force and effect without modification or claim of default.
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4.2. Construction Advances.
(a) Construction Advance Accounts. All Construction Advances will be
made by wire transfer to an account designated in writing by Developer. All
costs incurred in connection therewith shall be included in the Cost of the
Work. At its election, Owner may make arrangements to have the amount of any
Construction Advance (or portion thereof) paid over to Contractor for the
account of Developer or may elect to pay any Construction Advance by issuing a
check jointly payable to Developer and the Contractor and any other person
supplying labor, equipment or materials to the Work ("Joint Checks").
Alternatively, any such Construction Advance may be deposited, at Owner's
election, in an appropriately designated and controlled special bank account
established for such purpose, and the execution of this Agreement by Developer
shall and hereby does constitute an irrevocable direction and authorization so
to advance Construction Advances. No further discretion or authorization from
Developer shall be necessary to warrant such direct advances or advance by Joint
Check and all such advances shall satisfy pro tanto the obligations of Owner
hereunder as fully as if made as direct cash Construction Advances to Developer
regardless of the disposition thereof made by Developer or the inability of the
Developer to obtain the endorsement of all payees on any Joint Check. Owner may
elect to advance Construction Advances in such other manner as Owner may
reasonably determine. Developer shall cause each Construction Advance under this
Agreement to be paid to the persons specified in the "Requisition" (as defined
in Section 4.3((a))((1))) giving rise to such Construction Advance immediately
after each Construction Advance.
(b) Deposit of Additional Funds. Developer agrees that if, at any
time and for any reason, Owner shall determine in consultation with the
Architect or the Inspecting Architect, if any, that (a) the undisbursed balance
of the Maximum Project Amount less Imputed Interest (i.e., the Maximum Project
Amount less the sum of the Commitment Fee plus previous Construction Advances
and Imputed Interest thereon) is or becomes insufficient to Finally Complete the
Project and permit the opening of the Facility or (b) the undisbursed balance of
any line-item on the Approved Budget (i.e., the amount stated for such line-item
on the Approved Budget less the sum of previous Construction Advances on account
of that line-item plus Imputed Interest thereon) is or becomes insufficient to
complete such line-item and the total cost necessary to complete such line item
(including the sum of all prior disbursements plus Imputed Interest thereon)
exceeds 105% of the amount stated in the Approved Budget therefor, as
applicable, as set forth in the Plans and Specifications (regardless of how such
condition may be caused), Developer will, within 15 days after written request
by Owner, either deposit with Owner such funds as will be necessary to complete
the Project and permit the opening of the Facility or such funds in excess of
105% of the amount stated in the Approved Budget for such line item, as
applicable, (as determined in Owner's good faith judgment) or otherwise provide
Owner with security satisfactory to Owner that such funds are available to
Developer to complete the Project, open the Facility or complete the line item,
as applicable.
4.3. Conditions to Construction Advances. In addition to the
conditions stated in Section 4.1, no Construction Advance shall be made by Owner
unless each and every one of the following conditions is fulfilled to Owner's
satisfaction:
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(a) Notice of Progress Payments and Accompanying Documents. At least
ten business days before the date upon which any Construction Advance is
desired, but not more than once in each calendar month unless Owner assents to
more frequent requisitions (without obligation to do so), Developer shall give
notice to Owner, specifying the total advance which is desired, accompanied by:
(1) Developer's requisition in substantially the form of
Exhibit H attached hereto, certified as true and correct by Developer,
together with (i) current invoices for the full amount covered by the
requisition and a statement of the purpose for which the current advance
is desired, (ii) an Application and Certificate for Payment (AIA
Document G702), executed by the Prime Contractor and Prime Architect
(and if required by Owner in its sole and absolute discretion by any
Inspecting Architect), showing in complete detail all monies paid out or
costs incurred on account of Cost of the Work since the prior
Requisition and specifying the particular line-items on the Approved
Budget from which each portion of the Construction Advance is to be made
and the percentage of completion of each such line-item, and (iii) a
Continuation Sheet (AIA Document G703) (collectively, the
"REQUISITION");
(2) The written certificate of the Prime Architect (and, if
required by Owner in its sole and absolute discretion, of any Inspecting
Architect) in substantially the form attached hereto as Exhibit I ;
(3) An endorsement issued by the Title Company (or adequate
assurances from the Title Company that it is committed to issue such
endorsement), as of the date of the making of such Construction
Advances, stating that there are no liens or other encumbrances on the
Property, the Project or the Facility (other than real estate taxes for
the then current year payment of which is not in default and the
Permitted Encumbrances) nor any instruments of record under which such
lien or encumbrance may be obtained;
(4) If required by Owner, lien releases with respect to
progress payments for any Contractor not receiving final payment and
with respect to final payment for all other Contractors and otherwise as
contemplated in Section 4.5 and/or satisfactory evidence that Developer
has procured, and delivered to Owner copies of, receipted bills or other
evidence of payment by Developer, reasonably acceptable to Owner,
showing payment out of the proceeds of prior Construction Advances to
all parties who have furnished equipment, supplies, materials or
performed labor of any kind in conjunction with the construction of the
Facility and who were to have been paid therefor, subject to amounts
being withheld by Developer in good faith as a result of any bona fide
dispute conducted in accordance with Section 6.16 or Section 8 of this
Agreement and as disclosed in writing to and approved in advance by
Owner;
(5) If required by Owner, inspection of and an acceptable
report on the Improvements by the Inspecting Architect, if any, as to
work actually done during the preceding period or periods;
(6) a survey by the engineer or surveyor referred to in
Section 4.1((c))((10)) hereof as of a date within 20 days following the
pouring of the foundation of the Facility showing the items specified in
Section 4.1((c))((10)) and no encroachment of the
18.
<PAGE> 21
improvements on the Property on any boundary line, easement, building
setback line or other restricted area;
(7) The Approved Budget and Project Schedule approved by
Owner in accordance with this Agreement; and
(8) Such other items as Owner may reasonably require,
including without limitation all materials which Developer receives or
is entitled to receive from the Contractor.
(b) No Defaults. Developer shall not be in default of any of its
obligations under this Agreement or the Transaction Documents (and no event
shall have occurred which, with the giving of notice, lapse of time or both,
would constitute such a default) and all representations and warranties of
Developer and Tenant made in this Agreement or in any of the other Transaction
Documents shall be true and correct as of the date of each proposed Construction
Advances with the same effect as if made on such date.
(c) Aggregate Construction Advances Less than Maximum Project
Amount. The amount of the Construction Advances requisitioned by Developer will
not cause the aggregate amount of Construction Advances (inclusive of all
Developer Fees and Developer Incentive Fees paid to Developer) plus all costs
incurred by Owner in connection with the administration, operation, negotiation
and preparation of the Transaction Documents, including this Agreement, plus all
Imputed Interest at the time of such Construction Advances to exceed the Maximum
Project Amount.
(d) No Condemnation. No portion of the Property or the Project shall
be the subject of any proceeding by any Governmental Agency for the
condemnation, seizure, or appropriation thereof, nor the subject of any
negotiation for sale in lieu of condemnation, seizure or appropriation. Neither
the Facility nor the Property shall have been materially damaged or destroyed by
fire or other cause (or if so damaged or destroyed, Developer shall have
deposited sufficient proceeds with Owner to replace all Work which must be
demolished, removed or replaced).
(e) Satisfactory Inspections. Owner shall have received satisfactory
evidence that the Work and the Project are progressing as indicated in each
Requisition and Architect's Certification, including, if so requested by Owner,
evidence of satisfactory completion of any required inspections of any
Governmental Agencies having jurisdiction over the Property, the Project or the
Facility.
(f) No Proceedings. There shall be no actions, suits or other
proceedings pending or threatened against or affecting, Developer, Guarantor,
the Project, Architect or Contractor at law, in equity or before any
Governmental Agency (including without limitation any licensing board with
jurisdiction over Architect or Contractor) which, if adversely determined, would
substantially impair the timely Final Completion of the Work and the Project and
the opening of the Facility.
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(g) No Adverse Change. No event or circumstance shall exist, in the
reasonable judgment of Owner, which would preclude completion of the Project in
compliance with all Laws, in accordance with the Approved Budget and the Project
Schedule, on or before the Completion Date.
4.4. Additional Conditions to Final Advance. In addition to the items
required under Sections 4.1 and 4.3 , the following items shall also be
furnished by Developer to Owner prior to the final Construction Advances under
this Agreement (which final Construction Advances shall include the unpaid
balance of the Cost of the Work, including the retention described in Section
4.8, but in no event shall the total Construction Advances plus Imputed Interest
exceed the Maximum Project Amount; provided, however, that, to the extent that
minor pick-up work and other punch-list items costing less than $100,000 in the
aggregate remain to be completed at the time Developer would otherwise be
entitled to the final Construction Advances under this Agreement, Owner shall
retain from such Construction Advances a sum equal to 150% of the Architect's,
or at the election of Owner, the Inspecting Architect's, estimate of the cost of
completing all such punch-list and pick-up items until such items have been
completed to Owner's satisfaction):
(1) Certificates of Final Completion of the Project, in form
and substance reasonably acceptable to Owner, of the Prime Architect and
the Inspecting Architects, if any;
(2) Evidence of the Final Completion of the Project,
satisfactory to Owner, including without limitation, evidence of the
issuance of all Government Approvals;
(3) An endorsement issued by the Title Company which insures
that the Project has been completed free of all mechanics',
materialmen's, supplier's and similar liens and claims thereof;
(4) Evidence that Tenant, under the Lease, is in possession
of the Property and that the Commencement Date under the Lease has
occurred;
(5) An "as-built" survey by the engineer or surveyor
referred to in Section 4.1((c))((10)) hereof as of the date of Final
Completion of the Project showing the items specified in Section
4.1((c))((10)); and
(6) Evidence that Developer has caused the Contractor to
provide a lien waiver and affidavit of payment of all subcontractors,
laborers and materialmen; and
(7) Recordation of a valid notice of completion of the
Project as necessary to establish the commencement of the shortest
statutory period for the filing of mechanics', materialmen's, supplier's
and similar liens.
4.5. Lien Releases and Contest. In connection with and as a condition
to the payment of any Construction Advances, Owner may require lien releases or
affidavits from, or the submission of other appropriate forms by, Developer,
Contractor, trade contractors, subcontractors, suppliers or materialmen, as
Owner may deem desirable; provided that Developer shall have the right to
contest in good faith the validity of any such lien if Developer shall at
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Owner's option either (a) fully bond against the lien in a manner sufficient to
remove the lien from record title to the Property or (b) first deposit with
Owner security satisfactory to Owner in such amounts as Owner shall reasonably
require, but not more than 150% of the amount of the claim, and provided further
that Developer shall thereafter diligently proceed to cause such lien to be
removed and discharged.
4.6. Quality of Work. No Construction Advances shall be due or paid
to Developer unless all Work to the requested date of such Construction Advances
is completed in a good and workmanlike manner, in compliance with all Laws and
the Plans and Specifications and without defects, but Owner may make
Construction Advances before the same shall become due if Owner, in its sole and
absolute discretion believes it advisable so to do, and all such Construction
Advances shall be deemed to have been made pursuant to this Agreement.
(a) The making of any Construction Advances shall not be deemed an
approval or acceptance by Owner of the Work theretofore done or materials
theretofore furnished.
(b) Owner shall not be required to make any Construction Advances
hereunder until the Requisition therefor is approved by its representatives
making any investigations which Owner deems necessary.
4.7. Limitation on Construction Advances. Owner shall not be required
to disburse an aggregate amount for any line-item of labor, materials,
equipment, supplies or services during each stage of construction of the
Project, which exceeds 105% the amount allocated to that line-item in the
Approved Budget.
4.8. Retention. Owner shall only be required to advance 90% of the
Hard Costs requisitioned. The remaining ten percent of the amount requisitioned
for Hard Costs, shall be held by Owner as retention, and shall be disbursed when
the Project is Finally Complete (except for punch-list items or pick-up work
aggregating less than $100,000 which shall be disbursed in the manner specified
in Sections 4.1 and 4.3).
4.9. Additional Construction Advances. Developer agrees that Owner
shall assume no duty with respect to the Work except to make the Construction
Advances as provided in this Agreement, subject to the conditions set forth in
this Agreement. Owner shall, however, have the right, but not the obligation, to
make Construction Advances to Developer in excess of the amounts Owner is
obligated to make under this Agreement, as Owner may deem advisable for purposes
of the completion of the Project, and in that event (a) all such additional
Construction Advances shall be subject to and made pursuant to the provisions
hereof, (b) Developer shall execute and deliver to Owner such promissory
note(s), mortgages and other instruments as Owner may reasonably request in
order to evidence and secure the repayment of such additional Construction
Advances upon Owner's demand therefor and (c) such Construction Advances shall
bear interest at a rate per annum equal to the lesser of the maximum rate of
interest permitted by law or the Advance Rate from the date disbursed to the
date such disbursement and all interest thereon is paid.
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4.10. Set-Off Against Construction Advances. Any sum, if any, which is
payable by Developer or Tenant to Owner shall, at the election of Owner, be
deemed a Construction Advance by Owner to Developer pursuant to the provisions
of this Agreement and shall thereby diminish the amount which Owner would
otherwise be required to disburse under this Agreement.
4.11. Verification. Prior to the first Construction Advances, and as a
condition to any further Construction Advances under this Agreement, Owner may
take such action, and Developer hereby covenants and agrees to cooperate with
and assist Owner in any such action as Owner may deem appropriate, to verify
that the conditions precedent to Construction Advances under this Agreement have
been fulfilled and that Developer has complied with the same. Without limiting
the generality of the foregoing, prior to and as a condition to any Construction
Advances, Owner may forward to any and all Contractors or other persons
supplying labor, material, equipment or supplies to the Work, a request for
verification in order to confirm the correctness of any information previously
furnished to Owner by Developer pursuant to this Agreement. Developer hereby
consents to Owner's direct contact with any Architect or Contractor or other
person supplying material, equipment, labor or supplies to the Work. The return
of such verification in form and substance satisfactory to Owner shall be a
condition precedent to Construction Advances hereunder.
4.12. Construction Advances Held in Trust. Notwithstanding anything to
the contrary contained herein, Developer shall hold in trust all amounts
disbursed pursuant to this Agreement exclusively for the payment of the Cost of
the Work.
4.13. Approvals by Owner. Prior to any Construction Advances under
this Agreement, Owner shall approve the Approved Budget, the Project Schedule,
the Plans and Specifications, the Architect Agreement and the Contractor
Agreement as provided in this Section 4.13. Developer shall submit each of the
foregoing documents to Owner as soon as possible and Owner shall, within 15 days
after its receipt of each of the foregoing documents and any and all other
information related thereto as Owner may reasonably request either (a) approve
such document or (b) notify Developer, in writing, of Owner's reasonable and
specific grounds for its disapproval of any such document. If Owner shall fail
to notify Developer of its reasonable and specific grounds for its disapproval
of any such document within the foregoing 15 day period, such document shall be
deemed to have been approved. If Owner shall timely notify Developer of its
reasonable and specific grounds for its disapproval of any such document,
Developer shall, prior to any Construction Advances under this Agreement, revise
such document and submit the revised document to Owner for its further
consideration and approval. The foregoing process shall be repeated until all of
the documents to be approved by Owner pursuant to this Agreement have been
approved. Notwithstanding Owner's review and approval of any documents to be
approved by Owner, such approval shall not in any way diminish the
responsibilities of Developer under this Agreement and Owner shall not be
responsible for the content of such documents or the compliance of such
documents with the requirements of this Agreement or applicable Laws.
5. REPRESENTATIONS AND WARRANTIES.
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5.1. Representations and Warranties of Developer and Guarantor. As a
material inducement to Owner to enter into this Agreement, Developer and
Guarantor represent and warrant to Owner that:
(a) Formation and Qualification. Developer and Guarantor are
corporations duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and are duly qualified and in good standing in the
State, and have all requisite power and authority to enter into this Agreement
and the Transaction Documents to which Developer or Guarantor is a party and to
conduct their respective businesses and own and lease their respective
properties.
(b) Transaction Documents. The execution, delivery and performance
of the Transaction Documents to which Developer and Guarantor are parties are
within the Developer's and Guarantor's power and authority, have been duly
authorized by all necessary action and do not and will not (1) require any
authorization which has not been obtained, (2) contravene the Charter Documents
of Developer or Guarantor, any applicable Laws or any agreement or restriction
binding upon or otherwise affecting Developer or Guarantor or their respective
properties, or (3) except to the extent created under the Transaction Documents,
result in or require the creation or imposition of any Lien upon or with respect
to any property now owned by Developer or Guarantor. No authorization of
Developer or Guarantor is required for the enforcement by Owner of its Remedies
under the Transaction Documents. Each Transaction Document, when executed and
delivered, will constitute the legal, valid, and binding obligation of Developer
and Guarantor, enforceable against Developer and Guarantor, as applicable, in
accordance with its terms, except as enforcement may be limited by principles of
equity, bankruptcy or similar Laws affecting the rights of creditors generally.
(c) Financial Information. The Financial Statements of Developer and
Guarantor which have been furnished to Owner fairly present Developer's and
Guarantor's financial condition as at the dates of such Financial Statements and
results of operations, properties or prospects of Developer and Guarantor.
Developer and Guarantor have filed all tax returns required to be filed by them
(and all such returns are true, accurate and complete in all material respects)
and have paid all Taxes due pursuant to such returns or otherwise or in respect
of any of their properties and to the current actual knowledge of Developer and
Guarantor, no basis exists for additional assessments which have not been
adequately reserved against in the Financial Statements referred to above except
as expressly otherwise disclosed to Owner in writing by Developer or Guarantor.
(d) Litigation and Other Matters. Except as otherwise disclosed in
writing to Owner (1) no actions or other proceedings affecting or relating to
Developer or Guarantor or any portion or aspect of the Project are pending or,
to the best knowledge of Developer and Guarantor, threatened and (2) no actions
or other proceedings are pending, or to the best knowledge of Developer or
Guarantor, threatened against or affecting Developer or Guarantor or any of
their property which (as regards both clauses (1) and (2) immediately
preceding), if determined adversely to Developer or Guarantor, could materially
impair the financial condition, operations, properties or prospects of Developer
or Guarantor or the ability of Developer or Guarantor to perform their
respective obligations under the Transaction Documents.
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(e) Hazardous Substances. To Developer's knowledge (a) no
underground storage tanks are located on the Property or were located on the
Property and subsequently removed or filled, (b) no asbestos or asbestos
containing material has been or will be installed, used, incorporated into or
disposed of on the Property, (c) no Hazardous Substances are located in the
immediate vicinity of the Property, no property adjoining the Property is being
used or has ever been used at any previous time for the disposal, storage,
treatment, processing or other handling of Hazardous Substances nor has any
property adjoining the Property been affected by any release of or contamination
by any Hazardous Substances and (d) no investigation, administrative order or
notice, consent order and agreement, litigation or settlement with respect to
Hazardous Substances is proposed, threatened, anticipated or in existence with
respect to any portion of the Property. The Property and its existing uses and,
to Developer's knowledge after diligent investigation and inquiry, its prior
uses comply and at all prior times have complied with all applicable Laws or
other requirements relating to environmental matters or Hazardous Substances.
There is no condition on the Property which (a) to Developer's knowledge is in
violation of any applicable governmental or other requirements relating to
Hazardous Substances, and (b) the Developer has not received any communication
from any Governmental Agency or instrumentality or other party that any such
condition exists. The Property is not currently on and, to the Developer's
knowledge after diligent investigation and inquiry, has never been on any
federal or state "Superfund" or "Superlien" list, nor is the Developer aware the
Property is anticipated or threatened to be placed on any such list. With
respect to any Property located within the State of Indiana, the Property is not
subject to the Emergency Planning and Community Right to Know Act nor is it
"property" within the meaning of Section 13-11-2-174 of the Indiana Code.
(f) Documents and Other Information. All documents and other
information delivered to Owner pursuant to any of the Transaction Documents to
which Developer or Guarantor are parties are and will be complete and correct in
all material respects at the time of delivery to Owner.
5.2. Representations and Warranties of Owner.
(a) Formation and Qualification. Owner is a corporation duly
incorporated, validly existing and in good standing under the Laws of the State
of Indiana and is duly qualified and in good standing under the Laws of the
State of Indiana and has all requisite power and authority to enter into this
Agreement, and each other Transaction Document to which it is a party and to
conduct its business and own and lease its properties.
6. DEVELOPER'S COVENANTS.
Developer agrees that it shall comply with all of the terms and
conditions of this Agreement and that it shall:
6.1. Completion. Take all steps and use its best efforts to Finally
Complete the Project as expeditiously as possible in accordance with the Plans
and Specifications, prosecute the Work and construction of the Project without
cessation except for delays caused entirely by Unavoidable Delays and, in all
events, cause the Substantial Completion of the Project on or
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before the Completion Date whether or not the Construction Advances under this
Agreement are sufficient therefor. The Project shall be constructed entirely on
the Property and shall not encroach upon or overhang any easement, right of way,
building set-back line or land or property right of others without the prior
written consent of Owner, which consent may be withheld in Owner's sole and
absolute discretion.
6.2. Title to Materials and Equipment. Use only "Fixtures" (as
defined in the Lease), materials and equipment to which Developer has absolute
title, except as otherwise specifically approved in writing in advance by Owner.
6.3. Compliance with Laws. (i) Comply with all applicable building,
fire, health, sanitation, environmental protection, land-use, subdivision and
zoning ordinances and regulations and other Laws promulgated by any Governmental
Agency or instrumentality, and all restrictions or other encumbrances affecting
title to or Owner's leasehold interest in the Property, (ii) fulfill in every
way the applicable requirements of any Governmental Agency or instrumentality
having jurisdiction over the Property, the Work or the operation of the Facility
and any board of fire underwriters and (iii) furnish Owner with such evidence
thereof as Owner may reasonably require.
6.4. Storage of Materials. Ensure that all materials supplied for, or
intended to be utilized in, the construction of the Project, but not yet affixed
thereto or incorporated therein, are stored on the Property or at such other
location or locations as may be approved in advance by Owner in writing, with
adequate safeguards, including such as may be reasonably required by Owner, to
prevent loss, theft, damage or commingling with other materials.
6.5. Insurance. Maintain or cause to be maintained policies of
insurance fire, extended coverage against other hazards, all risk, builder's
risk and any other insurance Owner may from time to time reasonably require
(including property insurance with respect to any completed portions of the
Project or the Work) and such additional insurance as may be required by the
Contractor Agreement (or any other contract with any person supplying labor,
material, equipment or supplies to the Work) and by applicable workers
compensation laws, all with such companies and in such form and amounts and on
such other terms as shall be reasonably satisfactory to Owner, insuring the
Property and any Fixtures, materials, supplies, scaffolds, equipment, tools,
furnishings and other property on the Property or acquired for use on the
Property up to the full replacement cost of such property, naming Owner as the
primary loss-payee and providing that loss proceeds shall be payable to Owner
and providing that Owner's interest shall be insured regardless of any breach by
Developer of any warranties, declarations or conditions of such policies.
Developer shall also maintain broad form general public liability insurance
regarding the Property and the Project in a minimum coverage amount with respect
to any primary policy of $1,000,000 per person, $3,000,000 per incident and an
additional excess or umbrella coverage of $10,000,000 combined single limit with
a maximum deductible of $10,000, which general liability insurance shall name
Owner as an additional named insured. All such policies shall be issued by
insurers duly authorized to issue such policies within the State and shall
require at least ten days' written notice to Owner prior to cancellation or
modification thereof. Developer shall furnish Owner with certificates or other
evidence satisfactory to Owner
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of compliance with the foregoing insurance provisions (including duplicate
original policies certified by the insurer if requested by Owner), and upon
default continuing beyond applicable grace periods, Owner may act either in its
name or as attorney for Developer (for that purpose by these presents Developer
hereby irrevocably constitutes Owner its true and lawful attorney-in-fact, with
full power of substitution, which power is coupled with an interest and Owner is
hereby irrevocably so duly authorized and appointed with full power of
revocation) in obtaining, adjusting, settling and canceling such insurance and
endorsing any drafts in payment of any loss. All of the foregoing policies shall
be assigned to Owner upon request. All of the foregoing policies shall expressly
waive any right of subrogation on the part of the insurer against Owner and its
shareholder(s). Developer hereby waives any and all right to claim or recover
against Owner and its directors, officers, shareholders, employees, agents,
representatives, affiliates and their respective successors and assigns, for
loss or damage to Developer or its property or the property of others under
Developer's control from any cause insured against or required to be insured
against by the provisions of this Section 6.5.
6.6. Financial Information. Furnish Owner with Financial Statements
of Guarantor, Developer and Tenant (including any regular statements which are
delivered to any investors therein or investors in Tenant Parent), details
relating to the financial condition of Guarantor, Developer and Tenant and such
budgets and revisions of budgets as Owner may from time to time reasonably
request in order to show the most current estimated cost of the Project, opening
the Facility and the Work and the amount of funds required, at any given time,
to Finally Complete the Project. In addition, upon the request of Owner,
Developer shall furnish Owner (or the Person(s) designated by Owner) a
certificate stating that no Event of Default exists under this Agreement or any
other Transaction Document and setting forth such other information regarding
the Developer, Guarantor, Tenant or the Project as Owner may reasonably request
from time to time.
6.7. Maintenance of Agreements. Maintain in full force and effect,
without modification (except as approved by Owner in advance in writing), this
Agreement, the Transaction Documents, the Architect Agreement, the Contractor
Agreement and any and all other agreements between Developer and any persons
supplying material, equipment, labor or supplies to the Work (collectively, the
"Material Agreements") and any instruments or agreements relating thereto and
perform all of its obligations under the Material Agreements.
6.8. Notice of Certain Matters. Give forthwith to Owner notice of
each of the following:
(a) any claim of any party of any breach under this Agreement or the
Material Agreements;
(b) any event which, with the giving of notice, the passage of time,
or both, would constitute a breach or default under this Agreement, the Material
Agreements or any Transaction Document;
(c) any litigation or claim affecting or relating to any one or more
of the Transaction Documents, the Property, the Project, the Work or the
Facility;
26.
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(d) any dispute with any Governmental Agency relating in any manner
to the Work, the Project or the Facility;
(e) any commencement or threat of commencement of proceedings in
condemnation, eminent domain or similar proceedings relating to the Property,
the Project or the Facility
(f) any circumstance which may render the Approved Budget inaccurate
in any material respect; and
(g) any other event which may cause a material adverse change in the
condition of Developer or Guarantor.
6.9. Prevention of Liens. Not permit the recording of nor suffer to
exist any architect's, artisan's, materialman's, mechanic's or similar lien or
stop notice relating to the Property, the Work, the Project or the Facility and
not permit or suffer to exist any liens, mortgages, attachments (by trustee
process or otherwise) or executions or levies thereon or on any insurance
proceeds relating thereto or other encumbrances relating to the Property, the
Work or the Facility, any materials stored thereon or therein, or any sums due
or to become due to Developer hereunder and, in the event of recording of any
such stop notice, encumbrance or lien, at the request of Owner, Developer shall
immediately remove the same from the record by bonding, payment or otherwise.
Without limitation on the foregoing, Developer shall (a) pay and discharge all
claims for labor, materials, equipment or services furnished in connection with
the Work or the Project and (b) take such action as Owner may demand to release
Owner, the Property, the Work and the Facility from any obligation or liability
with respect to any lien, stop notice or claim therefor made by any Person
furnishing labor, services, equipment or materials to the Work or the Project.
6.10. Payment of Assessments. Except to the extent being contested in
good faith in accordance with Section 8 below, pay or cause to be paid prior to
the time when interest or penalties would accrue thereon all Impositions
relating to the Property or the Facility or the materials stored thereon or
therein and furnish Owner within 30 days after the date upon which any tax,
charge or assessment is due and payable, official receipts of the appropriate
authority, or other proof as are reasonably satisfactory to Owner, evidencing
the payment thereof.
6.11. Damage or Destruction; Eminent Domain. If any casualty occurs,
or if a taking occurs, immediately notify Owner and pay or cause to be paid the
insurance proceeds or condemnation award, as the case may be, to Owner alone, to
be applied in Owner's discretion, and in such order as Owner may determine, (a)
to the reasonable costs of collection of such amounts, (b) to repayment to Owner
of the outstanding amount of any loans received by Developer under Paragraph 6.8
of this Agreement, or (c) in accordance with this Agreement, as if payments from
such proceeds or awards were Construction Advances hereunder, to the
restoration, replacement and rebuilding of the Facility.
(a) If the Property or the Facility or any part thereof shall be
damaged by fire or other hazards against which insurance is held, if and when
Owner releases each portion of the insurance proceeds for the repair and
restoration of the Facility, Developer shall proceed with the
27.
<PAGE> 30
restoration thereof, in accordance with the Plans and Specifications and subject
to all provisions of this Agreement and diligently prosecute the work of
restoration to completion even though the insurance proceeds plus the remaining
Construction Advances which Owner is obligated to make hereunder are not
sufficient therefor. No part of the cost of such restoration shall be made the
basis of any application for Construction Advances under this Agreement unless
such proceeds of insurance shall first be exhausted in the restoration of the
damage to the Facility.
(b) If notwithstanding the requirements of Section 6.5 above, the
proceeds of any insurance are paid to or otherwise received by Developer,
Developer shall hold such proceeds in trust for the benefit of Owner and shall
disburse all such funds to Owner for application as provided herein upon Owner's
demand therefor without deduction or offset of any kind.
6.12. Indemnification. Defend, hold harmless and indemnify Owner and
its directors, officers, shareholders, employees, agents, representatives,
affiliates and their respective successors and assigns from any claim arising
from (a) the performance or non-performance of the Work, (b) Developer's,
Contractors' and Architects' activities upon the Property and the activities of
such persons', agents, subcontractors, employees, materialmen and suppliers, or
(c) injury or damage to persons or property which may arise in connection with
the Facility, the Project, the Work or the Property.
6.13. Inspections. Permit Owner or its representatives, including
without limitation the Inspecting Architects, if any, to enter the Property at
any reasonable time to inspect the progress and quality of the Work and to
examine Developer's and Contractor's books of account so far as the same apply
to the Property and the Work at such reasonable times as Owner may request for
the purpose of determining Developer's compliance with the Plans and
Specifications, Project Budget, Project Schedules, and the Material Agreements,
and furnish Owner with such information as Owner may reasonably request for
determining such compliance.
6.14. No Material Changes. Not approve any material change in the
Plans and Specifications or execute any material change order under the
Contractor Agreement, any subcontract thereunder or under any other Agreement
with any person supplying equipment, labor, material or supplies to the Work
("material change" and "material change order" shall refer to a change or change
order exceeding $20,000 in cost so long as all change orders not requiring
Owner's consent hereunder shall not aggregate more than $150,000) nor assign any
such instrument or Developer's rights thereunder or under this Agreement or
permit Tenant to enter into any lease relating to the Property without in each
instance obtaining the prior written consent of Owner. With respect to any
amendments or supplements to the Plans and Specifications, Developer shall file
all such amendments and supplements with, and obtain all required Government
Approvals from, all Governmental Agencies and instrumentalities. Copies of such
approvals shall be filed forthwith with Owner.
6.15. Sign. Upon request of Owner, erect a sign on the Property at a
location selected by Owner indicating that the Facility is being financed by
Owner (subject to compliance with the ordinances of the municipality in which
the Property are located).
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6.16. Contests. To contest, vigorously and in good faith, any
proceedings which may be filed seeking to enjoin or otherwise prevent or declare
invalid or unlawful the construction, occupancy, maintenance or operation of the
Facility (or any portion thereof) and, in the event of an adverse ruling or
decision, to prosecute all allowable appeals therefrom, if deemed legally
feasible by Owner, and without limiting the generality of the foregoing, to
resist the entry or seek the stay of any temporary or permanent injunction that
may be entered, and to use its best efforts to bring about a favorable and
speedy disposition of all such proceedings referred to in this Section 6.16. All
such proceedings (including all of Owner's costs and reasonable fees and
disbursements of Owner's counsel in connection therewith) shall be at
Developer's sole cost and expense.
6.17. Material Contracts. Not enter into any material contract or
agreement with any person supplying equipment, labor, material or supplies to
the Work which would require the payment of more than $20,000 in any single
instance or $150,000 in the aggregate without the express prior written consent
of Owner.
6.18. No-Lien Contract. To the extent permitted under the Laws of the
State, ensure that the Prime Contract and all other Contractor Agreements are
executed and recorded in such a manner as to prevent the filing of liens with
respect to the Project or the Work Without limitation on the generality of the
foregoing, Developer shall insure that all Work performed within the State of
Indiana is performed under a No-Lien Agreement which complies in all respects
(including the recordation thereof and of the Contractor Agreements, including
but not limited to the Prime Contract) in the real property records of the
County in which the Project is located pursuant to Section 32-3-8-1 et seq. of
the Indiana Code.
6.19. Hazardous Materials. If an investigation or any monitoring of
site conditions or any cleanup, containment, restoration or other remedial work
(collectively, "REMEDIAL WORK") is required under any applicable Laws, or due to
the presence of Hazardous Substances at or threatened to be released onto or
upon the Property or otherwise required to cause the Property and the Project to
be free of all Hazardous Substances, Developer shall perform or cause to be
performed all Remedial Work at no cost or expense to Owner. All such Remedial
Work shall be performed expeditiously, in accordance with all applicable Laws
(including any requirement for a remedial action plan or other plan for the
performance of the Remedial Work, which plan shall have been approved by the
applicable Governmental Agencies prior to the commencement of the Remedial
Work). Developer shall protect, defend, indemnify and hold Owner, the Property,
the Project and the Work harmless from and against the cost of any Remedial Work
required to be performed under this Agreement and the presence of Hazardous
Materials on the Property at any time during the construction of the Project or
upon Final Completion thereof.
6.20. Certificates of Occupancy. The Developer shall furnish Owner a
copy of the final certificate of occupancy for the Project, as well as any
related operating licenses or other certificates of authority (unless extended
by Owner in Owner's reasonable discretion) on or prior to the Completion Date
(but no later than the date required by any Governmental Agency or Governmental
Approval) and satisfy within such period any other conditions, if any, necessary
to trigger the obligations of Lessee under the Lease to commence the payment of
rent. The
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commencement and first payment by Lessee of said rent payments under the Lease
shall be a condition of Owner's payment obligation with respect to the final
installment of the Developer's fee.
7. EVENTS OF DEFAULT AND REMEDIES OF OWNER.
7.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) Developer shall fail to perform any material term, covenant or
condition of this Agreement or any documents executed in connection herewith and
such failure is not cured by Developer within a period of thirty (30) days after
receipt by Developer of notice thereof from Owner, unless such failure cannot
with reasonable due diligence be cured within a period of thirty (30) days, in
which case such failure shall not be deemed to continue if Developer proceeds
promptly and with reasonable due diligence to cure the failure and thereafter
diligently completes the curing thereof as soon as reasonably possible but in
all events within a period of sixty (60) days after receipt by Developer of the
notice referred to above in this subparagraph;
(b) any representation or warranty of Developer or Guarantor
contained in this Agreement or any Transaction Document or made in connection
with the Project, this Agreement or any Transaction Document proves to have been
incorrect in any material respect when made or thereafter becomes incorrect in
any material respect;
(c) Developer is enjoined by any court or other Governmental Agency
from constructing the Project or entering into or performing its obligations
under this Agreement or any other Transaction Document and such injunction
continues unreleased and unstayed for a period of forty five (45) days from the
date of issuance;
(d) Without Owner's consent, Guarantor or Developer is dissolved or
liquidated or merged with or into any other Person or any election is made or
proceedings commenced in furtherance of any such dissolution or liquidation or
Developer or Guarantor otherwise ceases to continue to validly exist and remain
in good standing under the Laws of its State of organization or fails to remain
duly qualified and in good standing under the Laws of the State of Indiana or
all or substantially all of the assets of Developer or Guarantor are sold or
otherwise transferred
(e) Guarantor ceases to own 100% of the capital stock of Developer
or, after the completion of the Initial Public Offering of Guarantor (as
contemplated in Section 10.3 of the Facility Agreement), suffers a Change in
Control;
(f) Developer or Guarantor files for protection under the U.S.
Bankruptcy Code or under any similar Laws regarding insolvency or protection of
debtors from claims of creditors;
(g) Developer or Guarantor is subject to an order for relief by the
bankruptcy court or is unable or admits in writing its inability to pay its debt
as they mature or makes an assignment for the benefit of creditors or Developer
or Guarantor applies for or consents to the appointment of any receiver, trustee
or similar official for it or for all or any part of its property (or any such
30.
<PAGE> 33
appointment is made without its consent and the appointment continues
undismissed, undischarged or unstayed for sixty (60) days from commencement
thereof); or Developer or Guarantor institutes or consents to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
custodianship, conservatorship, liquidation, rehabilitation or similar
proceeding relating to it or to all or any part of its property under the Laws
of any jurisdiction (or any such proceeding is instituted without its consent
and continues undismissed for sixty (60) days from commencement); or any
judgment, writ, warrant of attachment or execution or similar process is issued
or levied against any property of Developer or any Guarantor and is not
released, vacated or fully bonded within sixty (60) days after its initial issue
or levy;
(h) Work on the Project shall have ceased for a period of ten (10)
consecutive business days for any reason other than an Unavoidable Delay
(i) Any circumstance exists which would cause the Project not to be
Substantially Complete on or prior to the Completion Date or the Project is not
in fact Substantially Complete on or prior to the Completion Date; and
(j) An Event of Default shall have occurred under the Facility
Agreement or any other Transaction Document (including without limitation the
Completion Guarantee) by reason of the act or failure to act of Developer or
Guarantor.
7.2. REMEDIES OF OWNER. Upon the occurrence of any Event of Default
hereunder by Developer, Owner may, without further notice to or demand, if any,
upon Developer, which are expressly waived by Developer (except for notices or
demands otherwise required by applicable Laws to the extent not effectively
waived by Developer and any notices or demands specified in the Transaction
Documents), exercise any one or more of the following Remedies as Owner may
determine:
(a) Owner may recover all previously paid transaction expenses,
Developer fees and accrued and unpaid interest on Construction Advances at the
Advance Rate through the date of such Event of Default and at the Default Rate
thereafter, terminate further Construction Advances to Developer and recover
damages, resulting from Developer's default including, but not limited to, all
costs and expenses incurred by Owner in the negotiation and preparation of the
Transaction Documents relating to the Project, all costs of appraisal, title
fees, premiums and costs, recording fees and transfer costs and other closing
costs incurred by Owner in connection with this Agreement and the acquisition of
the Property, funds advanced by Owner in connection with the performance by
Owner (if Owner so elects in its sole and absolute discretion) of any
obligations of Developer or Guarantor which Developer or Guarantor has not
timely performed and any other expenditure made by Owner pursuant to any
Transaction Document;
(b) Owner may terminate Developer's rights with respect to the
Project and perform any of Developer's obligations in such manner as Owner may
reasonably determine; or
31.
<PAGE> 34
(c) Owner may proceed to protect, exercise and enforce any and all
other Remedies provided under the Transaction Documents or by applicable Laws.
7.3. All actual and reasonable costs, expenses, charges and advances
of Owner in exercising any such remedies (including without limitation costs of
attorneys' and staff fees including costs of preparation for litigation
computerized research, telephone, fax, mileage, depositions, postage,
photocopies, process service, video tapes and similar expenses) shall be payable
by Developer to Owner as transaction expenses in accordance herewith. 7.3.
Remedies Cumulative. Each of the Remedies of Owner provided in the Transaction
Documents is cumulative and not exclusive of, and shall not prejudice, any other
Remedy provided in the Transaction Documents or by applicable Laws. Each Remedy
may be exercised from time to time as often as deemed necessary by Owner, and in
such order and manner as Owner may determine. No failure or delay on the part of
Owner in exercising any Remedy shall operate as a waiver of such Remedy; nor
shall any single or partial exercise of any Remedy preclude any other or further
exercise of such Remedy or of any other Remedy. No application of payments, or
any advances or other action by Owner, will cure or waive any Event of Default
or prevent acceleration, or continued acceleration, of amounts payable under the
Transaction Documents or prevent the exercise, or continued exercise, of any
Remedies of Owner.
8. PERMITTED CONTESTS.
Developer may contest by appropriate action any Imposition, and Owner
shall have no right to pay such Imposition on Developer's behalf during the
pendency of such contest, provided that (a) no "Event of Default" has occurred
and is continuing under this Agreement or under any of the other Transaction
Documents; (b) Developer has given Owner written notice that Developer is
contesting the application, interpretation or validity of the law, regulation,
order or agreement pertaining to the Imposition by appropriate legal or
administrative proceedings conducted in good faith and with due diligence and
dispatch, (c) such contest shall not subject Owner or any of its affiliates to
any assignment of all or any portion of the Owner's interest in any of the
Project to civil or criminal liability and does not jeopardize any such party's
interest in the Project, and (d) Developer shall give such security or
assurances as may be reasonably required by Owner to ensure ultimate compliance
with all legal or contractual requirements pertaining to the Imposition (and
payment of all costs, expenses, interest and penalties in connection therewith)
and to prevent any sale, forfeiture or loss by reason of nonpayment or
noncompliance.
9. GUARANTY OF COMPLETION.
If, for any reason whatsoever (including, without limitation, any
contingency under the Contractor Agreement), any Contractor shall abandon the
construction of the Project or fail to Finally Complete the Project prior to the
Completion Date and pay all costs therefor, then, in any such event, the
Developer shall, at the Developer's sole cost and expense, cause the Project to
be Finally Completed, prior to the Completion Date, in accordance with the Plans
and Specifications, free and clear of any Liens, including without limitation
liens for labor, equipment, supplies or materials entered or filed against the
Property or the Project in connection with the Work. Upon the
32.
<PAGE> 35
occurrence of any default by the Contractor under the Contractor Agreement, the
Developer shall promptly notify Owner and shall, without notice or demand by
Owner, (i) assume direct responsibility and control over the construction and
Final Completion of the Project and the payment of all subcontractors, (ii)
proceed diligently and with dispatch to cure the default and (iii) Finally
Complete the Project in accordance with the terms and conditions of this
Agreement and the Contractor Agreement. Developer hereby agrees that any and all
rights of the Developer in and to the Property, whether by lien or otherwise,
which arise by virtue of the performance of any of the Developer's obligations
pursuant to this Agreement are, and at all times shall be and remain subject and
subordinate to the Lease and the terms and conditions of each of the other
Transaction Documents and Developer further agrees to execute, acknowledge and
record such documents in the county in which the Property is located as Owner
may deem necessary in order to implement and evidence such subordination.
10. GUARANTY OF PROJECT COSTS.
Developer hereby unconditionally covenants and guaranties to pay from
its own funds (a) any cost, fee or expense required to Finally Complete the
Project which is excluded from the Cost of the Work and (b) the amount, if any,
by which the sum of the Cost of the Work, Imputed Interest and all other costs
or expenses required for the development, construction and Final Completion of
the Project exceeds the Maximum Project Amount, for any reason whatsoever, even
if beyond the control of the Developer (including, by way of example, but not
limitation, construction delays due to Unavoidable Delays, shortages of
materials or obtaining necessary permits or approvals). If the sum of the total
Cost of the Work, the Imputed Interest and the other costs and expenses required
to Finally Complete the Project exceeds the Maximum Project Amount, Developer
shall immediately pay any and all such costs and expenses in excess of the
Maximum Project Amount which are required to Finally Complete the Project and
open the Facility, without requirement of demand or notice by Owner.
11. TERM.
11.1. Term. The term of this Agreement shall commence on the date
hereof and shall, unless sooner terminated as provided in Section 7.2((b))or
Section 12.8 below, or unless extended by agreement between Developer and Owner,
terminate upon Final Completion of the Project.
11.2. Termination by Developer. Developer may terminate this Agreement
following forty five (45) days written notice to Owner if the Developer has
fully complied with all of its obligations hereunder and under the Transaction
Documents, has satisfied all conditions for an advance of funds under this
Agreement and no Event of Default exists, and Owner nevertheless shall fail to
advance funds required under this Agreement and such failure is not cured within
such forty-five (45) day period. Upon such a termination, Developer shall also
be entitled to exercise an option to purchase the Project in its then current
condition (which option must be exercised, and the Purchase closed, if at all,
within ninety (90) days following the end of such aforesaid forty-five (45) day
period). The purchase price shall equal all Approved Budget funds previously
advanced or deemed advanced excluding fees and interest to Owner.
33.
<PAGE> 36
12. MISCELLANEOUS.
12.1. Waiver of Trial by Jury. THE PARTIES TO THIS AGREEMENT DESIRE TO
AVOID THE ADDITIONAL TIME AND EXPENSE RELATED TO A JURY TRIAL OF ANY DISPUTES
ARISING HEREUNDER. THEREFORE, IT MUTUALLY AGREED BY AND BETWEEN THE PARTIES
HERETO, AND FOR THE1R SUCCESSORS AND ASSIGNS, THAT THEY SHALL AND HEREBY DO
WAIVE TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM OR THIRD PARTY CLAIM, INCLUDING
ANY AND ALL CLAIMS OF INJURY OR DAMAGES, BROUGHT BY EITHER PARTY AGAINST THE
OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND THE
RELATIONSHIP WHICH ARISES HEREFROM. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS
WAIVER IS KNOWINGLY, FREELY AND VOLUNTARITY GIVEN, IS DESIRED BY ALL PARTIES,
AND IS IN THE BEST INTEREST OF ALL PARTIES.
12.2. Notice. Any and all notices, demands or other communications
(collectively, a Notice") required or desired to be given hereunder by any party
shall be in writing and shall be validly given or made to another party if
served either personally or if sent by Federal Express, Express Mail or other
similar overnight mail service, or if transmitted via facsimile, or if deposited
in the United States mail, certified or registered, postage prepaid, return
receipt requested. If such Notice is served personally, service shall be deemed
made conclusively at the time of such personal service. If such Notice is sent
by Federal Express, Express Mail or other similar overnight mail service,
service shall be deemed made conclusively on the date of delivery or refusal of
delivery. If such Notice is sent via facsimile, such service shall be deemed
made conclusively upon confirmation of transmission of such facsimile. If such
Notice is sent by certified or registered mail, such service shall be
conclusively deemed made seventy-two (72) hours after the deposit thereof in the
United States mail addressed to the party to whom such Notice is to be given as
hereinafter set forth:
If to Owner: AHP of Indiana, Inc.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Attention: President and General Counsel
If to Developer: BCC Development and Management Co.
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Karen Connelly, Esq
With copies to: Kirkpatrick and Lockhart, L.L P
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn.: Steven J. Adelkoff, Esq.
Addresses for notice may be changed from time to time by written Notice to all
other parties.
34.
<PAGE> 37
12.3. Governing Law This Agreement shall be interpreted according to
the laws of the State of [Indiana]. All disputes hereunder shall be adjudicated
in the federal courts sitting in the State of [Indiana], or should such courts
refuse to recognize jurisdiction over such matters, the courts of the State of
[Indiana].
12.4. Assignment. Neither party shall assign its rights and
obligations under this Agreement without the prior written approval of the other
party except that Developer may assign its rights and obligations to a
wholly-owned subsidiary or an affiliate of Developer. Developer shall provide
notice to Owner of such assignment. No such assignment shall relieve Developer
or Guarantor of its obligations hereunder.
12.5. Entire Agreement. This Agreement constitutes the entire
Agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior agreements, oral or written and all other
communications between the parties relating to such subject matter.
12.6. Amendments. This Agreement shall not be modified or amended
except by mutual written agreement.
12.7. Waiver of Breach. The waiver by either party of a breach or
violation of any provisions of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or other
provision.
12.8. Severability. In the event any provision of this Agreement is
held to be unenforceable or invalid for any reason, this Agreement shall remain
in full force and effect and enforceable in accordance with its terms
disregarding such enforceable or invalid provision; provided, however, that in
the event that a provision of this Agreement is rendered invalid or
unenforceable and its removal has the effect of materially altering the
obligations or benefits to either party, the party so affected shall have the
right to terminate this Agreement upon thirty (30) days prior written notice to
the other party.
12.9. Captions and Headings. The captions or headings in this
Agreement are made for convenience and general reference only and should not be
construed to describe, define or limit the scope and intent of the provisions of
this Agreement.
12.10. Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one and the same Agreement.
12.11. Binding Effect. This Agreement shall be binding and shall inure
to the benefit of the parties hereto, and their respective heirs, legatees,
executors, administrators, legal representatives, successors and assigns.
12.12. No Rule of Construction. The parties acknowledge that all
parties hereto, and their counsel, have read and fully negotiated all of the
language used in this Agreement. The parties acknowledge that, because all
parties and their counsel participated in negotiating and drafting
35.
<PAGE> 38
this Agreement, no rule of construction shall apply to this Agreement which
construes ambiguous and unclear language in favor of or against any party
because such party drafted this Agreement.
12.13. No Third Party Beneficiary. This Agreement is solely for the
benefit of the parties hereto and shall not inure to the benefit of any
individual or entity not a party to this Agreement.
12.14. Time is of the Essence. With respect to all provisions of this
Agreement, time is of the essence
12.15. Other Terms The term "document" is used in its broadest sense
and encompasses agreements, certificates, opinions, consents, instruments and
other written material of every kind. The terms "including" and "include" mean
"including without limitation" and "including, but not limited to". The term
"any" as a modifier to any noun, shall be construed to mean "any and/or all"
preceding the same noun in the plural The terms "herein" "hereunder" and other
similar compounds of the word "here" refer to the entire document in which the
term appears and not to any particular provision or section of the document in
which the term appears and not to any particular provision or section of the
document. In all cases where Owner's approval or consent is required hereunder,
such approval or consent must be in writing and may be withheld in Owner's sole
and absolute discretion.
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
36.
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement on the 1st
day of February 1998, to be effective as of the day and year first above
written.
OWNER:
AHP OF INDIANA, INC, DEVELOPER:
an Indiana corporation
BCC DEVELOPMENT AND MANAGEMENT
CO., a Delaware corporation
By: /s/ Steven A. Roseman
- -------------------------------------
Steven A. Roseman, Vice President By: /s/ Brian L. Barth
------------------------------_
Brian L. Barth, Vice President
GUARANTOR:
BALANCED CARE CORPORATION
a Delaware corporation
By: /s/ Brian L. Barth
------------------------------
Brian L. Barth, Vice President
<PAGE> 40
Schedule to Exhibit 10.74 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Development Agreement
<TABLE>
<CAPTION>
Location Owner
<S> <C>
Jackson, TN AHP of Tennessee, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.75
SHORTFALL FUNDING AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made as of January 30, 1998, by and
among ASSISTED CARE OPERATORS OF ANDERSON, LLC., a Delaware limited
liability company (the "LESSEE"), the members of Lessee listed on Schedule A
attached hereto (collectively, the "MEMBER") and Balanced Care Corporation, a
Delaware corporation ("BCC").
W I T N E S S E T H
WHEREAS, the Member constitutes the holder of all equity
interests in the Lessee; and
WHEREAS, pursuant to the Facility Agreement, Lessee executed
and delivered the Lease and Security Agreement dated as of January 30, 1998 (the
"LEASE") between Lessee and AHP OF [INDIANA], INC., an [Indiana] corporation
(the "LESSOR"), whereby Lessee leased from Lessor property, together with all
improvements built or to be built thereon, located in Madison County, [Indiana]
as more fully described in the Lease (the "PROPERTY"); and
WHEREAS, pursuant to the Facility Agreement the Lessee and
Balanced Care at Anderson, Inc., a Delaware corporation (the "MANAGEMENT FIRM")
have entered into that certain Management Agreement dated as of January 30, 1998
(the "MANAGEMENT AGREEMENT") whereby Lessee has appointed the Management Firm as
the exclusive manager and operator the Facility; and
WHEREAS, pursuant to the Facility Agreement Lessor and BCC
Development and Management Company, Inc., a Delaware corporation ("Developer")
have entered into a Development Agreement of even date herewith (the
"Development Agreement") for the purpose of developing the Facility; and
WHEREAS, the Developer and the Manager are wholly-owned
subsidiaries of BCC; and
WHEREAS, Lessee will deposit with Lessor immediately available
funds from time to time as specifically provided in this Agreement to fund the
Working Capital Reserve (to be used to fund Shortfalls); and
WHEREAS, upon depletion of the Working Capital Reserve, BCC
intends to make Advances to the Lessee, on the terms and conditions herein
stated, to fund continuing Shortfalls; and
WHEREAS, BCC is willing to fund Advances to Lessee covering
Shortfalls upon depletion of the Working Capital Reserve only on the terms and
conditions provided in this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of
<PAGE> 2
which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
FUNDING SHORTFALLS
SECTION 1.01 FUNDING; CAPITALIZATION OF LESSEE; WORKING
CAPITAL RESERVE. (a) The Member (jointly and severally if more than one) hereby
agrees to contribute as capital to the Lessee the following capital
contributions:
(i) On the date hereof the Member shall deposit into the
Collateral Account no less than the sum of $200,000; and
(ii) on or before April 2, 1998 the Member shall deposit into
the Collateral Account funds sufficient to make to the total amounts contributed
to Lessee no less than the sum of $600,000.
Time is of the essence with respect to each contribution
described in this Section 1.01(a).
(b) The contributions described in Section 1.01 (a) shall be
made directly into the Cash Collateral Account. Each contribution of funds into
the Cash Collateral Account as provided in this Section 1.01 is referred to
herein as a "FUNDING", and the aggregate of all Fundings made is collectively
referred to as the "WORKING CAPITAL RESERVE").
(c) In the event that the Member defaults in the timely
payment of Fundings into the Working Capital Reserve as provided in Section 1.01
(a)(or defaults in the timely payment of fundings regarding other transactions
in which Lessor has or will enter into leases with entities wholly-owned by the
Member), BCC shall have the right at any time thereafter, but not the
obligation, to require that the Member sell all of the Equity Interests to BCC
or its designee in the manner provided for in the Option Agreement; provided,
however, the purchase price for the Equity Interests (as the case may be) shall
be the amount of Fundings actually deposited by the Member into the Collateral
Account, plus an amount calculated on a pro rata basis as 25% per annum of the
amount of funds actually contributed into the Working Capital Reserve from the
date of deposit through the date of closing. In such event, all terms and
conditions of the sale applicable to the Option shall be equally applicable to
the sale under this Section 1.01(c), and the failure by the Member to close on
such sale within 3 days after written notice from BCC (time being of the
essence) shall constitute an Event of Default.
(d) The Member and the Lessee acknowledge and agree that (i)
each Funding constitutes the capital contribution of the Member to the Lessee,
(ii) each Funding is not in any way to be construed as Indebtedness of Lessee
nor to be construed as evidence of a loan from any Member to the Lessee and
(iii) Lessor and the Manager may (without notice to Lessee or Member, and
whether acting alone or together) withdraw funds from the Working Capital
Reserve to fund Shortfalls with respect to the Facility as provided in the
Transaction Documents and the Lease Documents.
2
<PAGE> 3
SECTION 1.02 ADVANCES. Upon complete depletion of the Working
Capital Reserve, and to the extent thereafter of any Shortfall, BCC hereby
agrees to advance from time to time funds to the Lessee upon no less than three
(3) days prior written notice, upon the terms and conditions provided herein
(each advance being an "ADVANCE" and collectively, the "ADVANCES"). Advances
shall be evidenced by one or more promissory notes issued by the Lessee in the
form attached hereto as Exhibit A (the "NOTES"). The Notes shall be payable upon
demand. Interest shall accrue on the Notes at the rate of 2% over the Prime Rate
as announced from time to time in the Wall Street Journal (or, in the event of
the discontinuance of the publishing of the Prime Rate in the Wall Street
Journal, such other source as the parties may agree), and shall be payable in
arrears on the first day of each calendar quarter. All sums owed under the Notes
and hereunder to BCC, and all other obligations, agreements and covenants under
the Transaction Documents applicable to and binding upon either Lessee or the
Member (including the obligations of each Member under the Option Agreement),
together with all interest payable under the Transaction Documents and all other
costs and expenses payable by Lessee or any Member to or for the benefit of
Lessor, any Lessor Affiliate, BCC or any BCC Affiliate (including
indemnification and defense obligations) are referred to herein as the
"OBLIGATIONS".
SECTION 1.03 ASSET PURCHASE OPTION. The Lessee and the Member
hereby grant to BCC an option (the "ASSET PURCHASE OPTION") to purchase all of
the assets of the Lessee (including the option to take an assignment of the
Lease) for the Asset Purchase Price. The Asset Purchase Option may be exercised
by BCC by providing written notice to the Lessee at any time during the term of
the Lease. The closing of the purchase of the assets of the Lessee shall take
place within 30 days after BCC exercises the Asset Purchase Option at such
location in Pennsylvania as BCC may designate. At the closing of the asset
purchase, the Lessee shall transfer, assign and convey to BCC (or its designee)
all assets of Lessee, free and clear of all Liens and restrictions of any kind
or nature, except for Liens or restrictions in favor of the Lessor pursuant to
the Lease Documents or in favor of BCC pursuant to the Transaction Documents
(provided, however, Liens in favor of BCC securing Advances or other Obligations
shall be paid in full by Lessee and the Member at the closing of the asset
purchase). The Lessee (and the Member if requested by BCC) shall execute and
deliver at the closing of the asset purchase an assignment of lease (assigning
the Lease to the purchaser), a bill of sale conveying all other assets of the
Lessee and such other documents and instruments as BCC may reasonably request,
all in form and substance reasonably satisfactory to BCC. The "ASSET PURCHASE
PRICE" as used herein shall mean (i) all amounts actually funded into the
Working Capital Reserve, plus (ii) an amount (calculated as a yearly return)
equal to 25% of the Working Capital Reserve actually funded through Fundings,
compounded annually through the closing date, plus (iii) the aggregate amount of
all Advances and all other Obligations due and payable by Lessee or the Member
to BCC or a BCC Affiliate through the closing date (exclusive of the Management
Fee), minus (iv) any payments made to the Member under the Option Agreement. All
Advances and all other Obligations due and payable by Lessee or the Member to
BCC or a BCC Affiliate through the closing date of the asset purchase shall be
payable from the Asset Purchase Price to BCC or the BCC Affiliate, as
appropriate. Notwithstanding any provision to the contrary contained herein, in
no event shall BCC be permitted to exercise the Asset Purchase Option unless (i)
BCC is otherwise current on all Option Payments due and owing under the Option
Agreement at the time of exercise of the Asset Purchase Option and (ii) BCC
obtains the consent of Lessor to release
3
<PAGE> 4
Lessee and the Member from all liability under the Lease Documents, or otherwise
terminates Lessee's and Member's liability thereunder.
SECTION 1.04 TRANSACTION DOCUMENTS. In addition to the Notes,
and to better secure the performance of Lessee hereunder and under the other
Transaction Documents, Lessee and the Member (as applicable) have executed and
delivered to Lessor or BCC (as applicable) the following:
(i) the Lease and the other Lease Documents to which
it is a party;
(ii) Revolving Credit/Future Advances Leasehold
Mortgage in the form attached hereto as Exhibit B encumbering
the Property in favor of BCC (the "LEASEHOLD MORTGAGE");
(iii) the Deposit Pledge Agreement and the Stock
Pledge Agreement; and
(iv) such other documents, certificates, powers,
affidavits and instrument as BCC may reasonably request.
In addition to the foregoing documents, the Member has
executed and delivered to BCC the Option Agreement (the
"OPTION AGREEMENT") substantially in the form attached hereto
as Exhibit C, whereby each Member has agreed that BCC shall
have an option to purchase the equity interest of each Member
in Lessee, on the terms and conditions provided therein.
SECTION 1.05 INTEREST PAYMENTS. In no event shall the amount
of interest due or payable pursuant to any Transaction Document exceed the
maximum rate of interest allowed by Law and, in the event any such payment is
inadvertently paid by the Lessee or the Member or inadvertently received by BCC
or any BCC Affiliate, then such excess sum shall be credited as a payment of
principal due to BCC or any BCC Affiliate. It is the express intention of the
parties hereto that neither the Lessee nor the Member pay to BCC, directly or
indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the Lessee.
SECTION 1.06 INTENTION. It is the intention of BCC, the Member
and Lessee that (i) the Management Firm operate the Facility pursuant to the
Management Agreement and that Lessee act as a passive investor with respect to
the Facility, (ii) Lessee include on its financial statements all revenue and
losses with respect to the Facility during the term of this Agreement for
accounting purposes, and (iii) Advances made hereunder and all other obligations
of Lessee and the Member under the Transaction Documents be secured by the
Leasehold Mortgage Deposit Pledge and Stock Pledge, but subject to the rights of
Lessor under the Lease Documents and Transaction Documents, regardless of any
bankruptcy, insolvency, receivership or similar proceedings instituted by or
against Lessee. BCC, each Member and Lessee agree to take no position
inconsistent with the intention of the parties as herein stated.
4
<PAGE> 5
ARTICLE II
CONDITIONS TO ADVANCES
SECTION 2.01 CONDITIONS PRECEDENT TO ADVANCES. Subject to the
rights of Lessor under the Working Capital Assurance Agreement, the obligations
of BCC to accept delivery of the Transaction Documents and make Advances are
subject to the condition precedent that BCC receives the following five days
prior to the making of any Advance, in form and substance satisfactory to BCC:
(a) the Note(s);
(b) the Working Capital Assurance Agreement;
(c) the Leasehold Mortgage;
(d) the Option Agreements;
(e) the Management Agreement;
(f) a certificate of the Secretary of State of the State of
Delaware stating that the Lessee is duly organized, validly existing and in good
standing in such state;
(g) a certified copy of the Operating Agreement of the Lessee
and the Member, together with certified resolutions or authorizations of the
Lessee and the Member granting the power to Lessee and the Member to enter into
and perform the Transaction Documents;
(h) all other Transaction Documents;
(i) the Lease and all other Lease Documents; and
(j) such other affidavits, documents, certificates, statements
and instruments as BCC may reasonably request.
SECTION 2.02 ADDITIONAL CONDITIONS PRECEDENT TO ADVANCES.
Subject to the rights of Lessor under the Working Capital Assurance Agreement,
the obligation of BCC to accept delivery of the Transaction Documents and
consummate this transaction, and to make any Advance, shall be further subject
to the condition precedent that:
(a) the following statements shall be true and correct (and
the delivery by the Lessee and the Member of the Transaction Documents shall be
deemed to constitute a representation and warranty by the Lessee and the Member
that such statements are true on such date):
(i) The representations and warranties contained in
Article III of this Agreement and the other Transaction
Documents are true and correct in all
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material respects on and as of date of the execution and
delivery of this Agreement, at the time of each Advance, and
as of each date until the Obligations are satisfied in full;
and
(ii) No event has occurred and is continuing which
constitutes a Default or an Event of Default under any of the
Transaction Documents; and
(b) BCC shall have received such other opinions or documents
as BCC may request in BCC's sole discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE LESSEE. The
Lessee and each Member represents and warrants as follows:
(a) ORGANIZATION; QUALIFICATION. The Lessee is a limited
liability company duly formed, validly existing and in good standing under the
laws of State of Delaware, has qualified to do business in the State of
{________}, and has the power and authority to own its properties and to carry
on its business as now being and hereafter proposed to be conducted.
(b) POWER; AUTHORITY. The execution, delivery and performance
by the Lessee of this Agreement and the other Transaction Documents to which it
is a party are within the Lessee's power and have been duly authorized by all
necessary action, and this Agreement and the other Transaction Documents to
which Lessee is a party have been duly executed and delivered by the duly
authorized Manager of the Lessee.
(c) APPROVAL OR CONSENTS. No approval or consent of any
foreign, domestic, federal, state or local authority is required for the due
execution, delivery and performance by the Lessee of this Agreement or any other
Transaction Document to which it is a party and the execution, delivery and
performance by the Lessee of this Agreement and the other Transaction Documents
to which it is a party do not conflict with, and will not result in the breach
of or default under, any contract, agreement or other document or instrument to
which the Lessee is a party or by which its properties are bound.
(d) BINDING OBLIGATIONS. This Agreement and the other
Transaction Documents to which the Lessee is a party are legal, valid and
binding obligations of the Lessee enforceable against the Lessee in accordance
with their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting generally the
enforcement of creditors' rights.
(e) LITIGATION. There is no pending or, to the best of
Lessee's knowledge, threatened action, suit or proceeding against or affecting
the Lessee before any court, governmental agency or arbitrator.
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(f) APPLICABLE LAW. The execution, delivery and performance of
this Agreement and the other Transaction Documents to which the Lessee is a
party, and the borrowings hereunder, do not and will not, by the passage of
time, the giving of notice or otherwise, violate any Law applicable to the
Lessee.
(g) TITLE AND CONDITION OF ASSETS. Except for Lessee's
leasehold interest in the Lease, the Lessee has good, marketable and legal title
to its properties and assets. The Lessee has a good and valid leasehold interest
in the Lease.
(h) LIENS. None of the properties and assets of the Lessee are
subject to any Lien or other charge other than Liens in favor of BCC as provided
herein, a BCC Affiliate or the Lessor ("PERMITTED Liens"), and the execution,
delivery and performance by the Lessee of this Agreement and the other
Transaction Documents to which it is a party will neither result in the creation
of any Lien or other change upon any of the Lessee's properties or assets, nor
cause a default under any agreements to which Lessee is a party.
(i) SECURITY. Upon the consummation of this transaction, BCC
will have a valid and perfected mortgage lien in the Lease.
(j) TAX RETURNS AND PAYMENTS. All federal, state and other tax
returns of the Lessee required by Law to be filed have been duly filed, and all
federal, state and other taxes, assessments and other governmental charges or
levies upon the Lessee and its properties, income, profits and assets which are
due and payable have been paid.
(k) NO EMPLOYEES. The Lessee has no employees for which it is
required to comply with the Employment Retirement Income Security Act of 1974.
(l) ABSENCE OF DEFAULTS. No event has occurred, which has not
been remedied, cured or waived, which constitutes, or with the passage of time
or giving of notice or both would constitute, a Default or an Event of Default
under any Transaction Document or Lease Document or which constitutes or which
with the passage of time or giving of notice or both would constitute a default
or event of default by the Lessee under any agreement or judgment, decree or
order, to which the Lessee is a party or by which the Lessee or any of its
properties may be bound.
(m) ACCURACY AND COMPLETENESS OF INFORMATION. All written
information, reports and other papers and data furnished to BCC were, at the
time the same were so furnished, complete and correct in all material respects,
to the extent necessary to give BCC a true and accurate knowledge of the subject
matter, or, in the case of financial statements, present fairly, in accordance
with GAAP consistently applied throughout the periods involved, the financial
position of the persons involved as at the date thereof and the results of
operations for such periods. No document furnished or written statement made to
BCC by Lessee or any Member in connection with the execution of this Agreement
or any of the other Transaction Documents (or in connection with the
organization or capitalization of Lessee by the Members) contains or will
contain any untrue statement of a material fact or fails to state a material
fact necessary in order to make the statements contained therein not materially
misleading.
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(n) SUBSIDIARIES. The Lessee does not own, directly or
indirectly, of record or beneficially, any of the voting stock of any class or
classes of, or any other voting interests of, any Entity.
(o) INVESTMENT COMPANY. The Lessee is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
(p) PUBLIC UTILITY COMPANY. The Lessee is not a "holding
company" or a "subsidiary company", or an "affiliate" of a "holding company",
within the meaning of the Public Holding Company Act of 1935, as amended.
(q) SECURITIES REPRESENTATIONS. Neither Lessee nor any agent,
broker, dealer or other person or entity has offered or sold any equity
interests in Lessee in violation of the 1933 Act or any state securities laws.
(r) CAPITAL CONTRIBUTIONS. All Indebtedness (if any) incurred
by any Member or equity owner of any Member to fund the capital contributions to
Lessee or any Member (including Indebtedness used to make Fundings) constitutes
full recourse Indebtedness against such Member or equity owners (as
appropriate), and such Indebtedness is not limited in collection to any
particular asset of the person or Entity incurring such Indebtedness.
ARTICLE IV
COVENANTS OF THE LESSEE
SECTION 4.01 AFFIRMATIVE COVENANTS. So long as BCC or any BCC
Affiliate shall have any commitment or Obligation hereunder or under the other
Transaction Documents owed to it, the Lessee will and the Member shall cause the
Lessee to:
(a) COMPLIANCE WITH LAWS; ETC. Comply, in all material
respects with all applicable Laws, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property.
(b) MAINTENANCE OF INSURANCE. Maintain or contract to be
maintained, with premiums fully paid, with responsible and reputable insurance
companies or associations, such insurance in such amounts and covering such
risks as is required to be carried under the Lease, and all such policies
evidencing such insurance shall name BCC and Lessor as additional insureds
thereunder. Lessee shall also maintain insurance of sufficient types and amounts
to comply with all other Laws of any government entity exercising jurisdiction
over Lessee. All insurance policies shall provide for notice of nonrenewal and
notice of extension to BCC and Lessor, and shall not be terminated, canceled,
amended or modified without 30 days prior written notice to BCC and Lessor.
Lessee shall provide BCC with evidence of all insurance, including renewals or
extensions of such insurance, promptly after receiving such insurance. Insurance
policies and proceeds thereof shall at all times during the term of the Lease be
subject to the Lessor's rights as provided in the Lease Documents.
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(c) NOTICE OF LITIGATION AND OTHER MATTERS. Promptly give
notice to BCC of the following: (i) any actions, suits or proceedings instituted
against the Lessee; (ii) any change in the chief executive office, principal
place of business or location of the books and records of the Lessee and (iii)
the occurrence of a Default or an Event of Default.
(d) MAINTENANCE OF PROPERTY. In addition to, and not in
derogation of, the requirements of any of the other Transaction Documents, (i)
protect and preserve all of its properties, (ii) maintain in good repair,
working order and condition all of its tangible properties, and (iii) from time
to time make or cause to be made all needed and appropriate repairs, renewals,
replacements and additions to such properties so that the business carried on in
connection therewith may be properly and advantageously conducted at all times,
as reasonably may be determined by BCC.
(e) PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. Preserve
and maintain its existence under the Laws of the state of its formation, and
preserve and maintain its rights, franchises, licenses and privileges in such
state as a limited liability company, and qualify and remain qualified and
authorized to do business in such state.
(f) BUSINESS. At all times endeavor to carry on its business
in the most efficient manner possible under the circumstances and engage only in
the business presently carried on by the Lessee.
(g) APPLICATIONS OF ADVANCES. To apply each Advance or cause
each Advance to be applied to the following Obligations in the following order
of priority:
(a) First, to any outstanding Lease Obligations
which are due or payable,
(b) Second, to other Obligations owed to Lessor
or its Affiliates under the Transaction
Documents
(c) Third, to any other Obligations and
(d) Fourth, to any other obligation or liability
giving rise to a Shortfall.
(h) FURTHER ASSURANCES. At BCC's request, from time to time,
execute, acknowledge or take such further action as BCC may reasonably require
to effectuate the purposes of this Agreement and the purposes of the other
Transaction Documents.
Provided, however, notwithstanding anything to the contrary contained in this
Section 4.01, Lessee shall not be in default hereunder to the extent that the
obligations described in this Section 4.01 are required to be performed by the
Management Firm under the Management Agreement.
SECTION 4.02 NEGATIVE COVENANTS. So long as BCC shall have any
commitment or Obligation hereunder or under the other Transaction Documents owed
to it, the Lessee will not, and no Member will cause the Lessee to, without the
prior written consent of BCC:
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(a) LIENS CREATED BY LESSEE. Create or suffer to exist any
Lien or any other type of preferential arrangement, upon or with respect to any
of its properties, whether now owned or hereafter acquired, or assign any right
to receive income, other than Permitted Liens.
(b) DISTRIBUTIONS. Make any distribution of cash or other
property to the Member or declare or pay any dividend or distribution on any
securities of Lessee.
(c) OTHER BUSINESS. Engage in any business venture or enter
into any agreement with respect to any business venture, except as expressly
provided in the Transaction Documents with respect to the Facility.
(d) TRANSFER OF ASSETS. Except as expressly contemplated in
the Transaction Documents with respect to a transfer to BCC or its wholly owned
subsidiary designated by BCC or otherwise as expressly permitted in Section 23.1
of the Lease, convey, transfer, lease, sublease, assign or otherwise dispose of
(whether in one transaction or in a series of transactions) any of its assets
(whether now owned or hereafter acquired) to, or acquire all or substantially
all of the assets of, any person or Entity. The restrictions of this Subsection
shall include a prohibition on any assignment, pledge, hypothocation or other
transfer of the Lease or sublease or license of the Facility, except to BCC or a
BCC Affiliate in accordance with the terms and conditions of the Lease or
otherwise as expressly permitted in Section 23.1 of the Lease.
(e) INDEBTEDNESS FOR BORROWED MONEY. Create, assume, guaranty
or otherwise become or remain obligated in respect of, or permit or suffer to
exist or to be created, assumed or incurred or to be outstanding, any
Indebtedness, except Indebtedness incurred to BCC or a BCC Affiliate under the
Transaction Documents or Indebtedness incurred to Lessor as expressly provided
in the Lease Documents.
(f) CREATION OF AFFILIATES. Form, organize or participate in
the formation or organization of any Entity, or make any investment in any newly
formed or existing Entity.
(g) LOANS. Extend credit to or make any advance, loan,
contribution or payment of money or goods to any person or Entity.
(h) GOVERNANCE DOCUMENTS. Amend, supplement or otherwise
modify the terms of the Articles of Organization or the Operating Agreement of
the Lessee in any way.
(i) OTHER TRANSACTIONS WITH LESSOR. Enter into any transaction
with Lessor or any affiliate or related party to or with Lessor, other than
pursuant to the Transaction Documents.
(j) TRANSFERS OF EQUITY INTERESTS. Permit the Member to
transfer all or any portion of the Member's Equity Interest in Lessee to a party
that does not as of the date hereof hold an equity interest in the Lessee.
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(k) AMEND TRANSACTION DOCUMENTS. (i) Amend, terminate,
supplement or otherwise modify any Transaction Document, (ii) waive any default
or potential event of default by Lessor under any Transaction Document, (iii)
declare a default or event of default under any Transaction Document, (iv)
exercise any right to extend the term of the Lease, (v) exercise any right to
purchase the Facility or exercise a right of refusal with respect thereto or
(vi) exercise any right to cancel the Lease as a result of a casualty or
condemnation with respect to the Facility, or otherwise.
(l) MERGERS AND CONSOLIDATIONS. Merger or consolidate with,
purchase all or any substantial part of the assets of, or otherwise acquire any
Entity.
(m) ISSUANCE OF SECURITIES. Except for the equity interests of
the Lessee that have been issued to the Member and are outstanding as of the
date hereof, issue any equity interests or options, warrants or other rights to
purchase any equity interests or any securities convertible or exchangeable for
equity interests, or commit to do any of the foregoing.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.01 EVENTS OF DEFAULT. Each of the following events
shall constitute an event of default hereunder ("SHORTFALL EVENT OF DEFAULT"),
whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
nongovernmental body:
(a) The Lessee shall fail to make any payment of principal or
interest, as stated in the Notes, when due, or the Member shall fail to make
payments in connection with Fundings (as provided in Section 1.01 hereof) when
due (each a "MONETARY DEFAULT"); or
(b) Any representation or warranty made by the Lessee or the
Member under or in connection with any Transaction Document shall prove to have
been incorrect or misleading in any material respect when made; or
(c) The Lessee or the Member shall fail to perform or observe
any term, covenant or agreement contained in this Agreement, or in any other
Transaction Document, on its or their part to be performed or observed beyond
the applicable cure period; or
(d) The Lessee or any Member shall generally not pay its debts
when due; or
(e) The Lessee or any Member shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against the
Lessee or any Member seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of the Lessee or any Member of any of its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking
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the entry of an order for relief or the appointment of a receiver, trustee or
other similar official for the Lessee or any Member or for any substantial part
of its property; or the Lessee or any Member shall take any action to authorize
any of the actions set forth above in this subsection; or
(f) Any nonappealable judgment or order for the payment of
money in excess of $50,000 shall be rendered against the Lessee and the same
shall not be discharged within 30 days after entry; or
(g) A warrant or writ of attachment or execution or similar
process shall be issued against any property of the Lessee which exceeds $50,000
in value and such warrant or process shall continue undischarged or unstayed for
ten consecutive days; or
(h) Any material provision of any Transaction Document to
which the Lessee or the Member is a party shall for any reason cease to be valid
and binding on the Lessee or the Member, or the Lessee or the Member shall so
state in writing; or
(i) The Leasehold Mortgage shall for any reason cease to
create a valid and perfected security interest in any of the collateral covered
thereby, subject in priority only to the Permitted Liens; or
(j) an Option Agreement Event of Default, a Mortgage Event of
Default, a Lease Event of Default, a Deposit Pledge Event of Default or a
Management Agreement Event of Default shall occur and be continuing.
ARTICLE VI
REMEDIES
SECTION 6.01 APPLICABLE PROVISIONS UPON OCCURRENCE OF AN EVENT
OF DEFAULT. Upon the occurrence of a Shortfall Event of Default, the following
provisions shall apply:
(a) ACCELERATOR AND TERMINATION:
(i) Automatic. Upon the occurrence of a Shortfall
Event of Default specified in Section 5.01(e), the principal
of, and the interest on, the Notes at the time outstanding,
and all other amounts owed to BCC under this Agreement and any
of the other Transaction Documents, shall become automatically
due and payable without presentment, demand, protest, or other
notice of any kind all of which are expressly waived, anything
in this Agreement or the other Transaction Documents to the
contrary notwithstanding.
(ii) Optional. If any other Shortfall Event of
Default shall have occurred, and in every such event, BCC may
do the following: declare the principal of, and interest on,
the Notes at the time outstanding, and all other amounts owed
to BCC under this Agreement and the other Transaction
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Documents, to be forthwith due and payable, whereupon the same
shall immediately become due and payable without presentment,
demand, protest or other notice of any kind, all of which are
expressly waived, anything in this Agreement or the other
Transaction Documents to the contrary notwithstanding.
(b) BCC'S RIGHT TO ENTER PROPERTY. BCC may enter upon the
Property and any premises on which collateral may be located and, without
resistance or interference by the Lessee, take physical possession of any or all
thereof and maintain such possession on such premises or move the same or any
part thereof to such other place or places as BCC shall choose, without being
liable to the Lessee on account of any loss, damage or depreciation that may
occur as a result thereof.
(c) USE OF PREMISES. BCC may, without payment of any rent or
any other charge, enter the Property and, without breach of peace, take
possession of the Property or place custodians in exclusive control thereof,
remain on such premises and use the same and any of the Lessee's equipment, for
the purpose of (i) operating the Facility and (ii) collecting any accounts
receivable.
(d) OTHER RIGHTS. BCC may exercise any and all of its rights
and remedies available under the other Transaction Documents, as well as those
available in Law or in equity.
(e) RIGHT TO FORECLOSE. BCC may foreclose upon the Lease, take
immediate possession of the Facility and Property and operate the Property, all
in accordance with the terms and conditions of the Leasehold Mortgage.
SECTION 6.02 APPLICATION OF PROCEEDS. All proceeds from each
sale of, or other realization upon, all or any part of the Collateral following
a Shortfall Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred
in connection with such sale or other realization, including, without
limitation, the expenses for indemnification as provided herein;
(b) Second: to the payment of any Lease Obligations which are
due and payable, including any interest or late charge applicable thereto;
(c) Third: to the payment of any trade creditors of Lessee;
(d) Fourth: to the payment of any accrued but unpaid interest
due upon the Notes;
(e) Fifth: to the payment of the principal due upon the Notes
or any other payments owed to BCC under the Transaction Documents; and
(f) Sixth: the balance (if any) of such proceeds shall be paid
to the Lessee subject to any duty imposed by law or otherwise to the holder of
any subordinate lien in the
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Collateral known to BCC and subject to the direction of a court of competent
jurisdiction.
The Lessee shall remain liable and will pay, on demand, any
deficiency remaining in respect of the Obligations owing by the Lessee to BCC
after the application of proceeds set forth above together with interest thereon
at a rate per annum equal to the highest rate then payable hereunder.
SECTION 6.03 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
(a) RIGHTS CUMULATIVE. The rights and remedies of BCC under
this Agreement and each of the other Transaction Documents shall be cumulative
and not exclusive of any rights or remedies which it would otherwise have. In
exercising its rights and remedies BCC may be selective and no failure or delay
by BCC in exercising any right shall operate as a waiver of it, nor shall any
single or partial exercise of any power or right preclude its other or further
exercise of any other power or right.
(b) WAIVER OF MARSHALLING. The Lessee hereby waives any right
to require any marshalling of assets and any similar right.
(c) LIMITATION OF LIABILITY. Nothing contained in this Article
VI or elsewhere in this Agreement or in any other Transaction Documents shall be
construed as requiring or obligating BCC or any agent or designee thereof to
make any demand, or to make any inquiry as to the nature or sufficiency of any
payment received by it, or to present or file any claim or notice or take any
action, with respect to any account or any other Collateral or the moneys due or
to become due under the Notes or any other Transaction Documents or in
connection therewith, or to take any steps necessary to preserve any rights
against prior parties and neither BCC nor any of its agents or designees shall
have any liability to the Lessee for actions taken pursuant to this Article VI,
any other provision of this Agreement or any other Transaction Documents, except
as otherwise provided by Law.
(d) WAIVER OF DEFENSES. Lessee hereby waives any and all
defenses, either by way of set-off as to matters arising prior to the date
hereof or any other defenses, which Lessee presently believes it has or which
Lessee may have in the future relating to monetary defaults under this Agreement
or any other Transaction Document.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 RIGHT TO CURE DEFAULTS UNDER TRANSACTION
DOCUMENTS. Lessee shall give BCC immediate notice of an default or event of
default under any Transaction Document received from Lessor. BCC shall have the
right, but not the obligation, to cure such default or event of default as
provided in the Transaction Documents. To the extent that BCC shall expend sums
to cure any such default or event of default, such sums shall be deemed Advances
hereunder, payable upon demand.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 DEFINITIONS; INTERPRETATION; MISCELLANEOUS.
Capitalized terms used but not otherwise defined in this Agreement have the
respective meanings specified in Appendix 1 hereto; the rules of interpretation
and other provisions set forth in Appendix 1 hereto shall apply to this
Agreement.
SECTION 8.02 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person, Federal Express or other recognized overnight courier or
sent by registered or certified U.S. mail, return receipt requested or sent by
facsimile or telecopy transmission and addressed:
(i) If to the Lessee or Member at:
Assisted Care Operators of _____, LLC
Assisted Care Operators, LLC
Oakhaven Senior Living, Inc.
c/o Hakman & Company, Incorporated
1350 Old Bayshore Highway
Suite 300
Burlingame, CA 94010
(ii) If to BCC, at
5021 Louise Drive
Suite 200
Mechanicsburg, PA 17055
or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.
SECTION 8.03 JURISDICTION. THE LESSEE AND THE MEMBER HEREBY
IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY PENNSYLVANIA COURT OR
FEDERAL COURT SITTING IN PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH
THE LESSEE IS A PARTY, AND THE LESSEE AND THE MEMBER HEREBY IRREVOCABLY AGREE
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING SHALL BE HEARD AND
DETERMINED IN SUCH PENNSYLVANIA COURT OR IN SUCH FEDERAL COURT. THE LESSEE AND
THE MEMBER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING. THE LESSEE AND THE MEMBER IRREVOCABLY CONSENT TO THE
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SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY
BE SERVED IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS TO THE LESSEE AT ITS ADDRESS SPECIFIED IN SECTION 8.02. THE LESSEE AND
THE MEMBER AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION SHALL AFFECT THE
RIGHT OF BCC TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
AFFECT THE RIGHT OF BCC TO BRING ANY ACTION OR PROCEEDING AGAINST THE LESSEE OR
ITS PROPERTY (OR THE MEMBER OR THE MEMBER'S PROPERTY) IN THE COURTS OF OTHER
JURISDICTIONS.
SECTION 8.04 PERFORMANCE OF LESSEE'S DUTIES. The Lessee's
obligations, and the obligation of the Member, under this Agreement and the
other Transaction Documents shall be performed by the Lessee and the Member at
their sole cost and expense. If the Lessee or the Member shall fail to do any
act or thing which it or they have covenanted to do under this Agreement or any
of the other Transaction Documents, BCC may, but shall not be obligated to, do
the same or cause it to be done either in the name of BCC or in the name and on
behalf of the Lessee or the Member, and the Lessee and the Member hereby
irrevocably authorizes BCC so to act.
SECTION 8.05 INDEMNIFICATION. The Lessee agrees to reimburse
BCC for all costs and expenses, including reasonable counsel fees and
disbursements, incurred, and to indemnify and hold BCC harmless from and against
all losses suffered by BCC in connection with:
(a) any breach by Lessee or any Member of any covenant,
agreement, representation or warranty under any Transaction Document,
(b) any and all uncollected items, including all checks or
other negotiable instruments returned to BCC for insufficient funds, and
(c) any claim, debt, demand, loss, damage, action, cause of
action, liability, cost and expense or suit of any kind or nature whatsoever,
brought against or incurred by BCC, in any manner arising out of or, directly or
indirectly, related to or connected with the operation of the Lessee's business
or sale thereto, which claim, debt, demand, loss, damage, action , cause of
action, liability, cost or expense was not caused by the acts or omissions of
BCC or a BCC Affiliate.
The Lessee shall indemnify BCC as provided herein upon demand
and in immediately available funds.
SECTION 8.06 INJUNCTIVE RELIEF. The Lessee and each Member
recognize that, in the event the Lessee or any Member fails to perform, observe
or discharge any of its or their obligations or liabilities under this Agreement
or any of the other Transaction Documents, any
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remedy of Law may prove to be inadequate relief to BCC; therefore, the Lessee
and each Member agrees that BCC shall be entitled to temporary and permanent
equitable relief in any such case without the necessity of proving actual
damages.
SECTION 8.07 BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the Lessee, the Member and BCC and their
respective personal representatives, heirs, successors and assigns, except that
Lessee shall have no right to assign its rights hereunder or any interest
herein.
SECTION 8.08 WAIVERS.
(a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR
CONTROVERSY BETWEEN THE LESSEE, THE MEMBER AND BCC WOULD BE BASED ON DIFFICULT
AND COMPLEX ISSUES OF LAW AND FACT. ACCORDINGLY THE LESSEE, EACH MEMBER AND BCC,
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN
ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST THE
LESSEE AND/OR THE MEMBER ARISING OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE
LESSEE, THE MEMBER AND BCC OF ANY KIND OR NATURE, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE, AND WHETHER NOW EXISTING OR HEREAFTER ARISING, AND LESSEE
AND THE MEMBER HEREBY AGREE AND CONSENT THAT ANY SUCH ACTION OR PROCEEDING SHALL
BE DECIDED BY A COURT TRIAL, IF BCC SO CHOOSES, WITHOUT JURY AND BCC MAY FILE AN
ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF THE LESSEE AND THE MEMBERS TO THE WAIVER OF THE RIGHT TO TRIAL
BY JURY.
(b) FURTHER, THE LESSEE AND THE MEMBER WAIVE THE BENEFIT OF
ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS.
(c) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF
COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF.
SECTION 8.09 CONFLICT WITH LEASE DOCUMENTS
This Agreement is subject to the covenants and agreements
contained in the Lease and other Lease Documents. In the event of any conflict
between the provisions of this Agreement and the Lease Documents, the provisions
of the Lease Documents shall control.
SECTION 8.10 THIRD PARTY BENEFICIARY
BCC, the Member and the Lessee each acknowledge and agree that
this Agreement and the rights hereunder are intended to benefit, in addition to
the parties hereto, the
17
<PAGE> 18
Lessor, who shall be deemed to be a third party beneficiary hereof but shall
have no obligations hereunder. Without limiting the generality of the foregoing,
(i) the representations, warranties, affirmative covenants and negative
covenants of Lessee and the Member contained herein shall inure to the benefit
of Lessor (together with BCC) and (ii) the Lessor may enforce any or all of the
provisions herein contained, for its benefit and at its sole option.
SECTION 8.11 NO AMENDMENT
BCC, Lessee and the Member hereby agree that no Transaction
Document shall be amended, modified or altered in any manner without the prior
written consent of the Lessor.
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Agreement to be executed by their respective
officers or authorized agents as of the date first above written.
WITNESSES: BALANCED CARE CORPORATION,
a Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ------------------------------- -------------------------------
Name: Name:
Title:
WITNESS: AHP OF [INDIANA], INC.,
an Indiana corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ------------------------------- -------------------------------
Name: Name:
Title:
ASSISTED CARE OPERATORS, LLC
a Delaware limited liability company
WITNESS: By: /s/ Signature Illegible
------------------------------
Name:
Title:
/s/ Signature Illegible Its Authorized Representative
- -------------------------------
Name:
WITNESS: ASSISTED CARE OPERATORS
OF ________________ ,LLC
/s/ Signature Illegible a Delaware limited liability company,
- -------------------------------
Name: By: Assisted Care Operators, LLC
a Delaware limited liability
company its Manager and
authorized representative
19
<PAGE> 20
By: /s/ Signature Illegible
------------------------------
Name:
Title:
Its Authorized Representative
WITNESS: OAKHAVEN SENIOR LIVING, INC.
a California corporation
By: /s/ Signature Illegible
- ------------------------------ ------------------------------
Name:
Title:
20
<PAGE> 21
APPENDIX 1
TO
SHORTFALL FUNDING AGREEMENT, OPTION AGREEMENT,
MANAGEMENT AGREEMENT, REVOLVING CREDIT/FUTURE ADVANCES LEASEHOLD MORTGAGE AND
SECURITY AGREEMENT, STOCK PLEDGE AGREEMENT
AND DEPOSIT PLEDGE AGREEMENT
DEFINITIONS, INTERPRETATION, AND MISCELLANEOUS PROVISIONS
A. INTERPRETATION. In each Transaction Document, unless a clear
contrary intention appears:
(i) wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular
and plural;
(ii) reference in the masculine, feminine or neuter gender
shall include the masculine, feminine and the neuter;
(iii) reference to any agreement, document or instrument means
such agreement, document or instrument as amended, supplemented or
modified and in effect from time to time in accordance with the terms
thereof and, if applicable, the terms of the other Transaction
Documents and reference to any promissory note includes any promissory
note which is an extension or renewal thereof or a substitute or
replacement therefor;
(iv) reference in any Transaction Document to any title,
article, section, subsection, schedule, or exhibit means such title,
article, section, subsection, schedule, or exhibit thereto;
(v) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to a Transaction Document as a whole
and not to any particular Article, Section or other provision thereof;
(vi) "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term;
(vii) reference to any Law means such Law as amended,
modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, including rules and regulations promulgated
thereunder and reference to any section or other provision of any Law
means that provision of such Law from time to time in effect and
constituting the substantive amendment, modification, codification,
replacement or reenactment of such section or other provision
(viii) relative to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding",
and
<PAGE> 22
(ix) references in any Transaction Document to any titles,
articles, sections, subsections, schedules, or exhibits are for
convenience only, and neither limit nor amplify the provisions of any
such Transaction Document.
B. GOVERNING LAW. Each Transaction Document to which this Appendix is
attached shall be governed by, and construed in accordance with, the laws of the
Commonwealth of Pennsylvania excluding its conflicts of laws, it being
recognized that BCC Affiliates have negotiated this transaction in Pennsylvania,
certain notices to BCC and BCC Affiliates are to be made in Pennsylvania,
certain payments made under the Transaction Documents are to be sent to or from
Pennsylvania and Pennsylvania has a significant and material interest in the
transactions contemplated by the Transaction Documents; provided, however, if a
Facility is located in a state other than the Commonwealth of Pennsylvania, then
the Laws of such state shall apply solely with respect to the creation of
interests in real property, the perfection of security interests (other than the
pledges of Equity Interests) and the exercise of remedies under the Mortgage.
C. ACCOUNTING TERMS. In each Transaction Document, unless expressly
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP consistently applied.
D. CONFLICT IN TRANSACTION DOCUMENTS. If there is any conflict between
any Transaction Documents, such Transaction Document shall be interpreted and
construed, if possible, so as to avoid or minimize such conflict.
E. LEGAL REPRESENTATION OF THE PARTIES. The Transaction Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Transaction Document
to be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
F. NO WAIVER. No failure on the part of BCC or Lessor to exercise, and
no delay or failure in exercising, any right under any Transaction Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right under any Transaction Document preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided in the
Transaction Documents are cumulative and not exclusive of any remedies provided
by law in equity or otherwise.
G. SEVERABILITY. If any provision of any Transaction Document is held
to be unenforceable for any reason, all other provisions of the respective
Transaction Document shall be deemed valid and enforceable to the fullest extent
possible. To the fullest extent permitted by Law, the parties hereto hereby
waive any provision of Law that renders any term or provision of any Transaction
Document invalid or unenforceable in any respect.
H. COUNTERPARTS. Each Transaction Document may be executed in two or
more counterparts, each of which shall constitute
2
<PAGE> 23
an original, but all of which together shall constitute a single instrument.
I. ENTIRE AGREEMENT/AMENDMENTS. The Transaction Documents taken
together contain the entire understanding among the parties thereto with respect
to the subject matter thereof and supersede any prior understandings or
agreements between such parties with respect to such subject matter. Each
Transaction Document may be modified or amended only by a written instrument
executed by the parties thereto.
J. NOTICES. A notice or other communication shall be deemed to be duly
received:
(a) if sent by hand or telegram or express service, when left at
the address of the recipient;
(b) if sent by registered or certified U.S. mail, return receipt
requested, the third business day after mailing; and
(c) if sent by facsimile, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine
from which the facsimile was sent indicating that the
facsimile was sent in its entirety to the recipient's
facsimile number;
provided that if a notice or other communication is served by hand or
by telegram, or is received by telex or facsimile on a day which is not a
business day, or after 5:00 P.M. on any business day at the addressee's
location, such notice or communication shall be deemed to be duly received by
the recipient at 9:00 A.M. on the first business day thereafter.
K. DEFINED TERMS. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Transaction Document.
"1933 ACT" means the Securities Act of 1933, as the same may be
amended, supplemented and modified from time to time.
"ADVANCE" is defined in Section 1.01 of the Shortfall Agreement.
"ASSET PURCHASE OPTION" is defined in Section 1.03 of the Shortfall
Agreement.
"ASSET PURCHASE PRICE" is defined in Section 1.03 of the Shortfall
Agreement.
"BANK" is defined in Section 1 of the Deposit Agreement.
"BCC" means Balanced Care Corporation, a Delaware corporation.
"BCC AFFILIATE" means any Entity in which BCC owns, either outright or
beneficially, 50% or more of the outstanding equity interests.
3
<PAGE> 24
"CLOSING" is defined in Section 3 of the Option Agreement.
"CLOSING DATE" is defined in Section 3 of the Option Agreement.
"COLLATERAL" is defined in Section 1 of the Deposit Agreement.
"COLLATERAL ACCOUNT" is defined in Section 1 of the Deposit Agreement.
"COMPANY" means Assisted Care Operators of _____________, Inc., a
Delaware limited liability company
"CONFIDENTIAL INFORMATION" is defined in Section 4 of the Management
Agreement.
"DEBT" is defined in Section 1 of the Leasehold Mortgage.
"DEFAULT" means any event that, with the passage of time or the giving
of notice or both would constitute an Event of Default.
"DEPOSIT AGREEMENT" means that certain Deposit Pledge Agreement dated
as of January 30, 1998 among the Lessor, the Members, the Lessee and BCC.
"DEPOSIT PLEDGE EVENT OF DEFAULT" means any breach of any
representation, warranty, covenant or agreement by the Lessee or any Member
under the Deposit Agreement.
"ENTITY" means any corporation, partnership, limited partnership,
limited liability company, common law trust, business trust, statutory trust,
professional corporation, joint venture, limited liability partnership, sole
proprietorship, or other business entity,
"ENVIRONMENTAL LAWS" is defined in Section 6 of the Leasehold Mortgage.
"EQUITY INTERESTS" is defined in the recitals of the Option Agreement.
"EVENT OF DEFAULT" means a Shortfall Event of Default, a Mortgage Event
of Default, an Option Event of Default, a Lease Event of Default, a Deposit
Pledge Event of Default, a Management Agreement Event of Default and any other
breach by the Company or any Member of any provision of any Transaction
Document, and any other default of Lessee or any Member under Transaction
Document or Lease Document.
"FACILITY" means that certain 66 bed assisted living facility to be
developed and thereafter operated on the Property.
"FUNDING" is defined in Section 1.01 of the Shortfall Agreement.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time consistently applied.
4
<PAGE> 25
"GOVERNMENTAL AUTHORITIES" means all Federal, state and local
government entities and agencies thereof.
"IMPROVEMENTS" is defined in the Leasehold Mortgage.
"INDEBTEDNESS" means, for any person or Entity, (i) all indebtedness of
such person or Entity for borrowed money or for the deferred purchase price of
property or services, (ii) all obligations of such person or Entity under any
conditional sale or other title retention agreement relating to property
purchased by such person or Entity, (iii) all indebtedness for borrowed money or
for the deferred purchase price of property or services secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on any property owned by such person or Entity,
whether or not such indebtedness has been assumed, (iv) all obligations of such
person or Entity as lessee under leases that have been or should be, in
accordance with GAAP, recorded as capital leases, (v) all obligations of such
person or Entity under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (i) through (iv) above,
and (vi) all current or past due liabilities of such person or Entity in respect
of unfunded vested benefits under plans covered by Title IV of ERISA.
"INTANGIBLE RIGHTS" is defined in Section 4 of the Management
Agreement.
"LAND" is defined in the Leasehold Mortgage.
"LAWS" means all existing and future applicable laws (including the
common law and rules of equity), rules, regulations (including Environmental
Laws, as defined in the Mortgage) statutes, treaties, codes, ordinances,
permits, certificates, orders and licenses of and interpretations by, any
Governmental Authority, and applicable judgments, decrees, injunctions, writs,
orders or like action of any court, arbitrator or other administrative, judicial
or quasi-judicial tribunal or agency of competent jurisdiction (including those
pertaining to health, safety or the environment (including wetlands) and those
pertaining to the construction, use or occupancy of the Facility) and any
restrictive covenant or deed restriction or easement of record affecting the
Facility or any other material asset of the Lessee.
"LEASE" means the Lease and Security Agreement, dated as of January 30,
1998 between the Lessor and the Lessee.
"LEASE DOCUMENTS" mean the following documents, each dated as of
January 30, 1998: (i) the Facility Agreement between BCC and American Health
Properties, Inc. (the "Facility Agreement"), (ii) the Development Agreement
between Lessor and BCC Development & Management Company, Inc., (iii) the Lease,
(iv) the Subordination and Standstill Agreement among the Lessee, BCC and the
Lessor, (v) the Management Agreement Guaranty executed by BCC in favor of the
Lessor, (vi) the Payment and Performance Guaranty of each Tenant Parent (as
defined in the Lease) in favor of Lessor, (vi) the Collateral Assignment (as
defined in the
5
<PAGE> 26
Facility Agreement), (vii) the Environmental Indemnification Agreement executed
by BCC in favor of Lessor, (viii) the Completion and Performance Guaranty
executed by BCC in favor of Lessor, (ix) the Assignment of Acquisition Rights
between Lessor and BCC, (x) the Deposit Pledge Agreement, (xi) the Security
Agreement executed by Lessee in favor of Lessor, (xii) the Non-Competition
Agreement executed by BCC in favor of the Lessor and (xiii) the Assignment of
Leases, Rents and Receipts entered into by Lessee in favor of the Lessor, (xiv)
the Working Capital Assurances Agreement, and (xv) all other documents,
instruments, certificates and affidavits executed and delivered in connection
with any of the foregoing.
"LEASE EVENT OF DEFAULT" means "Event of Default" as defined in Section
17.1 of the Lease.
"LEASE OBLIGATIONS" means all obligations, covenants and agreements of
the Lessee, Tenant Parent, BCC, Manager, Developer and any guarantor under the
Lease and the other Lease Documents, including the obligation for the payment of
Rent (as defined in the Lease) and all other obligations of the foregoing
Entities to the Lessor or any affiliate of Lessor.
"LEASEHOLD MORTGAGE" means that certain Revolving Credit/Future
Advances Leasehold Mortgage and Security Agreement dated as of January 30, 1998
between BCC and Lessee.
"LEASEHOLD TENANT" means Lessee.
"LESSEE" means Assisted Care Operators of ________________, LLC.
"LESSOR" means AHP of [Indiana], Inc., an Indiana corporation
"LIENS" means any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, easement, servitude or charge of any kind, including any
irrevocable license, conditional sale or other title retention agreement, any
lease in the nature thereof, or any other right of or arrangement with any
creditor to have its claim satisfied out of any specified property or asset with
the proceeds therefrom prior to the satisfaction of the claims of the general
creditors of the owner thereof, whether or not filed or recorded, or the filing
of, or agreement to execute as "debtor", any financing or continuation statement
under the UCC of any jurisdiction or any federal, state or local lien imposed
pursuant to any Environmental Law.
"MANAGEMENT AGREEMENT" means that certain Management Agreement dated as
of January 30, 1998, between the Management Firm and the Leasehold Tenant.
"MANAGEMENT AGREEMENT EVENT OF DEFAULT" means any breach of any
representation, warranty, covenant or agreement by the Operator under the
Management Agreement.
"MANAGEMENT FEE" is defined in Section 9 of the Management Agreement.
"MANAGEMENT FIRM" means Balanced Care at ____________, Inc., a Delaware
corporation.
6
<PAGE> 27
"MEMBERS" means those parties listed on Schedule 1 attached to the
Shortfall Agreement;
"MONETARY DEFAULT" is defined in Section 5.01 of the Shortfall
Agreement
"MORTGAGEE" means BCC.
"MORTGAGE EVENT OF DEFAULT" is defined in Section 13 of the Leasehold
Mortgage.
"MORTGAGED PROPERTY" is defined in the Leasehold Mortgage.
"MORTGAGOR" means the Lessee.
"NOTES" means promissory notes in the form attached to the Shortfall
Agreement as Exhibit A.
"OBLIGATIONS" is defined in Section 1.02 of the Shortfall Agreement.
"OPERATING ACCOUNTS" is defined in Section 1 of the Management
Agreement.
"OPTION" is defined in Section 2 of the Option Agreement.
"OPTION AGREEMENT" means that certain Option Agreement dated as of
January 30, 1998 between the Optionor and BCC.
"OPTION AGREEMENT EVENT OF DEFAULT" means any breach of any
representation, warranty, covenant or agreement by the Optionor under the Option
Agreement.
"OPTION PAYMENTS" is defined in Section 2 of the Option Agreement.
"OPTION TERM" is defined in Section 2 of the Option Agreement.
"OPTIONOR" means, jointly and collectively, Assisted Care Operators,
LLC a Delaware limited liability company and Oakhaven Senior Living, Inc., a
California corporation.
"PERMITTED ENCUMBRANCES" is defined in the Leasehold Mortgage.
"PERMITTED INVESTMENTS" shall mean direct obligations of or obligations
guaranteed by the United States of America or any agency thereof, (ii)
certificates of deposit of any commercial bank the senior unsecured debt
securities of which are rated at the time of acquisition "A" or better by
Standard & Poor's Corporation ("S&P") and "A2" or better by Moody's Investors
Service, Inc. ("MOODY'S"), (iii) commercial paper rated at the time of
acquisition "A-1" or better by S&P and "P1" or better by Moody's, (iv) corporate
debt securities rated at the time of acquisition "A" or better by S&P and "A2"
or better by Moody's, in each case, with maturities of one
7
<PAGE> 28
year or less from the date of acquisition and (v) such other investments as may
be consented to by the mutual agreement of the Lessor and BCC, each in its sole
and absolute discretion.
"PERMITTED LIENS" is defined in Section 3.01 of the Shortfall
Agreement.
"PERSONAL PROPERTY" is defined in Section 29 of the Leasehold Mortgage.
"PROPERTY" has the meaning ascribed to such term in Section 2.1 of the
Lease.
"PURCHASE PRICE" is defined in Section 2 of the Option Agreement.
"RIGHT OF FIRST OFFER AGREEMENT" means that certain Right of First
Offer Agreement dated as of January 30, 1998 between Lessor and BCC.
"SHORTFALL AGREEMENT" means that certain Shortfall Funding Agreement
dated as of January 30, 1998 between Lessee, the Members and BCC.
"SHORTFALL EVENT OF DEFAULT" is defined in Section 5.01 of the
Shortfall Agreement.
"SHORTFALLS" is defined as the excess of all recurring and nonrecurring
expenses and costs of the operation and management of the Facility (including
all Lease Obligations) of any kind or nature whatsoever (exclusive of costs and
expenses incurred in the original construction of improvements on the Property,
but only to the extent that a party other than Lessee is responsible therefor),
over all revenues and other income attributable to the Facility earned by or on
behalf of the Lessee.
"STOCK PLEDGE AGREEMENT" means that certain Stock Pledge Agreement
dated as of January 30, 1998 between the Members and BCC.
"TRANSACTION DOCUMENTS" means all of the following:
(a) the Shortfall Agreement;
(b) the Notes;
(c) the Lease and all other Lease Documents;
(d) the Deposit Agreement;
(e) the Leasehold Mortgage;
(f) the Option Agreement;
(g) the Management Agreement;
(h) the Working Capital Assurance Agreement;
(i) the Stock Pledge Agreement; and
(j) the other documents, certificates, financing statements,
affidavits and instruments executed by Lessee, as any of the same may be
amended, modified or supplemented from time to time.
"WORKING CAPITAL ASSURANCE AGREEMENT" means that certain Working
Capital
8
<PAGE> 29
Assurance Agreement dated as of January 30, 1998 between the Lessor and BCC.
"WORKING CAPITAL LOANS" is defined in Section 1 of the Working Capital
Assurance Agreement.
"WORKING CAPITAL RESERVE" is defined in Section 1.01 of the Shortfall
Agreement.
"UCC" means the Uniform Commercial Code as adopted in the State where
the Facility is located, as the same may be amended, supplemented or modified
from time to time.
9
<PAGE> 30
Schedule to Exhibit 10.75 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Shortfall Funding Agreement
<TABLE>
<CAPTION>
Management
Location Lessor Firm
<S> <C> <C>
Jackson, TN AHP of Tennessee, Inc. Balanced Care at Jackson, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.76
ENVIRONMENTAL INDEMNIFICATION AGREEMENT
THIS ENVIRONMENTAL INDEMNIFICATION AGREEMENT (this "Agreement") is made
and entered into as of January 30, 1998, by BALANCED CARE CORPORATION, a
Delaware corporation ("Indemnitor") to and for the benefit of AHP OF INDIANA,
INC., a Delaware limited partnership ("Landlord") and American Health
Properties, Inc., a Delaware corporation.
R E C I T A L S
A. Indemnitor and American Health Properties, Inc., a Delaware
corporation ("American Health") have entered into that certain Facility
Agreement of even date herewith (the "Facility Agreement") and, pursuant to the
Facility Agreement, and concurrently with Indemnitor's delivery of this
Agreement to Landlord, (i) Landlord has executed that certain Assignment of Real
Property Acquisition Rights (the "Acquisition Agreement") of even date herewith
pursuant to which Landlord has agreed to acquire that certain real property
located in [Vanderburgh] County, [Indiana] more particularly described in
Exhibit A attached hereto (the "Land"), on the terms and subject to the terms
set forth therein, (ii) BCC Development and Management Co., a Delaware
corporation ("Developer") a Person which is wholly-owned by Indemnitor and
Landlord have entered into that certain Development Agreement of even date
herewith (the "Development Agreement") pursuant to which Developer (which is a
wholly-owned subsidiary of Indemnitor) has agreed to construct a [___] unit
assisted living facility (the "Facility") upon the Property for the fees and on
the terms stated therein, (iii) _____________, a [Delaware limited liability
company] and Landlord have entered into that certain Lease, of even date
herewith (the "Lease"), pursuant to which Tenant has agreed to lease the
"Property" (as such term is defined in the Lease) from Landlord, in accordance
with the terms and conditions set forth therein, and (iv) Balanced Care at
Anderson, Inc., a Delaware corporation ("Manager") and Tenant have entered into
that certain Management Agreement for the Facility pursuant to which Manager
will manage the Facility on behalf of Tenant for the compensation and on the
terms and subject to the conditions provided in the Management Agreement. All
capitalized terms used herein shall be defined as stated in the Facility
Agreement unless stated to the contrary herein.
B. Indemnitor has guaranteed the obligations of Developer under the
Development Agreement and of Manager under the Management Agreement.
C. Landlord has required the execution and delivery of this
Agreement by Indemnitor as a condition precedent to the acquisition by Landlord
of the Land and Landlord would not be willing to acquire the Land, develop the
Property or enable Indemnitor or Developer, Indemnitor's subsidiary, to earn the
compensation provided in the Development Agreement or the Management Agreement
in the absence of the execution and delivery by Indemnitor of this Agreement.
NOW, THEREFORE, as an inducement to Landlord to acquire the Land and
thereafter cause Developer to develop and, upon completion, manage the Property,
and for other good
<PAGE> 2
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Indemnitor, intending to be legally and fully bound, hereby
covenants and agrees to and for the benefit of Landlord as follows:
1. Recitals. The recitals set forth above are true and correct and
are by this reference incorporated herein.
2. Hazardous Substances. "Hazardous Substances" shall mean any
hazardous or toxic material or waste which is regulated by any authority of or
operating under the authority of any local or municipal government, the State,
or the United States of America or which may require remediation at the behest
of any governmental or quasi-governmental agency or which may cause a detriment
to or impair the value or beneficial use of the Land or Improvements or cause a
health, safety or environmental hazard on, under or about any portion of the
Property, including, without limitation, any material or substance which is: (1)
petroleum or a petroleum by-product or a fraction, derivative or product of the
decay or decomposition thereof; (2) asbestos or an asbestos containing material
in any form; (3) a hydrocarbon or similar substance; (4) PCB; (5) formaldehyde;
(6) medical waste, (7) radioactive, (8) flammable or explosive; (9) leaked or
released from any underground storage tanks; (10) listed as a "toxic pollutant"
pursuant to Section 311 of the Federal Pollution Control Act (33 U.S.C. Section
1317) including any amendments thereto; (11) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903) including any amendments
thereto; (12) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.
Section 9601) including any amendments thereto; (13) listed in the United States
Department of Transportation Table (49 CFR ss. 172.101) or by the U.S.
Environmental Protection Agency as a hazardous substance; (14) any material,
waste or substance which is governed, regulated, listed and/or defined under any
Applicable Laws of the State or in the regulations or judicial or administrative
orders, decisions or decrees promulgated pursuant to any of the foregoing State
or federal laws. The foregoing list of definitions and statutes is intended to
be illustrative and not exhaustive, and such list shall not be deemed to include
all definitions and laws applicable to the subject matter contained herein, all
such laws being included within the definition of Applicable Laws.
3. Compliance with Laws and Regulations. Indemnitor hereby
represents, warrants, covenants and agrees to and with Landlord that all
operations or activities upon, or any use or occupancy of the Property, or any
portion thereof, by Indemnitor, any Affiliates of Indemnitor (wherein the term
"Affiliates" shall mean any person or entity controlling, controlled by or under
common control with Indemnitor, and the term "control" shall mean the power,
directly or indirectly, to direct the management or policies of such person or
entity), any agent, contractor or employee of Indemnitor or Affiliates
("Agents"), or any tenant or subtenant of Indemnitor of the Property, or any
portion thereof, shall always be in all respects in compliance with any and all
federal, State or local laws, regulations, rules, ordinances, common law, court
or administrative orders or governmental or insurance requirements relating to
Hazardous Substances, including but not limited to the discharge and
2-
<PAGE> 3
removal of Hazardous Substances, that Indemnitor shall pay immediately when due
the costs of removal of any Hazardous Substances which are at any time at, under
or about the Land as and to the extent required (i) to comply with applicable
federal, State or local laws, regulations, rules ordinances, common law, court
or administrative orders and governmental or insurance requirements or (ii) to
avoid the potential for any release of such Hazardous Substances or (iii) to
prevent any liability to Indemnitor, Indemnitee or the Agents or Affiliates of
either arising from the presence of such Hazardous Substances, and Indemnitor,
Affiliates and Agents will keep the Property free of any lien imposed pursuant
to laws, regulations, ordinances, court or administrative orders or governmental
or insurance requirements relating to Hazardous Substances. Indemnitor further
covenants that neither Indemnitor, the Agents, nor the Affiliates will permit or
suffer the release or disposal of any Hazardous Substances over or upon the
Property. Indemnitor also covenants that neither Indemnitor, the Agents, nor the
Affiliates will have any Hazardous Substance upon the Property except in strict
and absolute compliance with all applicable laws, regulations, rules,
ordinances, common law, court or administrative orders or governmental or
insurance requirements and in quantities which are customary for the operation
of the Property for the "Primary Intended Use" thereof (as defined in the
Lease). In addition, Indemnitor covenants and agrees that none of the
Indemnitor, the Agents, and the Affiliates will allow the manufacture, voluntary
transmission or (except in strict and absolute compliance with applicable
Federal, state and local laws, statutes, ordinances, codes, common law, rules,
regulations, orders, decrees, other applicable requirements of governmental
authorities) presence of any Hazardous Substances over or upon the Property.
Landlord shall have the right at any time to conduct an environmental audit of
the Property and Indemnitor shall cooperate in the conduct of such environmental
audit. Furthermore, none of Indemnitor, the Affiliates nor the Agents have
installed or permitted to be installed, and none of Indemnitor, the Agents, nor
the Affiliates shall install or permit to be installed, in or on the Property
friable asbestos or any substance containing asbestos and deemed hazardous by
federal State or local laws, statutes, ordinances, rules or regulations
respecting such material, and with respect to any such material currently
present in the Property, shall promptly either (A) remove any material which
such regulations deem hazardous and require be removed or (B) otherwise comply
with such federal, State and local regulations, at Indemnitor's expense; and
that Indemnitor warrants and represents that it has not at any time engaged in
or permitted, nor to the best of Indemnitor's knowledge, after due inquiry, has
any tenant of Indemnitor, Agent, Affiliate or, based on the Phase I
Environmental Report of _____________________ regarding the Land, dated as of
_______________ (the "Report") , any other occupant of the Property, or any
portion thereof, engaged in or permitted any material dumping, discharge,
disposal, spillage or leakage (whether legal or illegal, accidental or
intentional) of such Hazardous Substances, at, on, in or about the Property, or
any portion thereof. Indemnitor hereby further represents, warrants and
covenants to and with Landlord that to the best of Indemnitor's knowledge,
information and belief, except for uses and temporary storage of Hazardous
Substances reasonably necessary to the customary operation of an assisted living
facility, as appropriate, which, if required, is duly licensed or authorized by
appropriate governmental authorities or otherwise permitted by applicable law:
(a) None of the Property will contain any chemical,
material, substance or waste, the use, generation, treatment, storage, handling
or presence of which is prohibited,
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<PAGE> 4
limited or regulated by any Federal, state, county, regional, local or other
governmental authority, or which, even if not so regulated, is known to pose a
hazard to the health and safety of the occupants of any of the Property or of
any other property adjacent to or adjoining any of the Property;
(b) None of the Property will be used for any activities
involving, directly or indirectly, the use, generation, treatment, storage,
handling, transport, disposal or release of any Hazardous Substances;
(c) None of the Property, nor any part of the Property, nor
Indemnitor is subject to any existing, pending, or threatened investigation or
inquiry by any governmental authority, or any remedial obligations under any
applicable federal, State or local laws, statutes, rules, regulations, common
law or orders, or government or insurance requirements, pertaining to health,
safety or the environment; and
(d) Indemnitor shall promptly notify Landlord in writing of
any order, receipt of any notice of violation or non-compliance with any
applicable law, rule, regulation, standard or order, any threatened or pending
action by any regulatory agency or their governmental authority, or any claims
made by any third party relating to Hazardous Substances on, emanations on or
from, releases on or from, or threats of releases on or from any of the
Property; and shall promptly furnish the Landlord with copies of any
correspondence, notices, or legal pleadings in connection therewith. Landlord
shall have the right, but shall not be obligated, to notify any governmental
authority of any state of facts which may come to its attention with respect to
Hazardous Substances on, released from or emanating from any part of the
Property.
4. Indemnification. Indemnitor agrees, with the right to
participate in the applicable proceedings, to indemnify, protect, defend (with
counsel reasonably approved by Landlord) and hold Landlord, and the partners,
employees and agents of Landlord, harmless from any claims (including, without
limitation, third party claims for personal injury or real or personal property
damage), or natural resources damage, actions, administrative proceedings
(including informal proceedings), judgments, damages, punitive damages,
penalties, fines, costs, liabilities (including sums paid in settlements of
claims), interest or losses, including reasonable attorneys' and paralegals'
fees and expenses (including any such fees and expenses incurred in enforcing
this Agreement or collecting any sums due hereunder), consultant fees, and
expert fees, together with all other costs and expenses of any kind or nature
(collectively, the "Costs") that arise directly or indirectly from or in
connection with the presence, suspected presence, release or threatened release
of any Hazardous Substance in or into the air, soil, surface water, groundwater
or soil vapor at, on, about, under or within the Property, or any portion
thereof, to the extent that such Costs result from events caused, directly or
indirectly, by Indemnitor, the Affiliates, Agents, or tenants or subtenants of
same which are not attributable to the gross negligence or willful misconduct of
Landlord. The indemnification provided in this Paragraph 4 shall specifically
apply to and include claims or actions (i) brought by Tenant or any occupant of
the Facility or the Property or any portion thereof or (ii) brought on behalf of
employees of Indemnitor or Affiliates, or contractors, or employees of
contractors of Indemnitor or Affiliates and Indemnitor hereby expressly waives
any immunity
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<PAGE> 5
to which Indemnitor may otherwise be entitled under any industrial or worker's
compensation laws. In the event Landlord shall suffer or incur any such Costs,
Indemnitor shall pay to Landlord the total of all such Costs suffered or
incurred by Landlord upon demand therefor by Landlord. Without limiting the
generality of the foregoing, the indemnification provided by this Paragraph 4
shall specifically cover Costs, including capital, operating and maintenance
costs, incurred in connection with any investigation or monitoring of site
conditions, any clean-up, containment, remedial, removal or restoration work
required or performed by any Federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or person
because of the presence, suspected presence, release or suspected release of any
Hazardous Substance in or into the air, soil, groundwater, surface water or soil
vapor at, on, about, under or within the Property (or any portion thereof), and
any claims of third parties for loss or damage due to such Hazardous Substance,
to the extent that such Costs result from events caused, directly or indirectly,
by Indemnitor, the Affiliates, Agents, or tenants or subtenants of same, which
are not attributable to the gross negligence or willful misconduct of Landlord.
In addition, to the extent that such Costs, claims, losses or damages result
from events caused, directly or indirectly by Indemnitor, the Affiliates,
Agents, or tenants or subtenants of same, and are not attributable to the gross
negligence or willful misconduct of Landlord, the indemnification provided by
this Paragraph 4 shall include, without limitation, all loss or damage sustained
by Landlord or any third party due to any Hazardous Substance (i) that is
present or suspected to be present in the air, soil, groundwater, surface water
or soil vapor at, on, about, under or within the Property (or any portion
thereof) on or before the date of this Agreement, or (ii) that migrates, flows,
percolates, diffuses or in any way moves onto, into or under the air, soil,
groundwater, surface water or soil vapor at, on, about, under or within the
Property (or any portion thereof) after the date of this Agreement, irrespective
of whether such Hazardous Substance shall be present or suspected to be present
in the air, soil, groundwater, surface water or soil vapor at, on, about, under
or within the Property (or any portion thereof) as a result of any release,
discharge, disposal, dumping, spilling, or leaking (accidental or otherwise)
onto the Property (or any portion thereof) occurring before, on or after the
date of this Agreement or caused by any person or entity.
5. Remedial Work. In the event any investigation or monitoring of
site conditions or any clean-up, containment, restoration, removal or other
remedial work (collectively, the "Remedial Work") is required under any
applicable Federal, state or local law or regulation, by any judicial order, or
by any governmental entity, or in order to comply with any agreements affecting
the Property because of, or in connection with, any occurrence or event
described in Paragraph 4 above, Indemnitor shall perform or cause to be
performed the Remedial Work in compliance with such law, regulation, order or
agreement; provided, that Indemnitor may withhold such compliance pursuant to a
good faith dispute regarding the application, interpretation or validity of the
law, regulation, order, or agreement, subject to the requirements of Paragraph 6
below; provided, however, that Landlord shall reasonably cooperate with
Indemnitor to the extent necessary to deliver such authorization as may be
required in order for Indemnitor to perform its obligations under this
Paragraph. All Remedial Work shall be performed by one or more duly licensed
contractors, selected by Indemnitor and approved in advance in writing by
Landlord, and under the supervision of a consulting engineer, selected by
Indemnitor and approved in advance in writing by Landlord.
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<PAGE> 6
All costs and expenses of such Remedial Work shall be paid by Indemnitor
including, without limitation, the charges of such contractor(s) and/or the
consulting engineer, and Landlord's reasonable attorneys and paralegals' fees
and other reasonable costs incurred in connection with monitoring or review of
such Remedial Work. In the event Indemnitor shall fail timely to commence, or
cause to be commenced, or fail diligently to prosecute to completion, such
Remedial Work, Landlord may, but shall not be required, to cause such Remedial
Work to be performed, and all costs and expenses thereof, or incurred in
connection therewith, shall be Costs within the meaning of Paragraph 4 above.
All such Costs shall be due and payable upon demand therefor by Landlord.
6. Permitted Contests. Notwithstanding any provision of this
Agreement to the contrary, Indemnitor will be permitted to contest or cause to
be contested, subject to compliance with the requirements of this Paragraph 6,
by appropriate action any Remedial Work requirement, and Landlord shall not
perform such requirement on its behalf, so long as Indemnitor has given Landlord
written notice that Indemnitor is in good faith contesting or shall contest or
cause to be contested the same, and Indemnitor actually contests or causes to be
contested the application, interpretation or validity of the governmental law,
regulation, order agreement pertaining to the Remedial Work by appropriate
proceedings conducted in good faith with due diligence; provided, such contest
shall not subject the Landlord or any assignee of its interest (including any
person having a beneficial interest) in the Property to civil liability and does
not jeopardize any such party's interest in the Property or affect in any way
the payment of any sums to be paid under the Lease. Indemnitor shall give such
security or assurances as may be reasonably required by Landlord to insure
compliance with the legal requirements pertaining to the Remedial Work (and
payment of all costs, expenses, interest and penalties in connection therewith)
and to prevent any sale, forfeiture or loss by reason of such nonpayment or
noncompliance.
7. Subrogation of Indemnitor's Rights. If Indemnitor fails to
perform its obligations under Paragraph 4 above, Landlord shall be subrogated to
any rights Indemnitor or Affiliates may have under any indemnifications from any
present, future or former owners, tenants or other occupants or users of the
Property (or any portion thereof), relating to the matters covered by this
Agreement.
8. Merger, Consolidation or Sale of Assets. In the event of a
dissolution of either Indemnitor or other disposition involving either
Indemnitor or all or substantially all the assets of either Indemnitor to one or
more persons or other entities, the surviving entity or transferee of assets, as
the case may be, shall (i) be formed and existing under the laws of a state,
district or commonwealth of the United States of America, and (ii) deliver to
Landlord an acknowledged instrument in recordable form assuming all obligations,
covenants and responsibilities of such Indemnitor under this Agreement.
9. Independent Obligations; Survival. The obligations of Indemnitor
under this Agreement shall survive the expiration or termination of the Lease.
The obligations of Indemnitor under this Agreement are separate and distinct
from the obligations of Indemnitor's Affiliates under the Transaction Documents
(including but not limited to any such obligation which may arise in connection
with the Lease) but shall not be construed to
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<PAGE> 7
permit multiple recoveries by Landlord against Indemnitor in respect of such
breach. This Agreement may be enforced by Landlord without regard to any other
rights and remedies Landlord may have against Indemnitor under the Transaction
Documents and without regard to any limitations on Landlord's recourse and/or
specific performance as may be provided therein. Indemnitor expressly and
specifically agrees that a separate action or actions may be brought and
prosecuted against Indemnitor.
10. Default Rate. Any Costs and other payments required to be paid
by Indemnitor to Landlord under this Agreement which are not paid on demand
therefor shall thereupon be considered delinquent. In addition to all other
rights and remedies of Landlord against Indemnitor as provided herein, or under
applicable law, Indemnitor shall pay to Landlord, immediately upon demand
therefor, the lesser of the Default Rate under the Facility Agreement or the
maximum rate permitted by law ("Default Rate") on any such payments which are or
have become delinquent. The Default Rate shall be paid by Indemnitor from the
date such payment becomes delinquent through and including the date of payment
of such delinquent sums. The Default Rate shall not in any event be greater than
the maximum rate of interest permitted to be contracted for by law.
11. Miscellaneous. Indemnitor agrees that (i) the obligations of the
Indemnitor hereunder are joint and several with the obligations of any other
person indemnifying Landlord with respect to the matters which are the subject
of this Agreement, (ii) a release of any one such indemnitor or any limitation
of any agreement of indemnity or similar agreement in favor of or for the
benefit of any such indemnitor shall not in any way be deemed a release of or
limitation in favor of or for the benefit of Indemnitor under this Agreement,
and (iii) a separate action hereunder may be brought and prosecuted against
Indemnitor and any other person indemnifying Landlord with respect to the
matters which are the subject of this Agreement. If any term of this Agreement
or any application thereof shall be invalid, illegal or unenforceable, the
remainder of this Agreement and any other application of such term shall not be
affected thereby. No delay or omission in exercising any right hereunder shall
operate as a waiver of such right or any other right. This Agreement shall be
binding upon, inure to the benefit of and be enforceable by Indemnitor and
Landlord, and their respective successors and assigns, including (without
limitation), any assignee or purchaser of all or any portion of the Landlord s
interest in the Property. This Agreement shall be governed and construed in
accordance with the laws of the State of [Indiana].
12. Assignment. Landlord shall not assign this Agreement nor any of
its rights hereunder without the prior written consent of Indemnitor, which
consent will not be unreasonably withheld.
[SIGNATURES COMMENCE ON NEXT PAGE]
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the ____ day of February 1998, to be effective as of the day and
year first above written.
"Indemnitor"
BALANCED CARE CORPORATION,
a Delaware corporation
By /s/ Signature Illegible
------------------------------
Name:
Title:
"Landlord"
AHP OF INDIANA, INC.,
an Indiana corporation
By /s/ Signature Illegible
------------------------------
Name:
Title:
<PAGE> 9
Schedule to Exhibit 10.76 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Environmental Indemnification Agreement
<TABLE>
<CAPTION>
Location Landlord Manager
<S> <C> <C>
Jackson, TN AHP of Tennessee, Inc. Balanced Care at Jackson, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.77
MANAGEMENT AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made as of the 30th day of
January, 1998 between BALANCED CARE AT ANDERSON, INC., a Delaware corporation
(the "MANAGEMENT FIRM") and ASSISTED CARE OPERATORS AT ANDERSON, a Delaware
limited liability company (the "LEASEHOLD TENANT").
W I T N E S S E T H
WHEREAS, the Leasehold Tenant executed and delivered that
certain Lease and Security Agreement dated as of January 30, 1998 (the "LEASE")
whereby the Leasehold Tenant leased from AHP OF [INDIANA], INC., an Indiana
corporation (the "LESSOR") property, together with all improvements built or to
be built thereon, located in Madison County, [Indiana] together with such other
improvements and property, all as more fully described in the Lease (the
"PROPERTY"); and
WHEREAS, Balanced Care Corporation, a Delaware corporation
("BCC"), Leasehold Tenant, and all equity owners of Leasehold Tenant (the
"MEMBERS") have entered into that certain Shortfall Funding Agreement dated as
of even date herewith (the "SHORTFALL AGREEMENT") whereby, among other matters,
Members agreed to fund a Working Capital Reserve, as more fully provided in the
Shortfall Agreement; and
WHEREAS, Leasehold Tenant is or will be the sole operator of
the Facility located on the Property; and
WHEREAS, the Management Firm is experienced in operating such
facilities and is willing to be the exclusive manager and operator of the
Facility on behalf of the Leasehold Tenant, as an independent contractor
pursuant to the terms and conditions set forth herein; and
WHEREAS, Leasehold Tenant, not having experience in managing
and operating the Facility, wishes to engage Management Firm as the sole and
exclusive operator and manager of the Facility; and
WHEREAS, during the term of this Agreement, the Management
Firm shall be the exclusive manager and operator of the Facility on behalf of
and in the name of the Leasehold Tenant.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. SCOPE OF WORK. Leasehold Tenant hereby appoints Management Firm as the
exclusive operator and manager of the Facility during the term of this
Agreement. The Management Firm
<PAGE> 2
shall have full responsibility and authority in the name and on behalf of
Leasehold Tenant to operate and manage the Facility and hereby covenants and
agrees to take all actions necessary or desirable to operate and manage the
Facility and to fulfill its duties hereunder, including without limitation to:
(i) operate and maintain the Facility on behalf of the Leasehold Tenant as a
comprehensive residential care facility providing personal care services; (ii)
collect all room and board revenue, as well as other revenue, and timely pay all
debts and other obligations relating to the Facility, including operating
expenses, fixed expenses and taxes; (iii) request from BCC funds held as Cash
Collateral to apply toward the payment of any obligation incurred in connection
with the operation of the Facility, (iv) ensure the Facility complies with
applicable Federal, state and local laws and regulations; (v) provide all
necessary services to ensure that the Facility provides quality care to its
residents; (vi) recruit, hire and train personnel as needed for the operation of
all departments and services of the Facility; (vii) maintain such bank accounts
as may be necessary or desirable for the operation of the Facility (the
"OPERATING ACCOUNTS"); (viii) establish salary levels, performance standards,
personnel policies and employee benefits for the Leasehold Tenant's employees;
(ix) comply with all terms of the Lease; and (x) to take all other actions
necessary or desirable to operate and manage the Facility in accordance with
prudent practice and industry standards.
Without limiting the generality of the foregoing, Management Firm
shall, as part of its management duties hereunder and on behalf of (and at the
sole cost of) Leasehold Tenant, perform each and every obligation of Leasehold
Tenant under the Lease and the Lease Documents (exclusive of the Development
Agreement) through out the term thereof, including all representations and
warranties of Leasehold Tenant contained therein, to the extent applicable.
Additionally, the Management Firm shall collect all revenues of any kind or
nature from the Facility, and so long as any amounts are owing to Lessor under
the Lease and the other Lease Documents make payments of rent and other sums due
and owing to Lessor under the Lease from revenues of Facility or as otherwise
provided in the Transaction Documents.
In performing its duties, the Management Firm (through its in-house
corporate staff or independent contractors) shall perform the following with
respect to the Facility, as well as any other matters reasonably related thereto
commencing upon the date of this Agreement:
(a) MANAGEMENT INFORMATION SYSTEMS (MIS)
Support centralized Facility information system which provides
systems management for the following areas:
-- Accounts Payable
-- Payroll
-- Financial Reporting
-- Marketing
-- General Ledger
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<PAGE> 3
The Management Firm shall be responsible for billing and collection of
accounts receivable generated in connection with the Facility.
(b) LEGAL COUNSEL
(i) Prepare or coordinate with outside legal counsel for
preparation of documents for operation of the Facility, including
resident agreements, supplier/vendor contracts, service contracts,
equipment leases and other ancillary contracts; (ii) prepare or
coordinate licensure and other regulatory applications; (iii)
coordinate all litigation involving the Facility with local counsel or
the insurance companies; (iv) coordinate with local counsel on local
law issues affecting the Facility; (v) process working capital requests
from the Working Capital Reserve or otherwise, and apply for, negotiate
and obtain letters of credit or other credit enhancements from lending
institutions; and (vi) provide legal counsel or coordinate with local
counsel to provide counsel to the Facility's Human Resources
Department.
Without limiting the generality of Section 2 and Section 10 below, the
parties acknowledge that all outside counsel expenses under the foregoing
paragraph shall be an expense allocable to the Facility.
(c) ACCOUNTING/TAX
(i) Provide an accountant to supervise all accounting
activities; (ii) implement accounting policies and guidelines; (iii)
provide a centralized cash management system; (iv) deposit in Operating
Accounts established in the Facility's name all funds received from the
operations of the Facility, satisfy obligations of the Facility from
such Operating Accounts, and not commingle funds in the Operating
Accounts with any other funds; (v) negotiate and administer working
capital lines of credit available to the Facility; (vi) supervise the
Facility's internal control structure; (vii) provide payroll, income
and real estate tax support as follows: prepare or supervise
preparation of all tax returns, assist the Facility in the event of a
tax audit, assist the Facility with technical issues relating to
payroll, excise and other taxes, and monitor pending and final Federal,
State and local tax Law changes; (viii) perform periodic site visits to
review the Facility's accounting and tax records; (ix) provide
operations expertise through site visits and strategies to maximize
fiscal performance; and (x) develop and implement a budget for
operations, capital outlay and cash requirements. All checks or other
documents for withdrawal of funds shall be signed by the appropriate
officer of the Management Firm or its designee. Deposits may be made by
the appropriate officer of the Management Firm or its designee.
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<PAGE> 4
(d) HUMAN RESOURCES
(i) Implement all personnel policies and guidelines; (ii)
recruit management personnel of the Facility, including the community
director of the Facility, which recruitment and the salaries related
thereto shall be an expense of the Leasehold Tenant; (iii) provide
on-going training for the Facility's Human Resources Director; (iv)
negotiate and administer all employee benefit plans including health
insurance, dental insurance, life insurance, long-term disability
insurance, and retirement/401K; (v) negotiate and administer general
and professional liability, workers' compensation, property, and
vehicular insurance plans; (vi) monitor the Facility's compliance with
Federal, State and local employment Laws; (vii) respond to all
government compliance agencies and legal proceedings as necessary;
(viii) implement and monitor safety/loss control programs; (ix) develop
and implement career planning and manpower development strategies; (x)
recruit, employ and train personnel as needed for the operation of all
departments and services of the Facility; and (xi) establish salary
levels, performance standards, personnel policies and employee benefits
for all employees within applicable budgetary and regulatory limits.
Leasehold Tenant acknowledges and agrees that all personnel employed at
the Facility shall be deemed the employees of the Management Firm, but
shall be paid salaries and wages (including employment taxes and the
like) by Leasehold Tenant as part of the expenses of the Facility.
(e) PROGRAM DEVELOPMENT
(i) Provide ongoing program development and management
consultation; (ii) supply select program manuals for local modification
and implementation; and (iii) provide program development/management
training. A community director shall be engaged by the Management Firm
for the Facility. Such community director shall be an employee of the
Management Firm, but his/her salary and employee benefits shall be paid
by the Leasehold Tenant as an expense incurred in connection with the
operations of the Facility.
(f) QUALITY MANAGEMENT
(i) Provide model quality management systems and
implement such including risk management, resident/family satisfaction,
licensing and accreditation, and program evaluation; and (ii) provide
ongoing monitoring of the Facility resident outcomes, compare with
regional and national norms, and make program modifications.
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<PAGE> 5
(g) MARKETING/COMMUNICATION
(i) Hire, direct and supervise marketing department
staff; (ii) train staff (program managers, rehabilitation liaisons,
marketing representatives, etc.) in marketing skills; (iii) organize
strong sales efforts within the target area, develop program mix
strategies, and develop marketing plans for the Facility; (iv)
establish an intake/admission system and continuously review the
admission process; (v) develop image building advertising strategies
for the Facility; and (vi) develop and produce Facility selected
promotional literature. The director of marketing shall be an employee
of the Management Firm, but such person's employee benefits and salary
(including employment tax and the like) shall be paid by the Leasehold
Tenant as an expense incurred in connection with the operations of the
Facility.
(h) CONTRACTING
Negotiate and execute contracts and agreements related to the
Facility with third parties and parties affiliated with the Management
Firm; provided that all contracts and agreements with parties
affiliated with the Management Firm shall be on terms no less favorable
than terms for comparable contracts and agreements with unaffiliated
parties.
(i) MISCELLANEOUS
(1) Obtain and maintain in accordance with all applicable
laws and regulations all licenses, approvals and
certifications required for operation of the Facility
and use reasonable efforts to procure eligibility for
participation in other applicable referral or payor
programs. Comply with all notification and reporting
requirements imposed under laws and regulations in
connection with the operation of the Facility.
(2) Purchase supplies, using procurement practices in
accordance with industry standards, and purchase or
lease equipment under national and regional
agreements or purchase contracts of the Management
Firm or its affiliated companies and provide to the
Leasehold Tenant all benefits resulting therefrom to
the extent permitted by their terms and by Law. All
such supplies so purchased shall become property of
the Leasehold Tenant. Once leases are completed,
equipment shall become property of the Leasehold
Tenant.
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<PAGE> 6
(3) Review and analyze the performance of ancillary
services under contract and negotiate contractual
arrangements therefor.
(4) Maintain books and records for the Facility at the
Management Firm's address herein for the purpose of
providing services under this Agreement. The
Management Firm shall make available to the Leasehold
Tenant and any lessor leasing the Facility to
Leasehold Tenant, and their respective agents,
accountants, and attorneys during normal business
hours all books and records pertaining to the
Facility, and the Management Firm shall promptly
respond to any questions of the Leasehold Tenant or
any such lessor with respect to such books and
records and shall confer with the Leasehold Tenant
and any such lessor at all reasonable times, upon
request, concerning the operation of the Facility.
(5) Order, supervise and conduct a program of regular
maintenance and repair of the Facility at the
Leasehold Tenant's cost and expense. So long as the
Lease is in full force and effect, such maintenance
and repair program shall comply with the requirements
of the Lease related thereto.
(6) Supervise and provide for the operation of food
service facilities for the Facility.
(7) Make periodic evaluations of the performance of all
departments of the Facility and investigate and
report, upon request, any inconsistency between
expenditures and budget.
(8) Implement all policies and procedures reasonably
necessary for the operation of the Facility
consistent with applicable regulations.
(9) Foster a working relationship between Management Firm
and any authorized volunteer or auxiliary groups
interested in providing support to the Facility and
residents of the Facility.
2. ADDITIONAL SERVICES. It is the intention of the parties that the
Management Firm be responsible for providing all service necessary or desirable
for the efficient and orderly management and operations of the Facility;
provided, the cost and expense of operating the Facility is to be paid by
Leasehold Tenant. The Management Firm shall actively utilize staff specialists
in its employ or that of its affiliates in such areas as accounting, budgeting,
marketing,
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<PAGE> 7
reimbursement, dietary, housekeeping, clinical, pharmaceutical, purchasing and
third party payments in the management of the Facility when considered desirable
by the Management Firm. The expense of such personnel shall be the
responsibility of Leasehold Tenant, allocable to the Facility.
3. FINANCIAL STATEMENT. The Management Firm shall prepare and deliver to
the Leasehold Tenant an unaudited balance sheet within forty-five (45) days
after the close of each fiscal quarter of the Leasehold Tenant. The Management
Firm shall also cause an unaudited annual statement to be made of the financial
records of the Facility and a copy of such report shall be provided to the
Leasehold Tenant as soon as it is available after the end of the fiscal year.
The cost of the reports shall be an expense of the Facility and shall be paid
for by the Leasehold Tenant. The fiscal year for the Facility shall coincide
with the Leasehold Tenant's fiscal year. All financial statements are to be
prepared in accordance with GAAP. Management Firm shall cause to be prepared all
financial statements required of Leasehold Tenant pursuant to the Lease and
other Lease Documents; provided, however, Leasehold Tenant shall provide all
information reasonably requested by Management Firm in connection with the
preparation of such financial statements, and shall certify to Management Firm,
BCC and Lessor that such statements are, to the best knowledge of Leasehold
Tenant, true and correct in all material respects.
4. PROPERTY INTERESTS/CONFIDENTIALITY. (a) The technical systems, methods,
policies, procedures and controls, copyrights, "know-how", tradenames,
trademarks, servicemarks, other registered names or marks and all other
intellectual property rights related thereto employed by the Management Firm
(the "INTANGIBLE RIGHTS") are to remain the property of the Management Firm and
are not, at any time, to be utilized, distributed, copied or otherwise employed
or acquired by the Leasehold Tenant except for the security interest granted to
the Lessor in the name "Outlook Pointe at ____________" pursuant to the Security
Agreement in favor of the Lessor or as otherwise authorized in writing by the
Management Firm or except as may be required by Law.
(b) Leasehold Tenant understands and acknowledges that Management
Firm has devoted substantial time, energy and expense to developing a process
and procedure to manage and operate facilities such as the Facility, and that
such processes, procedures, Intangible Rights and the information and materials
compiled or prepared in connection therewith, including without limitation
marketing plans, business plans, pricing information , information on
competition, demographics, suppliers and providers of services and financing
arrangements (collectively "CONFIDENTIAL INFORMATION") are proprietary to
Management Firm and the confidential information of the Management Firm.
Leasehold Tenant shall not disclose to any party any Confidential Information,
without the prior written consent of Management Firm, except as may be required
by Law.
(c) The provisions of this Section shall survive the expiration or
sooner termination of this Agreement.
7
<PAGE> 8
5. TERM OF AGREEMENT. The term of this Agreement shall commence upon the
date hereof, and continue for a period of nine (9) years thereafter. This
Agreement shall be automatically renewed for additional consecutive one (1) year
terms unless either party gives the other party notice of its intent not to
renew, which notice must be given at least ninety (90) days prior to the
expiration of the then current term.
6. TERMINATION. (a) The Leasehold Tenant may terminate this Agreement upon
written notice if the Management Firm defaults in the performance of any
material covenant, agreement, term or provision of this Agreement to be
performed by it and such default continues for a period of forty-five (45) days
after written notice to the Management Firm from the Leasehold Tenant stating
the specific default or, if such default is not subject to cure within
forty-five (45) days, such longer period as may be required to effect a cure,
provided Management Firm initiates curative action within forty-five (45) days
and thereafter is diligently and in good faith pursuing such cure.
(b) The Management Firm may terminate this Agreement upon written
notice in the event any one or more of the following events shall occur:
(1) If the Leasehold Tenant shall fail to timely pay to
the Management Firm any Management Fee required to be
paid in accordance with Paragraph 9 hereof and such
failure continues for ten (10) days after written
notice to the Leasehold Tenant; or
(2) If the Leasehold Tenant defaults in the performance
of any other material covenant, agreement, term or
provision of this Agreement to be performed by the
Leasehold Tenant and such default continues for a
period of forty-five (45) days after written notice
to the Leasehold Tenant from the Management Firm
stating the specific default or, if such default is
not subject to cure within forty-five (45) days, such
longer period as may be required to effect a cure,
provided the defaulting party initiates curative
action within forty-five (45) days and thereafter is
diligently and in good faith pursuing such cure; or
(3) If the Facility or a material portion thereof is
damaged or destroyed by fire or other casualty and
the Leasehold Tenant fails to commence to repair,
restore, rebuild or replace any such damage or
destruction within ninety (90) days of the occurrence
of such damage or destruction, and thereafter to
complete such work within a reasonable period of
time.
In the event of termination of this Agreement by either party pursuant
to Section 6(a) or 6(b) above, the Management Firm shall have the right to enter
the Facility and remove all of
8
<PAGE> 9
its personal property and Intangible Rights material.
7. LIABILITY AND INDEMNIFICATION/FORCE MAJUERE. (a)By the Management Firm.
The Management Firm shall indemnify, defend, save and hold harmless the
Leasehold Tenant, its members, shareholders, officers, directors, employees, or
agents from and against all demands, claims, actions, losses, damages,
deficiencies, liabilities, costs and expenses (including, without limitation,
attorney's fees, interest, penalties and all amounts paid in investigation,
defense or settlement of any of the foregoing) asserted against or incurred by
the Leasehold Tenant, its members, shareholders, officers, directors, employees,
or agents, in connection with, or arising out of, or resulting from (i) a breach
of any covenant, agreement, representation or warranty of the Management Firm or
(ii) the negligent or willful acts or omissions of Management Firm, its
employees or agents. The provisions of this Section shall survive the expiration
or sooner termination of this Agreement.
(b) By the Leasehold Tenant. The Leasehold Tenant shall indemnify,
defend, save and hold harmless the Management Firm, its shareholders, officers,
directors, employees, or agents from and against all demands, claims, actions,
losses, damages, deficiencies, liabilities, costs and expenses (including,
without limitation, attorney's fees, interest, penalties and all amounts paid in
investigation, defense or settlement of any of the foregoing) asserted against
or incurred by the Management Firm, its officers, directors, employees, or
agents, in connection with, or arising out of, or resulting from (i) a breach of
any covenant, agreement, representation or warranty of the Leasehold Tenant or
(ii) the negligent or willful acts or omissions of Leasehold Tenant, its
employees or agents. The provisions of this Section shall survive the expiration
or sooner termination of this Agreement.
Nothing contained herein shall preclude either party from asserting any
claims or suits against the other party which may arise out of the terms and
provisions of this Agreement.
(c) The Management Firm shall not be deemed to be in violation of
this Agreement, and its performance shall be excused, if it is prevented from
performing any of its obligations hereunder for any reason beyond its control,
including shortages in labor or supplies, war, acts of God, failure of the
Leasehold Tenant to advance funds, or changes in any Law of Federal, State or
local government, or any agency thereof.
8. RELATIONSHIP BETWEEN PARTIES. The relationship of the Management Firm
to the Leasehold Tenant shall be that of independent contractor.
9. MANAGEMENT FEE. The Management Firm for the services rendered hereunder
shall be entitled to six percent (6%) of all gross revenues of the Facility as
its sole compensation for management of the Facility (the "MANAGEMENT FEE"). The
Management Fee shall be paid monthly, and shall be based on the financial
operations of the Facility as of the end of each calendar month. To the extent
that the year-end audited financial statements for the Facility disclose that
the Management Fee actually received during the year than ended was greater or
9
<PAGE> 10
less than what should have been received, Leasehold Tenant shall (in case of
underpayment) pay upon demand the shortfall and (in the case of overpayment)
shall be credited against the Management Fee due in the next succeeding quarter
such overpayment. In additional to the Management Fee, the Management Firm shall
be paid on a monthly basis beginning on that date which is six months prior to
substantial completion of the Facility the sum of $3,000 per month.
Notwithstanding the foregoing, the employee benefits and salary of the community
director and director of marketing for the Facility shall be an expense
allocable to the Facility, but such community director and director of marketing
shall at all times remain the employee of the Management Firm.
10. FUNDING OF COSTS AND EXPENSES BY THE LEASEHOLD TENANT. The Leasehold
Tenant, and not the Management Firm, shall be responsible for the costs and
expenses of all operations of the Facility. The Leasehold Tenant shall at all
times provide sufficient working capital for operation of the Facility and shall
deposit such capital from time to time into the Operating Accounts of the
Facility in advance of the time required to be disbursed by the Management Firm.
11. NO APPROVAL BY THE LEASEHOLD TENANT. The Management Firm shall operate
the Facility and the Leasehold Tenant act as a passive investor with respect
thereto. The Management Firm shall, not less frequently than annually, adopt a
plan of operation for the Facility which shall set forth proposed staffing,
budgets, program and related matters; such shall not, however, be subject to
approval of the Leasehold Tenant or its designee. The Leasehold Tenant shall not
participate in the day-to-day operation of the Facility.
12. OTHER FACILITIES. Leasehold Tenant understands and acknowledges that
Management Firm is in the business of operating facilities such as the Facility,
and that Management Firm intends to continue to manage and operate such other
facilities, which may or may not be in competition with the Facility. Nothing
contained herein shall be deemed to be construed as a restriction on the
Management Firm's right to so operate and manage such other existing facilities
or facilities that may be opened in the future, even if such facilities are in
competition with the Facility.
13. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in person,
Federal Express or other recognized overnight courier or sent by registered or
certified U.S. mail, return receipt requested or sent by facsimile or telecopy
transmission and addressed:
(i) If to the Management Firm, at:
BCC DEVELOPMENT & MANAGEMENT CO.
5021 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
Attention: Legal Department
(ii) If to the Leasehold Tenant, at:
10
<PAGE> 11
c/o Hakman & Co.
1350 Old Bayshore Highway, Suite 300
Burlingame, California 94010
Attention: F. David Carr
or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.
14. ARBITRATION. Any controversy or dispute between the Management Firm and
the Leasehold Tenant with respect to the application or interpretation of the
terms of this Agreement, except failure of the Leasehold Tenant to pay
compensation to the Management Firm as required herein, will be submitted to
mediation under the National Health Lawyer's Association ("NHLA") Alternative
Dispute Resolution Service Rules of Procedure for Mediation. If any dispute is
not resolved by mediation no later than thirty (30) days after its submission to
mediation, the dispute shall be submitted to arbitration in accordance with the
NHLA Alternative Dispute Resolution Service Rules for Arbitration. The same
person may serve as both mediator and arbitrator. Any such arbitration shall be
final and binding upon the parties to the fullest extent permitted by Law. The
cost of mediation and/or arbitration shall be shared equally by the Leasehold
Tenant and the Management Firm; however, each party shall bear the expense of
its own attorneys, representatives and witnesses, and the cost of any
transcripts or related matters.
15. COMPLIANCE WITH FEDERAL RECORDS REQUIREMENTS. To the extent required
under applicable Law, the Management Firm shall, (and if Management Firm carries
out any of the duties under this Agreement through a subcontract with a related
organization and such subcontract has a value or cost of $10,000 or more during
any 12-month period, Management Firm shall cause such subcontract to contain a
clause to the effect that the subcontractor shall), until the expiration of four
(4) years after the furnishing of services hereunder, make available upon
written request by the Secretary of Health and Human Service or the Comptroller
General of the United States or any of their duly authorized representatives,
this Agreement and the books, documents and records of the Management Firm (or
such subcontractor) that are necessary to verify the nature and extent of the
costs furnished under this Agreement.
16. SUCCESSORS AND ASSIGNS. Leasehold Tenant may not assign this Agreement,
expressly, by operation of law, or otherwise, without the prior written consent
of the Management Firm, which consent may be withheld in the sole discretion of
the Management Firm. Management Firm may not assign this Agreement, expressly,
by operation of law, or otherwise, without the prior written consent of the
Leasehold Tenant; provided, however, Management Firm may assign its rights and
obligations hereunder without consent to (i) any BCC Affiliate, (ii)
collaterally to any lender to the Management Firm or any entity affiliated with
the Management Firm and (iii) to the Lessor.
17. DEFINITIONS; INTERPRETATION; MISCELLANEOUS. Capitalized terms used but
not otherwise
11
<PAGE> 12
defined in this Agreement have the respective meanings specified in Appendix 1
hereto; the rules of interpretation and other provisions set forth in Appendix 1
hereto shall apply to this Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have affixed their names by their proper officers or duly authorized
representatives the day and year first above written.
MANAGEMENT FIRM: BCC AT ________________, INC..
By: /s/ Signature Illegible
------------------------------
Name:
Title:
LEASEHOLD TENANT: ASSISTED CARE OPERATORS
OF ______________ , LLC
a Delaware limited liability company,
By: Assisted Care Operators, LLC
a Delaware limited liability company
its Manager and authorized
representative
By: /s/ Signature Illegible
------------------------------
Name:
Title:
Its Authorized Representative
13
<PAGE> 14
Schedule to Exhibit 10.77 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Management Agreement
<TABLE>
<CAPTION> Leasehold Management
Location Lessor Tenant Firm
<S> <C> <C> <C>
Jackson, TN AHP of Tennessee, Inc. Assisted Care Balanced Care
Operators at at Jackson, Inc.
Jackson
</TABLE>
<PAGE> 1
EXHIBIT 10.78
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement"), made as of the 30th
day of January, 1988, is by and among Assisted Care Operators of Jackson, a
Delaware limited liability company ("Tenant"), BCC MANAGEMENT AND DEVELPMENT
CO., a Delaware corporation ("Developer"), Balanced Care at Jackson, Inc.
("Manager") Oakhaven Senior Living, Inc. a California corporation (collectively,
"Tenant Parent") , Balanced Care Corporation, a Delaware corporation ("Balanced
Care" and referred to collectively with Tenant, Developer, Manager, Tenant
Parent and the respective Affiliates of each such Person as the "Restricted
Parties") and AHP of Tennessee, Inc., a Tennessee corporation ("Owner").
RECITALS:
WHEREAS, Tenant Parent is the sole owner of Tenant;
WHEREAS, Balanced Care and American Health Properties, Inc., a Delaware
corporation have entered into that certain Facility Agreement dated as of the
30th day of January, 1998 pursuant to which American Health has caused Owner to
develop the Facility leased to Tenant and Balanced Care has caused Developer to
enter into the Development Agreement with Developer and caused Tenant to enter
into the Management Agreement with Manager (all capitalized terms not otherwise
defined in this Agreement shall have the meaning ascribed to those terms in the
Facility Agreement);
WHEREAS, Balanced Care Corporation is guarantying the obligations of
Developer to Owner and the obligations of Manager under the Management
Agreement;
WHEREAS, Owner and Tenant have entered into the Lease with respect to
the leasing of a certain assisted living facility to be constructed in Jackson,
Tennessee and
WHEREAS, Owner would not enter into the Lease Agreement and Development
Agreement unless the Restricted Parties agreed to enter into this Agreement upon
the terms and conditions contained herein.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Non-Competition. From the date hereof and for so long as the Lease
remains in full force and effect, Restricted Parties shall not directly or
indirectly, whether or not for compensation, engage in, allow the use of such
person's or entity's name or likeness by, or have any direct or indirect
ownership or management interest (which shall include but not be limited to
1
<PAGE> 2
an interest as an employee, shareholder, member, manager, proprietor, officer,
director, agent, security holder, trustee, consultant, partner, creditor lending
credit or money for the purpose of establishing or operating any such business
or otherwise) in any person, firm, corporation or business which engages in the
ownership, operation or management of any Senior Housing Project (as defined
below) (other than the property which is the subject of the Lease) within thirty
(30) miles of the Property. For purposes of this Agreement, the term "Senior
Housing Project" shall mean any senior housing project, independent living
project, facility providing assisted living services or similar facility
requiring a license no more restrictive than the license required for the
Facility, excluding, for the avoidance of doubt, any license skilled nursing
facility.
2. Scope and Reasonableness. The parties to this Agreement expressly
agree and contract that it is not their intention to violate any public policy
or statutory or common law. The Restricted Parties have carefully considered the
nature and extent of the restrictions upon competition set forth in this
Agreement and agree that the same are reasonable with respect to the nature,
duration, scope and geographic coverage.
3. Enforceability. If any of the covenants or other provisions of this
Agreement shall be held unenforceable by the final determination of a court of
competent jurisdiction and all appeals therefrom shall have failed or the time
for such appeals shall have expired, such provision or provisions shall be
deemed eliminated from this Agreement, but the remaining provisions shall
nevertheless be given full effect. In the event this Agreement or any portion
hereof is more restrictive than permitted by applicable law, the parties hereto
shall request that the court of competent jurisdiction fashion one that is
acceptable or substitute restrictions of permissible scope that are consistent
with the intent of the parties as evidenced by this Agreement.
4. Remedies: Injunctive Relief. The parties to this Agreement recognize
and agree that the violation of the provisions of this Agreement cannot be
reasonably or adequately compensated in monetary damages and that, in addition
to any other relief to which the injured party may be entitled by reason of such
violation, the injured party shall also be entitled to permanent and temporary
injunctive and equitable relief.
5. Attorney's Fees. If any legal action or other proceeding is brought
for the enforcement of this Agreement or because of an alleged dispute, breach,
default or misrepresentation in connection with the provisions hereof, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorney's fees and other costs incurred in that action or proceeding
in addition to any other relief to which it or they may be entitled.
6. Counterparts. This Agreement may be executed in two or more
counterparts, each of which, when taken together, will constitute one and the
same Agreement.
7. Notices. No notice or other communication shall be deemed given
unless sent in any of the manners, and to the persons, specified in this
paragraph. All notices and other communications hereunder shall be in writing
and shall be deemed given (i) upon receipt if
2
<PAGE> 3
delivered personally (unless subject to clause (ii) or if mailed by registered
or certified mail, (iii) at noon on the date after dispatch if sent by overnight
courier or (iv) upon the completion of transmission on or before 4:30 p.m. local
time of the recipient if received on a business day (which is confirmed by
telephone or by a statement generated by the transmitting machine (if
transmitted by telecopy or other means of facsimile which provides immediate or
near immediate transmission to compatible equipment in the possession of the
recipient), or on the next business day following receipt if received after 4:30
p.m. local time of the recipient on any business day, in any case to the parties
at the following addressees or telecopy number (or at such other address or
telecopy number for a party as will be specified by like notice):
If to Owner: AHP OF TENNESSEE, INC.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
If to Restricted Parties: Balanced Care Corporation
5201 Louise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
With a copy to: Kirkpatrick & Lockhart, LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
8. 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 TENNESSEE.
9. Consent to Jurisdiction. THE PARTIES HERETO HEREBY AGREE THAT THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF TENNESSEE OR, TO THE EXTENT
REQUIRED BY APPLICABLE LAW, ANY TENNESSEE STATE COURT, SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE PARTIES
HERETO PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT.
10. Waiver of Jury Trial. RESTRICTED PARTIES HEREBY WAIVE ANY RIGHT TO
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 TRANSACTION DOCUMENTS, OR (B) IN ANY WAY CONNECTED WITH OR
PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF OWNER AND/OR
RESTRICTED PARTIES WITH RESPECT TO THE TRANSACTION DOCUMENTS OR IN CONNECTION
WITH THIS AGREEMENT OR
3
<PAGE> 4
THE EXERCISE OF ANY 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. RESTRICTED PARTIES AGREE THAT OWNER MAY
FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING,
VOLUNTARY, AND BARGAINED-FOR AGREEMENT OF RESTRICTED PARTIES IRREVOCABLY TO
WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF OWNER TO
ENTER INTO THE TRANSACTON DOCUMENTS, AND THAT, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED
HEREIN) BETWEEN OWNER AND RESTRICTED PARTIES SHALL INSTEAD BE TRIED IN A COURT
OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
11. Amendments; Waivers. No modification, termination or waiver under
this Agreement shall be valid unless in writing and signed by the parties
hereto. The waiver by any party of any breach of any provision of this Agreement
shall not operate or be construed as a waiver of any other provision of this
Agreement or of any subsequent breach.
12. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
13. Successors and Assigns. Restricted Parties acknowledge that Owner
shall have the right to assign any or all of its rights and obligations
hereunder and this Agreement will inure to the benefit of, and be binding upon,
any such assignee of Owner in the same manner and to the same extent as if such
assignee were an original party hereto. Restricted Parties shall not assign this
Agreement without the prior written consent of Owner.
14. Severability. Any provision hereof which is held to be prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be adjusted
rather than avoided, if possible, in order to achieve the intent of the parties
to this Agreement to the extent possible without in any manner invalidating the
remaining provisions hereof, or materially affecting the consideration bargained
for, and any such prohibition or unenforceability in any jurisdiction will not
invalidate or render unenforceable such provision in any other jurisdiction.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as
of the date first written above.
WITNESS: RESTRICTED PARTIES:
- ------------------------------ --------------------------------
Name:
WITNESS:
- ------------------------------ --------------------------------
Name:
WITNESS:
- ------------------------------
Name: By:
------------------------------
WITNESS:
- ------------------------------
Name: By:
------------------------------
OWNER:
WITNESS: AHP OF TENNESSEE
a Tennessee corporation
- ------------------------------ By:
Name: ------------------------------
Name:
Title:
5
<PAGE> 6
Schedule to Exhibit 10.78 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Non-Competition Agreement
<TABLE>
<CAPTION>
Location Owner Manager
<S> <C> <C>
Anderson, IN AHP of Indiana, Inc. Balanced Care at
Anderson, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.79
RIGHT OF FIRST OFFER AGREEMENT
THIS RIGHT OF FIRST OFFER AGREEMENT (the "Agreement") is entered into
as of this 30th day of January, 1998, by and between AHP OF TENNESSEE, INC., a
Tennessee corporation (the "Lessor") and BALANCED CARE CORPORATION, a Delaware
corporation ("BCC").
WITNESSETH:
WHEREAS, Lessor and Assisted Living Operators of Jackson, LLC, a
Delaware limited liability company (the "Lessee") have concurrently herewith
entered into a certain Lease and Security Agreement dated as of January 30, 1998
(as the same may be amended, modified, altered or supplemented, the "Lease")
whereby Lessor will lease to Lessee a certain residential care facility to be
constructed and located in Madison County, Tennessee (the "Property"). The legal
description with respect to the Property upon which such facility is to be
located is more fully described in Exhibit A attached hereto; and
WHEREAS, Lessor and BCC Development & Management Co., a Delaware
corporation ("BCC Development") have concurrently herewith entered into that
certain Development Agreement dated as of January 30, 1998 (as the same may be
amended, modified, altered or supplemented, the "Development Agreement"),
whereby BCC Development, as Developer under the Development Agreement, will
cause to be constructed on the Property an assisted living facility (the
"Facility"); and
WHEREAS, Lessee and Balanced Care at Jackson, Inc., a Delaware
corporation (the "Manager"), have concurrently herewith entered into that
certain Management Agreement dated as of January 30, 1998 (as the same may be
amended, modified, altered or supplemented, the "Management Agreement"), whereby
Lessee has appointed Manager as the sole and exclusive manager of the Facility,
on the terms and conditions provided in the Management Agreement, the Lease, the
other Lease Documents (as defined in Appendix 1 to the Management Agreement) and
the other Transaction Documents (as defined in Appendix 1 to the Management
Agreement); and
WHEREAS, to protect the interests of BCC Development under the
Development Agreement and the Manager under the Management Agreement, Lessor has
agreed to grant to BCC on the terms and subject to the conditions contained
herein a right of first offer with respect to the sale or other transfer of all
or any portion of the Property and/or the Facility.
NOW, THEREFORE, for good and valuable consideration, and intending to
be legally bound hereby, Lessor and BCC agree as follows:
1. Offer Right. Commencing on the date hereof and terminating
upon the expiration or sooner termination of the Lease in accordance with its
terms, and subject to the terms hereof, Lessor hereby grants to BCC a right of
first offer (the "Offer Right") with respect to the Transfer (as hereinafter
defined) of all or any portion of each Property and/or Facility leased to Lessee
or its Affiliates by Lessor or its Affiliates in accordance with that certain
Facility Agreement dated January 30, 1998 entered into by and between BCC and
American Health Properties, Inc., a
1
<PAGE> 2
Delaware corporation ("AHP") (the "Facility Agreement") on the terms and subject
to the conditions contained herein.
1.1. In the event Lessor desires during the term of this
Agreement to Transfer all or any portion of any or all of the Property and/or
Facilities Lessor shall promptly deliver to BCC in writing a written notice (the
"Selling Notice") identifying which Property and/or Facility Lessor would like
to Transfer and stating the minimum terms which Lessor would accept in
connection with that proposed Transfer, including the minimum purchase price
acceptable to Lessor (and other economic terms that Lessor intends to request in
connection with such Transfer) (collectively, the "Transfer Terms").
1.2. Within 15 days after receipt by BCC of the Selling
Notice, BCC shall deliver to Lessor either (a) a written notice (the "Acceptance
Notice") stating that BCC wishes to receive a Transfer of the Property and/or
the Facility on the Transfer Terms stated in the Selling Notice, which
Acceptance Notice shall constitute its exercise of the Offer Right and BCC's
binding and irrevocable commitment to purchase the Property and/or Facility
identified in the Selling Notice on the Transfer Terms stated therein or (b) a
written notice (the "Rejection Notice") stating that BCC does not wish to accept
such a Transfer of that Property or Facility. BCC's failure to deliver either
the Rejection Notice or the Acceptance Notice within the foregoing 15 day period
shall constitute BCC's election not to exercise the Offer Right.
1.3. If BCC exercises the Offer Right by delivery to
Lessor of the Acceptance Notice within the 15 day time period provided in
Paragraph 1.2, then such Transfer shall be consummated within 45 days thereafter
(or such other time as the parties may mutually agree).
1.4. If BCC either delivers a Rejection Notice or fails to
deliver the Acceptance Notice to Lessor within the time frame provided in
Paragraph 1.2, Lessor shall be free to seek and accept offers for Transfer of
the Property and/or the Facility at a price and on terms no less favorable to
the transferee than as set forth in the Transfer Offer, and all rights of BCC
hereunder (including the Offer Right) shall thereupon terminate, except as
provided in the next sentence of this paragraph. If such Transfer is not
consummated on terms and conditions at least as favorable to the transferee as
those provided in the Transfer Offer, or Lessor does not otherwise complete the
Transfer on terms equal to or more favorable to Lessor as those provided in the
Transfer Offer within 12 months after the date of the Selling Notice, BCC shall
again be entitled to exercise the Offer Right as herein provided, as to any
proposed subsequent Transfer of all or any portion of the Property and/or the
Facility during the term of this Agreement.
2. Transfer Defined. As used in this Agreement, "Transfer" means
(i) any sale, ground lease of a term longer than 10 years, or other conveyance
of all or any portion of the Property and/or the Facility or (ii) the transfer
of all or any portion of the issued and outstanding common stock of Lessor.
3. Limitation of Offer Right. Notwithstanding any provision
herein to the contrary, in no event shall BCC have the right to exercise the
Offer Right, and Lessor shall be under no obligation to provide the Transfer
Offer or Selling Notice to BCC, in the event that at the time Lessor wishes in
good faith to effect a Transfer, there exists and is continuing a default or
event
2
<PAGE> 3
of default under any Lease, Development Agreement or other Transaction Document
delivered under the Facility Agreement.
4. Construction. Time shall be of the essence regarding this
Agreement. This Agreement shall be governed and construed in accordance with the
laws of the State of Pennsylvania, exclusive of its conflicts of laws. This
Agreement may not be amended, except by a writing executed by both parties.
Notices to be given hereunder shall be provided in the manner provided in
Section 29.8 of the Lease. This Agreement may not be recorded in any public
records.
5. Leasehold Estate. Lessor and BCC acknowledge and agree that
any Transfer of the Property and/or the Facility pursuant to this Agreement
shall be subject to the leasehold estate of Lessee in the Lease; provided,
however, in no event shall Lessee be deemed a third party beneficiary of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 1st day of February, 1998 to be effective as of the date first written
above.
AHP OF TENNESSEE, INC.,
a Tennessee corporation
By: /s/ Steven A. Roseman
---------------------------------
Steven A. Roseman, Vice President
BALANCED CARE CORPORATION,
a Delaware corporation
By: /s/ Brian Barth
---------------------------
Brian Barth, Vice President
3
<PAGE> 4
Schedule to Exhibit 10.79 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Right of First Offer
<TABLE>
<CAPTION>
Location Lessor Manager
<S> <C> <C>
Anderson, IN AHP of Indiana, Inc. Balanced Care at
Anderson, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.80
WORKING CAPITAL ASSURANCE AGREEMENT
(EVANSVILLE, INDIANA)
THIS AGREEMENT is made as of the 30th day of January, 1998, by and
among BALANCED CARE CORPORATION, a Delaware corporation, with a principal place
of business at 5021 Louise Drive, Suite 200, Mechanicsburg, PA 17055 ("BCC") and
AHP OF [INDIANA], INC., an [Indiana corporation, with a principal place of
business at 6400 South Fiddler's Green Circle, Suite 1800, Englewood, Colorado
80111 (the "Lessor").
W I T N E S S E T H:
WHEREAS, BCC and American Health Properties, Inc., a Delaware
corporation ("AHP"), have entered into a Facility Agreement dated as of January
30, 1998 (the "FACILITY AGREEMENT") whereby Lessor will acquire certain "Land"
(as defined in the Lease referred to below) and fund development of a "Project"
thereon, all on the terms and subject to the conditions set forth in the
Facility Agreement; and
WHEREAS, pursuant to the Facility Agreement and to fulfill a condition
to Lessor's obligations to acquire the Land and develop the Project (i) Assisted
Care Operators of Anderson, LLC, a Delaware limited liability company (the
"LESSEE") has, concurrently herewith executed and delivered that certain Lease
and Security Agreement, of even date herewith (the "LEASE"), relating to the
Land and the other "PROPERTY" more fully described in the Lease, (ii) the
Members (as defined in Appendix 1 to the Shortfall Agreement) BCC and Lessee
have executed and delivered a Shortfall Funding Agreement dated of even date
herewith (the "SHORTFALL Agreement"), (iii) Lessee, Balanced Care and AHP have
executed and delivered a Deposit Pledge Agreement dated of even date herewith
(the "DEPOSIT PLEDGE") pursuant to which Lessee has or will deposit $600,000
into the Working Capital Reserve (as defined in the Shortfall Agreement) to fund
certain start up and operational losses anticipated in connection with the
Project. All capitalized terms used herein and not otherwise defined herein
shall have the same meanings as ascribed to such terms in the Lease; and
WHEREAS, pursuant to the Facility Agreement and to fulfill a condition
to Lessor's obligations to acquire the Land and develop the Project, Lessor and
BCC Development and Management Company, Inc., a Delaware corporation
("Developer") have entered into a Development Agreement of even date herewith
(the "Development Agreement") for the purpose of developing the Project to
result in the construction of a complete and licensed assisted living facility
on the Property (the "FACILITY"); and
WHEREAS, pursuant to the Facility Agreement and to fulfill a condition
to Lessor's obligations to acquire the Land and develop the Project, Lessee and
BCC at _______, Inc., a Delaware corporation (the "Manager") have entered into a
Management Agreement of even date herewith (the "Management Agreement") for the
operation and management of the Facility; and
WHEREAS, the Developer and the Manager are wholly-owned subsidiaries of
BCC; and
<PAGE> 2
WHEREAS, pursuant to the Facility Agreement and to fulfill a condition
to Lessor's obligations to acquire the Land and develop the Project, and as
additional security for the payment and performance all of the obligations of
Lessee under the Lease, including without limitation the timely, faithful and
full payment of Rent, as defined in the Lease (the "Lease Obligations"), the
Lessor has requested the execution and delivery of this Agreement; and
WHEREAS, because of the significant interest of BCC in the funding of
the development of the Project and the Facility and the success and economic
viability of the Facility, BCC is entering into this Agreement to provide Lessor
, among other things, with assurance that it will fund all Shortfalls (as
hereinafter defined) upon depletion of the Working Capital Reserve (as
hereinafter defined).
NOW THEREFORE, for good and valuable consideration paid by each of the
parties hereto to the other, the receipt and sufficiency of which is hereby
acknowledged and in consideration of the covenants and agreements set forth
herein, the parties hereto, intending to be fully and legally bound, agree as
follows:
1. Subject to the terms of Section 4 hereof, from the date hereof
until the complete payment and performance of the Lease Obligations, BCC
unconditionally agrees to loan to the Lessee, sufficient funds, by means of
working capital loans (collectively, the "Working Capital Loans"), to pay and
satisfy the amount by which the Lessee's cash requirements to meet its
obligations (including, without limitation, operating expenses, debt service and
the Lease Obligations) due and payable during any month exceed the gross
revenues received by the Lessee during such month (the "Shortfall"). Subject to
the provisions of Section 2(a) of this Agreement, such Working Capital Loans
shall be made pursuant to the Shortfall Agreement (or, if Lessor so demands,
shall be advanced to Lessor directly as required to satisfy any outstanding
Lease Obligations and, in the event of any such advance, BCC shall be
conclusively deemed to have advanced such payment to the Lessee as a Working
Capital Loan with Lessee having used the net proceeds thereof to pay the Lease
Obligations), but repayment of such Working Capital Loans shall in all events be
subject to the rights of Lessor as more fully provided in that certain
Subordination and Standstill Agreement of even date herewith (the "Subordination
Agreement") between BCC and Lessor.
2. (a) Subject to the terms of Section 4 hereof, whether or
not there has occurred or is continuing any default, breach of condition or
failure to satisfy any condition under the Shortfall Agreement, BCC shall,
without further direction, advance to the Lessee the amount equal to the
Shortfall in a timely fashion so that the Lessee is able to meet all of its
working capital obligations (including, without limitation, the Lease
Obligations) when due. Without limiting the generality of foregoing, BCC shall
make Working Capital Loans to Lessee to fund Shortfalls even if Lessee fails to
make contributions on a timely basis to the Working Capital Reserve as provided
in Section 1.01 of the Shortfall Agreement or otherwise.
(b) Without limiting BCC's obligation to fund Shortfalls
as herein provided, BCC shall promptly notify Lessor should any proceedings
under Title 11 of the United States Code (each a "Bankruptcy
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<PAGE> 3
Proceeding", and the laws applied during such Bankruptcy Proceedings being
referred to herein as "Bankruptcy Laws") be instituted by or against either
Lessee or any member owing equity interests in Lessee (collectively a "Member"),
and, upon request from Lessor, shall immediately fund or otherwise cause to be
paid to all creditors of the party subject to the Bankruptcy Proceeding all
amounts due such creditors (including with respect to Lessor amounts owed to
Lessor in connection with the Lease Obligations, solely those amounts which have
accrued through the date of payment). Further, BCC shall use all efforts (within
the bounds of applicable law) to cause such Bankruptcy Proceedings to be
dismissed as soon as possible.
3. BCC acknowledges that the covenants and agreements made
hereunder by BCC are being made to induce the Lessor to enter into and accept
the Lease and enable the Lessee, upon the complete disbursement of the Working
Capital Reserve, to fulfill its obligations, including, without limitation, the
Lease Obligations. Accordingly, it is expressly intended by BCC that the
covenants and agreements by BCC hereunder and in the Shortfall Agreement and the
Deposit Pledge Agreement may be relied upon and enforced by the Lessor.
4. Notwithstanding anything to the contrary set forth herein,
BCC's obligation to provide the Working Capital Loans, and advance Shortfalls,
to the Lessee shall not commence until such time as the full amount actually
deposited by Lessee in the Working Capital Reserve has been depleted.
5. The obligations of BCC hereunder shall not be affected by the
termination, discontinuance, release or modification of any agreement from
Lessor or any endorser, surety or guarantor of the Lease Obligations.
Notwithstanding anything to the contrary contained herein or in the Lease, so
long as BCC is not in breach of any of its obligations hereunder or under the
Transaction Documents (including but not limited to a default occurring by
reason of the continuance of any Event of Default under the Lease after
expiration of the 3 day period referred to in Section 7 of this Agreement), the
Lessor hereby covenants and agrees with BCC that the Lessor shall not amend,
modify or otherwise alter the Lease or any other document executed in connection
therewith (collectively, the "Lease Documents") without BCC's prior written
consent, in each instance, which consent, shall not be unreasonably withheld,
conditioned or delayed.
In addition, the Lessor hereby covenants and agrees with BCC that,
except in connection with the exercise of any of its rights and/or remedies
under the Lease Documents, the Lessor shall not terminate the Lease without the
prior written consent of BCC, which consent shall not be unreasonably withheld,
conditioned or delayed.
6. The obligations of BCC hereunder shall not be affected by any
change in the beneficial ownership of the Lessee or by reason of any disability
of the Lessee. This Agreement shall not be construed as a guaranty or surety
agreement, but shall constitute the separate and independent primary obligation
of BCC to Lessor. 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, release or exoneration of any such guaranty or
security. This Agreement shall continue to be effective or be reinstated, as the
case may be, if, at any time, any payment of the Lease Obligations is rescinded
or must otherwise be returned by the Lessor upon
-3-
<PAGE> 4
the insolvency, bankruptcy or reorganization of the Lessee or otherwise, all as
though such payment had not been made.
7. (a) Without limiting BCC's obligation to provide the
Working Capital Loans, upon the occurrence of any default under any of the Lease
Documents, BCC shall have the right, but not the obligation, to cure such
default within any applicable notice and grace periods (or in the event of no
grace period, within 3 days after receipt by BCC of notice of such default.
Which notice may be given, at Lessor's option, simultaneously with any notice to
Lessee) and, to the extent permitted by law, enter upon the Property, if
necessary, for such purpose and take all such actions as BCC may deem necessary
or appropriate to remedy such default. The Lessor agrees to give written notice
to BCC of any default by Lessee under the Lease or any other Lease Document for
which Lessor becomes aware. The Lessor agrees to accept any remedy performed by
BCC as if the same had been performed by the Lessee.
(b) Lessor acknowledges that BCC has the right to acquire
all of the Equity Interests (as defined in the Shortfall Agreement) should
Lessee fail to timely make all required deposits into the Working Capital
Reserve pursuant to Section 1.01 of the Shortfall Agreement. In the event that
Lessee fails to make such deposits into the Working Capital Reserve and BCC
exercises its rights under Section 1.01 of the Shortfall Agreement by having
BCC, an affiliate of BCC or a designee of BCC purchase all of the Equity
Interests, Lessor shall recognize as Lessee under the Lease and other Lease
Documents such designee as BCC may designate so long as such designee fully
funds the Working Capital Reserve as provide in the Shortfall Agreement and
otherwise executes and delivers to Lessor such documents, instruments,
affidavits and opinions as Lessor may reasonably request. In such event (but
subject to Section 10 of this Agreement), this Agreement and the obligations of
the parties hereunder (including without limitation BCC's obligation to fund
Shortfalls) shall remain in full force and effect.
8. 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 BCC: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: President
WITH COPIES TO: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: General Counsel
and
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<PAGE> 5
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Steven J. Adelkoff, Esq.
IF TO THE LESSOR: AHP OF [INDIANA], INC.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Attention: President and General Counsel
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 BCC or the
Lessee by the Lessor at any time shall not imply that such notice or any further
or similar notice was or is required.
9. This Agreement shall be construed, and the rights and
obligations of the Lessor and BCC shall be determined, in accordance with the
laws of the State of _______________.
10. This Agreement and BCC's obligations hereunder shall
automatically terminate upon the occurrence of both (i) the purchase by BCC or a
wholly-owned subsidiary of BCC (a "BCC Affiliate") of all of the issued and
outstanding equity of the Lessee or substantially all of the assets of Lessee
and (ii) if the outstanding equity of the Lessee or substantially all of the
assets of Lessee are purchased by a BCC Affiliate, BCC's execution and delivery
to Lessor of its written unconditional guaranty of all Lease Obligations, in
form and substance satisfactory to Lessor. Upon receipt by Lessor of (i) a
written confirmation from BCC or the BCC Affiliate that the Lease is binding
upon the Tenant or is binding upon and has been assumed by the purchaser of the
assets of the Lessee and remains in full force and effect and (ii) the guarantee
by BCC of the obligations of the BCC Affiliate as hereinabove provided, Lessor
shall release the Lessee from any obligations which accrue from and after the
effective date of such new lease and the guaranty.
11. The Lessor covenants and agrees with BCC that (subject to
Bankruptcy Laws) the Lessor shall not consent to any assignment of the Lessee's
interest under the Lease (except to BCC or a BCC Affiliate) or any transfer of
substantially all of the Lessee's assets or any transfer of the issued and
outstanding equity of the Lessee without the prior written consent of BCC, which
consent BCC may withhold in its sole and absolute discretion. In addition, in
the event that, in violation of the terms of this Agreement or the Lease, (A)
the Lessee or any Guarantor (as defined in the Lease) attempts to assign its
interest in the Lease (or transfer substantially all of its assets), (B) the
current holders of the issued and outstanding equity of the Lessee attempt to
transfer any such equity or (C) if any of the events described in Section 17.1
(c) or Section 17.1 (d) of the Lease occurs with respect to Lessee or a
Guarantor, each of the Lessor and BCC covenant and agree that, subject to
applicable law, the Lessor shall terminate the Lease (in accordance with the
terms thereof) and Lessor shall enter into a new lease of the Property with BCC
(or any of its wholly-owned subsidiaries, provided, that, BCC executes and
delivers a guaranty of any such lease, in form and
-5-
<PAGE> 6
substance acceptable to the Lessor), in form and substance acceptable to the
Lessor; provided, however, that any such lease shall be substantially similar to
the Lease. In connection with the execution and delivery of any such lease, (X)
the Lessor shall, upon receipt of a new lease with BCC or with a BCC Affiliate
and the guaranty of the obligations of that subsidiary by BCC as hereinabove
provided, release the Lessee from any obligations which accrue from and after
the effective date of such new Lease and guaranty, (Y) BCC and its subsidiary
shall execute and deliver any additional documents that the Lessor may request,
in form and substance similar to the Lease Documents and (Z) BCC shall deliver
to the Lessor such evidence as Lessor shall request, in form and substance
acceptable to the Lessor, that the new lease and all other documents executed
and delivered in connection therewith have been duly authorized, executed and
delivered and are enforceable. BCC agrees to pay all of the costs and expenses
reasonably incurred by the Lessor (including, without limitation, attorneys'
fees and expenses) in connection with the performance of the Lessor's
obligations under this Section 11. Without limiting the foregoing, and to remove
any doubt, should any of the events described in subsections (a), (b) or (c) of
this Section 11 occur, and should the Lessor successfully terminate Lessee's
rights under the Lease, BCC hereby agrees (i) to pay all amounts accrued under
the Lease Obligations through the date of termination and (ii) either to enter
into a direct lease with Lessor or to cause a wholly-owned subsidiary to enter
into such lease with Lessor, with BCC providing a guaranty to Lessor of such
subsidiary's obligations acceptable to Lessor as provided in this Section.
12. (a) Entire Agreement. This Agreement contains the entire
understanding among the parties hereto with respect to its subject matter and
supersedes any prior understandings or agreements between the parties with
respect to such subject matter.
(b) Amendments. This Agreement may be modified or amended
only by a written instrument executed by the Lessor, the Lessee and BCC.
(c) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
(d) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, but all of
which together shall constitute but a single instrument.
(e) Future Cooperation. Each party covenants and agrees
to take such further action and execute such further documents as may be
necessary or appropriate to carry out the intention of this Agreement.
-6-
<PAGE> 7
(f) Successors and Assigns. This Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns.
(g) Pooling of Facilities. BCC and Lessor intend that no
less than five (5) assisted living facilities will be developed pursuant to the
Facility Agreement and five (5) Development Agreements and leased pursuant to
five (5) Leases to be executed and delivered pursuant thereto. Each Facility to
be developed pursuant to the Facility Agreement is referred to herein as a
"Project" and are collectively referred to herein as the "Projects". It is
further intended that, during the start-up period for each Project, an
unaffiliated third party will lease each Project, and that BCC will have an
option to acquire all of the equity interests of each lessee pursuant to each
Option Agreement executed and delivered in accordance with the Facility
Agreement and an option to purchase all of the assets of such lessee pursuant to
each Shortfall Funding Agreement delivered pursuant to the Facility Agreement.
BCC covenants and agrees, with respect to the exercise of the option to acquire
either the equity of such lessees or the assets of such lessees, that (i) upon
any such acquisition, BCC shall pay all amounts previously accrued but unpaid
with respect to the Lease Obligations, (ii) should such acquisitions be effected
with a BCC Affiliate, such that the BCC Affiliate is the lessee under such
leases, BCC shall provide to Lessor a guaranty of all obligations of such lessee
under such lease in form and substance satisfactory to Lessor and (iii) upon the
acquisition of either the equity or the assets of the lessee with respect to
three Projects, BCC or a BCC Affiliate shall be obligated to acquire either the
assets of such lessees holding all remaining Projects or the equity interests of
such lessees holding all remaining Projects within eighteen (18) months after
the closing of the acquisition by BCC or a BCC Affiliate of the third Project.
The covenants contained in this Section may be enforced by Lessor through an
action in specific performance against BCC.
(h) Provisions on the Lease after Acquisition by BCC or a
BCC Affiliate. Upon the acquisition by BCC or a BCC Affiliate of all of the
assets of Lessee or all of the equity interests of Lessee, the Lease shall be
deemed to be modified as follows, without further action of any party: (i)
Lessor's consent to an assignment of the Lease or a sublet of the Facility shall
not be unreasonably withheld, conditioned or delayed so long as the provisions
of Subsections (u), (v), (w), (x), (y) and (z) of Section 23.1 of the Lease have
been met and (ii) the provisions of Section 25.5 of the Lease shall provide that
the options granted in the Lease are personal to BCC or the BCC Affiliate (as
the case may be) which has become the "Tenant" under the Lease. Lessor and BCC
agree to cause the execution of such further documents and instruments as may be
necessary or desirable to effect the provisions of this Section.
(i) Mandatory Project Acquisition. In connection with the
development of the Projects, the third party lessee for each Project is
obligated to contribute to the Collateral Account (as defined in the Deposit
Pledge) sufficient capital to fund pre-opening and start up costs for the
Projects (the "Working Capital Reserve"), all as more fully described in the
Option Agreement (as defined in the Shortfall Agreement). In the event that (i)
the Tenant Parents do not contribute to the Lessee of the each Project an
aggregate amount per Project of $600,000 into the Collateral Account by April 2,
1998, or (ii) the lessee (which must be a wholly-owned subsidiary of a
Guarantor) does not contribute the full amount of Working Capital Reserve into
the Collateral Account at such time as Lessor is prepared to close on the
acquisition of properties for each Project
-7-
<PAGE> 8
(which obligation shall be determined on a Project by Project basis), then BCC
shall be unconditionally obligated to (A) enter into direct leases for all
Projects with Lessor on the terms and conditions described in the Lease or (B)
cause one or more wholly-owned subsidiaries of BCC to enter into leases for all
Projects with Lessor on the terms and conditions described in the Lease (in
which event BCC shall provide to Lessor an unconditional guaranty of all
obligations of such wholly-owned subsidiaries on terms and conditions
satisfactory to Lessor) or (C) cause a third party unaffiliated with BCC to form
a holding company, form wholly-owned subsidiaries to act as lessee for each
Project and fund into each Collateral Account for each Project sufficient funds
as the Working Capital Reserve for each Project, as required pursuant to the
Facility Agreement, in which event, this Agreement shall continue in full force
and effect, and the obligations of BCC hereunder to fund Working Capital Loans
shall not be diminished or altered in any manner, until the events described in
Section 10 above occur.
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
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<PAGE> 9
EXECUTED on the ___ day of _________________, 1998 as a sealed
instrument to be effective as of the date first written above.
WITNESS: BCC:
BALANCED CARE CORPORATION, a
Delaware corporation
/s/ Signature Illegible By: /s/ Signature Illegible
- ------------------------------ ------------------------------
Name: Name:
Title:
WITNESS: LESSOR:
AHP OF INDIANA, INC., an Indiana
corporation
By: /s/ Signature Illegible
- ------------------------------ ------------------------------
Name: Name:
Title:
-9-
<PAGE> 10
Schedule to Exhibit 10.80 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Working Capital Assurance Agreement
<TABLE>
<CAPTION>
Location Lessor Lessee
<S> <C> <C>
Jackson, TN AHP of Tennessee, Inc. Assisted Care Operators of Jackson, LLC
</TABLE>
<PAGE> 1
EXHIBIT 10.81
COMPLETION GUARANTY AND AGREEMENT
THIS COMPLETION GUARANTY AND AGREEMENT ("Agreement") is made as of the
30th day of January 1998 between AHP OF [INDIANA], INC., an Indiana corporation
("Owner") and BALANCED CARE CORPORATION., a Delaware corporation ("Guarantor" )
WHEREAS, _________________________________("General Contractor") has
entered into a Construction Contract dated as of
________________________________(the "Construction Contract") which has been
assigned to the Owner with the consent of the General Contractor pursuant to
which the General Contractor has agreed to construct, for the benefit of the
Owner, a [___]-story building containing approximately [________] gross square
feet of building area and related site improvements (collectively, the
"Facility") on a certain parcel of land containing approximately [_________]
acres owned by the Owner in [Evansville, Indiana] (the "Land"; the Land,
together with all Facility to be placed or erected thereon, being hereinafter
sometimes referred to as the "Premises") in accordance with plans,
specifications, drawings and addenda referred to in the Construction Contract
(the "Plans and Specifications") and approved by the Owner; and
WHEREAS, Owner has agreed to acquire the Land and construct and develop
the Facility thereon (hereinafter sometimes referred to as the "Project") on the
terms and conditions set forth in that certain Facility Agreement (the "Facility
Agreement") entered into between Guarantor and American Health Properties, Inc.,
a Delaware corporation ("American Health"), the sole shareholder of Owner; and
WHEREAS, BCC Development and Management Co., a Delaware corporation
("Developer") has agreed to construct the Project and cause the Facility to be
opened pursuant to that certain Development Agreement of even date herewith (the
"Development Agreement") entered into between Developer and Owner (all
capitalized terms used in this Agreement shall be defined as in the Development
Agreement unless specified herein to the contrary); and
WHEREAS, as a material inducement to American Health to enter into the
Facility Agreement and to cause Owner to acquire the Land and to cause the
Project to be developed and constructed thereon, Guarantor has agreed to
guarantee the lien-free completion of the Facility, and the payment of any
amounts incurred by the Owner for the development, construction and completion
of the Project which exceed an agreed amount, all as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and adequacy
of which are acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. GUARANTY.
1.1. Guaranty. For valuable consideration, Guarantor hereby (a)
irrevocably and unconditionally guarantees the full, faithful and punctual
performance, fulfillment and observance of all of the obligations and
liabilities of Developer under the Development Agreement and the
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<PAGE> 2
payment and performance of all Obligations; (b) waives notice of and consents
and agrees that, without notice to or by Guarantor and without affecting or
impairing in any way the obligations of Guarantor hereunder, Owner may do any
one or more of the following: (i) accelerate the maturity of, accept partial
payments of, compromise or settle, renew, or extend the time for the payment,
discharge, or performance of any or all Obligations due or owed to Owner from
Developer; (ii) grant any other indulgence to Developer or any other person in
respect of any or all of the Obligations and any other matter; (iii) release,
substitute or add any one or more endorsers or guarantors of all or any part of
the Obligations, including, without limitation, one or more parties to this
instrument; (iv) amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Obligations; (v) apply any sums received
from Developer or any other guarantor, or from the disposition of any collateral
or security, to any indebtedness or other obligation whatsoever owing from such
person or secured by such collateral or security, in any order and regardless of
whether such indebtedness or obligation is part of the Obligations, is secured,
or is due and payable; and (vi) apply any sums received from Guarantor or from
the disposition of any collateral or security securing the obligations of
Guarantor, to any of the Obligations in any order, regardless of whether or not
such Obligations is secured or is due and payable, (c) consents to any and all
amendments, extensions and renewals of the Development Agreement, any and all
assignments, subleases and other actions that may be permitted thereunder by
Guarantor or the Owner, any and all other amendments, extensions and renewals,
any and all advances, extensions, settlement, compromises, favors and
indulgences, any and all receipts, substitutions, additions and releases of
persons primarily or secondarily liable, and any and all acceptances by the
Owner of negotiable instruments, commercial paper and other property, and agrees
that none of the foregoing, should there be any, shall discharge or affect in
any way the liability of Guarantor hereunder; (d) agrees that all rights and
remedies of the Owner under the Development Agreement and hereunder shall
survive any discharge, moratorium or other relief granted any person primarily
or secondarily liable in any proceeding under federal or state law relating to
bankruptcy, insolvency or the relief or rehabilitation of debtors, and any
consent by the Owner to, or participation by the Owner in the proceeds of, any
assignment, trust or mortgage for the benefit of creditors, or any composition
or arrangement of debts, may be made without Guarantor being discharged or
affected in any way thereby; (e) waives any right to require marshaling or
exhaustion of any right or remedy against any person, collateral or other
property and (f) waives (i) presentment for payment, demand, protest, and notice
thereof as to any instrument, and all other notices and demands to which
Guarantor might be entitled, including without limitation notice of all of the
following: the acceptance hereof; the creation, existence, or acquisition of any
Obligations; the amount of the Obligations from time to time outstanding; any
adverse change in Developer's financial position; any other fact which might
increase Guarantor's risk; any default, partial payment or non-payment of all or
any part of the Obligations; and any and all agreements and arrangements between
Owner and Developer and any changes, modifications, or extensions thereof; (ii)
the right to jury trial in any action in which Owner is a party; (iii) any right
to require Owner to institute suit against, or to exhaust its rights and
remedies against, Developer or any other person, or to proceed against any
property, real or personal, tangible or intangible, which secures all or any
part of the Obligations or this Guaranty, or to exercise any other right or
power, or pursue any other remedy Owner may have; (iv) any defense arising by
reason of any disability or other defense of Developer with respect to all or
any part of the Obligations and (v) to the maximum extent permitted by
applicable Laws, any other defense which Guarantor may have with respect to any
claim of Owner under this Guarantee.
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<PAGE> 3
1.2. Effect of Bankruptcy. Guarantor agrees that its liability
hereunder shall not be affected in any way by any election made by Owner in any
proceeding instituted by or against Developer or any Guarantor under Chapter 7
or Chapter 11 of Title 11 of the United States Code, 11 U.S.C. ss. 101 et seq.,
(the "Bankruptcy Code") including but not limited to any election or other item
in connection with the application of ss. 1111(b)(2) of the Bankruptcy Code; or
by any borrowing or grant of a secured interest by Developer, as
debtor-in-possession, under ss. 364 of the Bankruptcy Code; or by the
disallowance, under ss. 502 of the Bankruptcy Code, of all or any portion of
Owner's claim against Developer or any other guarantor for repayment of any part
of the Obligations. In any bankruptcy or other proceeding in which the filing of
claims is required by Law, Guarantor shall file all claims which it may have
against Developer relating to any Obligation or other indebtedness or obligation
of Developer to Guarantor and shall assign to Owner all rights of Guarantor
thereunder or otherwise with respect thereto. If Guarantor fails to file such
claim, Owner as attorney-in-fact for Guarantor, is hereby authorized to do so
without notice to Guarantor and in the name of Guarantor, or, in Owner's sole
discretion, to assign the claims to a nominee and to cause proof of claim to be
filed in the name of Owner's nominee. The foregoing power of attorney is coupled
with an interest and cannot be revoked or otherwise terminated. Owner or its
nominee shall have the right in its reasonable discretion, to accept or reject
any plan proposed in 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 Owner the amount payable on such claim, and to the full extent
necessary for that purpose, Guarantor hereby assigns to Owner all of Guarantor's
rights to any such payments or distributions; provided, however, Guarantor's
obligations under this Section 1.2 shall not be satisfied except to the extent
that Owner receives cash by reason of any such payment or distribution.
1.3. "Obligations". The term "Obligations" shall mean all
obligations owed to Owner by Developer under the Development Agreement or
otherwise and any other expenses of, for or incidental to enforcement or
collection thereof (including but not limited to legal fees and costs incurred
in connection with any action, motion or other proceeding which is part of or
relates to any state or federal insolvency or debtor relief case or proceeding
wherein Developer or Guarantor is the debtor). Until all of the Obligations has
been paid, performed and discharged in full, nothing shall discharge or satisfy
the liability of Guarantor hereunder except the full performance and payment of
the Obligations.
1.4. Guarantee of Payment. This Guarantee is not a guarantee of
collection but rather this Guaranty is an irrevocable, absolute and
unconditional guarantee of payment and performance of each and every one of the
Obligations. Guarantor hereby irrevocably and unconditionally covenants and
agrees that Guarantor is liable for the Obligations as a primary obligor. Any
Obligation may be enforced by Owner against Guarantor separately without
enforcing compliance with any other Obligation and without waiving the right
subsequently to enforce any other Obligation guaranteed hereunder.
1.5. Warranty of Guarantor. Guarantor hereby represents and
warrants to Owner that (a) this Guarantee is executed at Developer's request,
(b) Guarantor has reviewed and has been advised by legal counsel regarding all
of the terms and provisions of the Transaction Documents including but not
limited to the Development Agreement and the Plans and Specifications referred
to therein,
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<PAGE> 4
(c) Owner has made no representation, promise, covenant or statement to
Guarantor with regard to the site, Developer, Plans and Specifications or any
other aspect of the Project or Transaction Documents, (d) Guarantor has
established adequate means of obtaining from Developer and from other sources,
on a continuing basis, financial and other information pertaining to Developer's
financial condition, the Property, the progress of construction of the Project
and the status of Developer's performance under the Transaction Documents and
(e) Guarantor has not and will not sell, lease, assign, encumber, hypothecate or
otherwise transfer or convey any material portion of Guarantor's assets.
Guarantor hereby agrees that Owner shall have no duty to disclose or report to
Guarantor any information now or hereafter known to Owner relating to the
business, operation, condition or assets of Developer. Owner shall have no duty
to inquire into the authority or powers of Developer or any officer, employee,
contractor or other agent of Developer.
2. GUARANTOR'S REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants to Owner and American Health that:
2.1. Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
2.2. Guarantor has the requisite power and authority to own its
properties and to carry on business as now being conducted and as contemplated
under this Agreement.
2.3. Guarantor has the power to execute, deliver and perform this
Agreement, and the execution, delivery and performance by Guarantor of this
Agreement have been duly authorized by all requisite action and will not violate
any provision of law, any order of any court or other agency of government or
any indenture, agreement or other instrument to which Guarantor is a party, or
by which it is bound, or be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon the property or
assets of Guarantor.
2.4. There is no action, suit or proceeding at law or in equity
(including, without limitation, actions, suits or proceedings by any civic
group) or by or before any governmental instrumentality or other agency now
pending, or, to the "Best Knowledge" (as defined in the Facility Agreement) of
Guarantor, threatened against or affecting Guarantor or the Project, which, if
adversely determined, would have a material adverse effect on the business,
operations, properties, assets or condition, (financial or otherwise) of
Guarantor or the Project.
2.5. Guarantor owns one hundred percent (100%) of Developer and
owns one hundred percent (100%) of the person which will manage the Project upon
Final Completion. Guarantor will, therefore and for other reasons, benefit
directly from the development of the Project. Guarantor is fully aware of and
shall be solely responsible for keeping itself informed regarding the financial
condition of Developer from time to time and Guarantor waives any requirement at
law, in equity or otherwise which would obligate Owner to keep Guarantor
apprised of the financial condition of Developer.
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<PAGE> 5
2.6. Developer has filed the Plans and Specifications with all
appropriate political subdivisions, agencies or instrumentalities exercising
jurisdiction over the Project or any aspect thereof and has obtained therefrom
all required building permits.
2.7. Completion of the Facility in accordance with the Plans and
Specifications will result in a complete [___]-unit assisted living facility
entitled to be licensed and fully licensed as such by the appropriate
authorities within the State, County and municipality in which the facility is
located and certified, to the extent required from time to time, by the Medicare
program and will not violate any building, zoning, subdivision, land-use,
health, sanitation or environmental protection ordinance, regulation or law.
2.8. To Guarantor's Best Knowledge, no Hazardous Substances (as
hereinafter defined) are located on the Land or have been released into the
environment or deposited, discharged, placed or disposed of at, on, under or
near the Land. No portion of the Land is being used or, to Guarantor's Best
Knowledge, has been used at any previous time for the disposal storage,
treatment, processing or other handling of Hazardous Substances nor is the Land
affected by any Hazardous Substances (as defined in the Development Agreement).
2.9. Except as disclosed in Schedule I attached hereto, to
Guarantor's Best Knowledge, no Hazardous Substances are located in the vicinity
of the Land, no property adjoining the Land is being used or has ever been used
at any previous time for the disposal, storage, treatment, processing or other
handling of Hazardous Substances, nor has any other property adjoining the Land
been contaminated or otherwise affected by Hazardous Substances.
2.10. To Guarantor's Best Knowledge, no asbestos or asbestos
containing materials have been installed, used, incorporated into, or disposed
of on the Land nor will any such materials be installed, used, incorporated into
or disposed of within or as a part of the Project.
2.11. To Guarantor's Best Knowledge, no underground storage tanks
are located on the Land or were located on the Land and subsequently removed or
filled.
2.12. To Guarantor's Best Knowledge, no investigation,
administrative order or notice, consent order and agreement, litigation or
settlement with respect to Hazardous Substances is proposed, threatened,
anticipated or in existence with respect to the Land. The Land and its existing
and, to Guarantor's Best Knowledge, prior uses comply and at all time have
complied with any applicable governmental requirements relating to environmental
matters or Hazardous Substances. There is no condition on the Land which is in
violation of any applicable governmental requirements relating to Hazardous
Substances, and Guarantor has not received any communication from or on behalf
of any governmental authority that any such condition exists. The Land is not
currently on and, to Guarantor's Best Knowledge after diligent investigation and
inquiry, has never been on any federal or state "Superfund" or "Superlien" list,
nor is Guarantor aware that the Land is anticipated or threatened to be placed
on such 1ist
2.13. Subject only to payment of fees to be paid as contemplated by
the Approved Budget (as defined in the Development Agreement), all utility and
municipal services required for the construction, occupancy and operation of the
Facility, including, but not limited to, water supply,
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<PAGE> 6
storm and sanitary sewage disposal systems, gas, electric and telephone
facilities, are available for use and tap-on at the boundaries of the Land, and
written permission has been or will be obtained from the applicable utility
companies or municipalities to connect the Facility into each such service.
2.14. The storm and sanitary sewage disposal system, water system
and all mechanical systems of the Premises comply (or when constructed will
comply) with all applicable environmental, pollution control and ecological
laws, ordinances, rules and regulations. There are no environmental protection
agency, pollution control board or other governmental authority approvals
required in connection with construction, tap-on and operation of such systems.
3. COMPLETION GUARANTY.
If for any reason or under any contingency any Contractor shall abandon
the construction of the Facility, or, fail to Finally Complete the Project
within the maximum construction time and in accordance with the terms of the
Construction Contract and pay all costs therefor including without limitation
all amounts owed to subcontractors, laborers and materialmen (provided that
Owner makes payment to the Contractor as provided in the Development Agreement),
then in any such event, Guarantor shall assume all responsibility for Final
Completion of the Facility in accordance with the terms of the Construction
Contract and the Development Agreement, and, at Guarantor's sole cost and
expense, cause the Project to be Finally Completed in accordance with the
Construction Contract and Development Agreement, including without limitation,
the Plans and Specifications, free and clear of any liens for labor or materials
entered or filed against the Land or the Facility in connection with such work.
Upon the occurrence of a default by the General Contractor under the
Construction Contract, Guarantor agrees, without the need of any demand by the
Owner, to assume direct responsibility and control over construction and the
Final Completion of the Facility and payment of all subcontractors and to
proceed diligently and with dispatch to cure the default (if curable by
Guarantor) and Finally Complete the Facility in accordance with the terms and
conditions of the Construction Contract and the Development Agreement. Guarantor
hereby agrees that any and all rights of the undersigned in and to the Premises,
whether by lien or otherwise, which arise by virtue of the performance of any of
Guarantor's obligations contained herein are and at all times shall be and
remain subject and subordinate to the terms and conditions of the Development
Agreement, the Transaction Documents and all other documents executed in
connection therewith, and further agrees to execute, acknowledge and record such
documents in [Vanderburgh] County, [Indiana] as Owner may deem necessary in
order to implement and evidence such subordination.
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<PAGE> 7
4. GUARANTY OF PROJECT COSTS.
4.1. Guarantor hereby unconditionally guarantees to pay from its
own funds the amount, if any, by which the "Total Project Costs" incurred by the
Owner (including costs incurred by Developer or Guarantor on behalf of the
Owner) for the development, construction and Final Completion of the Project in
accordance with the provisions of the Development Agreement exceed the sum of
$_______________ (the "Maximum Project Amount") for any reason, even if beyond
the control of Developer or Guarantor (including by way of example and not
limitation construction delays due to acts of God, shortages of materials or
obtaining necessary permits or approvals or other Unavoidable Delays). In the
event Total Project Costs are in excess of the Maximum Project Amount, then
Guarantor shall pay the amount of such excess without demand by the Owner. To
the extent Construction Advances are required to be paid by Owner pursuant to
the Development Agreement but are not advanced or otherwise available for use in
developing, constructing and completing the Project solely because of a default
by the Owner, Guarantor shall not be responsible to advance such amount.
4.2. The costs which comprise Total Project Costs consist of the
following costs and expenses incurred by or on behalf of the Owner in connection
with the development, construction and Final Completion of the Project,
regardless of whether said costs are paid directly by the Owner or by Guarantor
on behalf of the Owner:
(a) All costs and expenses incurred for acquisition of the Land,
including title insurance charges and premiums, transfer taxes (if any), survey
expenses and legal expenses;
(b) All payments to the General Contractor, subcontractors,
materialmen, suppliers, laborers and workmen hired by or on behalf of the Owner
to construct the Facility;
(c) Insurance costs during the "Construction Period", which for
purposes of this Agreement shall mean the period which commenced at the start of
construction of the Facility and which will end on the "Termination Date", as
that term is defined in Section 6.1 hereof;
(d) Fees of architects, engineers, consultants (including but not
limited to fees of Guarantor under that certain Development Agreement of even
date) and appraisers engaged with respect to the construction of the Project;
fees of attorneys of Guarantor and the Owner incurred in connection with
negotiating the lease with Assisted Care Operators of [ ], LLC, a Delaware
limited liability company (the "Tenant"), the financing commitments and loan
documents with the Construction Lender and the contracts with the Genera1
contractor. architects, engineers and other consultants;
(e) Real estate taxes during the Construction Period and all other
taxes levied, assessed or imposed on the Project during the Construction Period;
(f) All water and sewer and other utility expenses during the
Construction Period;
(g) All costs and expenses which are the obligation of the
Developer or Guarantor under any construction contract (including but not
limited to the Construction Contract) or any other
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<PAGE> 8
contract or agreement entered into by Developer or Guarantor on behalf of the
Owner or by the Owner with the consent of Guarantor for the construction and
Final Completion of the Projects;
(h) All costs and expenses incurred in obtaining all licenses,
permits and approvals required for the operation of the Premises as a duly
licensed assisted living facility;
(i) All costs and expenses incurred by the Owner in connection
with the enforcement of its rights under the Development Agreement and the
Transaction Documents (as defined in the Development Agreement) arising out of
the failure by the Developer to perform fully its obligations under the
Development Agreement or the failure of Guarantor to perform its obligations
under this Agreement, including, without limitation, the reasonable fees and
expenses of its attorneys and travel, lodging and other out-of-pocket expenses
of its officers and other representatives; provided, however, that Total Project
Costs shall not include general operating expenses of the Owner;
(j) all fees payable to Developer pursuant to the Development
Agreement; and
(k) all other "Costs of Construction" (as defined in the
Development Agreement).
5. DEFAULTS AND REMEDIES; INDEMNIFICATION.
5.1. The occurrence of one or more of the following shall, at the
option of the Owner, constitute an Event of Default by Guarantor hereunder:
(a) Developer shall fail to observe and perform any material term,
covenant and condition on its part to be performed under the Development
Agreement when such observance or performance is due; provided, however, that if
the Transaction Documents provide a grace or cure period within which to cure
such default, Guarantor shall have the right to cure such default within the
time provided in the Transaction Documents;
(b) Any Event of Default by or on the part of Developer, Guarantor
or the affiliates of either or by Tenant or its affiliates shall have occurred
and continue under any one or more of the Transaction Documents;
(c) Developer shall have failed to make any payment or perform any
other material obligation under any contract for the Project on the date such
payment or performance is due; provided, however, if such contract or agreement
provides a grace or cure period within which to cure the default, Guarantor
shall have the right to cure the default within the time period provided in the
applicable contract or agreement;
(d) Guarantor shall have failed to observe and perform any one or
more of the terms, covenants and agreements on its part to be observed and
performed under this Agreement other than matters covered by the other
subsections of this Section 5.1, and such failure shall have continued for a
period of thirty (30) days after notice specifying such default and demanding
that the same be cured shall have been given to Guarantor (provided that such
thirty (30) day cure period shall be extended for the period of time that
Guarantor is prevented from curing a default by reason of matters beyond the
reasonable control of Guarantor so long as the commences such
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<PAGE> 9
curing during the said thirty (30) day period, Guarantor diligently thereafter
pursues such cure to completion and such failure is cured in all events within
120 days of the date of notice specifying the default);
(e) A court of competent jurisdiction shall enter a decree or
order for relief in respect to Guarantor in any involuntary case under the
Federal Bankruptcy Code or any other applicable bankruptcy, insolvency or
similar law now or hereafter in effect, or appointing a receiver, liquidator,
trustee or similar official of Guarantor or for any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and such
decree or order shall remain and stay in effect for a period of one hundred
twenty (120) consecutive days; or
(f) Guarantor shall commence a voluntary case under the Federal
Bankruptcy Code or any applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case under such law, or shall consent to the appointment or taking
possession by a receiver, liquidator, trustee or similar official of Guarantor
or for any substantial part of its property.
Guarantor shall give Owner written notice of any act, omission or condition
constituting a default or which would, with the passage of time or giving of
notice (or both), constitute a default under this Agreement within five (5) days
of discovery.
5.2. Upon the occurrence of any Event of Default (but not prior
thereto), the Owner, in addition to any other remedy available at law or in
equity, shall be entitled to:
(a) After not less than two (2) business days notice to Guarantor
of its intention to do so (except in the case of an emergency, in which case no
prior notice shall be required), make any payments or perform any obligations
due under the Development Agreement which the Developer is required to pay or
perform under the terms of the Development Agreement or Guarantor is required to
pay or perform pursuant to the terms of this Agreement for the account of the
Owner, and any sums spent by the Owner from funds or sources which were not
otherwise to have been made available to Developer or Guarantor for such
purposes pursuant to the terms of this Agreement or the Development Agreement
shall be repaid by Guarantor upon demand, together with interest thereon at the
lesser of the Default Rate or the maximum rate of interest permitted under
applicable law from the date of demand for repayment until the date repaid;
(b) Offset any monies due to the Owner from Guarantor pursuant to
this Agreement or from the Developer pursuant to the Development Agreement
against any monies due from the Owner to Guarantor, together with interest
thereon at the Default Rate; and/or
(c) Upon not less than two (2) business days' prior notice to
Guarantor of its intention to do so (except in the case of an emergency, in
which case no prior notice shall be required), enter upon and take possession of
the Facility (whether in the course of construction or completed), and all
materials, supplies, tools, equipment and construction facilities and appliances
located thereon, and proceed either in the name of the Owner or in the name of
Guarantor, as the Owner shall elect, to Finally Complete the Project at the cost
and expense of Guarantor (but giving to Guarantor credit for funds which would
otherwise have been made available to Guarantor for such purposes
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<PAGE> 10
pursuant to the terms of this Agreement). If the Owner elects to complete or
cause the Project to be so completed, it may do so according to the terms of the
Construction Contract (and the Plans and Specifications) and all other
authorized contracts with such changes, alterations or modifications as may be
necessary to complete the Project, and the Owner may enforce or cancel all
contracts entered into, as aforesaid or make other contracts which in the
Owner's reasonable opinion are required to complete construction of the Project;
and Guarantor shall be liable under this Agreement to pay to the Owner upon
demand any amount or amounts incurred or extended by the Owner or its
representatives for such performance over and above the Maximum Project Amount;
any amount so payable to the Owner pursuant to this sentence shall bear interest
at the lesser of the Default Rate or the maximum rate of interest permitted
under applicable law from the date of demand by the Owner until payment in full;
and/or
(d) The Owner may exercise all of the rights and remedies provided
for in this Agreement or any other rights which may be available to the Owner by
law or in equity, and all such rights and remedies are cumulative and concurrent
and may be pursued singly, successively or together at the Owner's sole
discretion and may be exercised as often as the occasion therefor shall occur.
Any failure by the Owner to insist on the strict performance by Guarantor of any
of the terms hereof shall not be deemed to be a waiver of any of the terms
hereof and the Owner, notwithstanding any such failure, shall have the right
thereafter to insist upon strict performance by Guarantor of any and all of the
terms of this Agreement.
5.3. The representations, warranties and agreements of Guarantor
herein are of a special, unique and extraordinary character, any violation of
which would cause the Owner irreparable harm which could not be reasonably or
adequately compensated by damages in an action at law, and this Agreement shall,
therefore, be specifically enforceable by injunction or other appropriate
equitable proceeding.
5.4. Without limitation on the provisions of Section 1.1 above,
Guarantor hereby waives notice of acceptance of this Agreement and any and all
notices and demands of every kind which may be required to be given by any
statute or rule of law, and Guarantor agrees that its liability hereunder shall
be in no way affected, diminished or released by (a) any extension of time or
forbearance which may be granted to the General Contractor, (b) any waiver by
the Owner under the Construction Contract, (c) the acceptance by the Owner of
additional security, or (d) any bankruptcy or other insolvency proceeding
affecting the General Contractor, it being the intent that the obligations of
Guarantor hereunder shall be absolute, independent and unconditional under any
and all circumstances, including but not limited to any bankruptcy or other
insolvency proceeding involving Guarantor.
5.5. The enforcement of the rights and remedies of the Owner under
this Agreement or under applicable law shall not constitute an election of
remedies by the Owner. The Owner shall not be obligated to marshal remedies or
assets or to proceed against the General Contractor or any other party as a
condition to the enforcement of the liabilities of Guarantor hereunder.
Guarantor shall pay all reasonable attorneys, fees and court costs incurred by
the Owner in enforcing its rights under this Agreement.
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<PAGE> 11
5.6. Guarantor agrees to indemnify and save the Owner harmless from
and against any and all loss, cost or expense (including, without limitation,
reasonable attorneys, fees and court expenses) arising out of the breach or
violation of any representation, warranty or covenant of Guarantor under this
Agreement.
6. TERMINATION.
6.1. The obligations of Guarantor under this Agreement shall
terminate on the date (the "Termination Date") when all of the following have
occurred: (i) the Project has been Finally Completed, including without
limitation the issuance of a certificate of occupancy for the Premises; (ii) all
licenses for occupancy of the Premises as a duly licensed assisted living
facility are obtained (including licenses which must be obtained by the operator
of such a facility); and (iii) the Tenant accepts possession of the Facility
under the Lease and commences payment of rent thereunder.
6.2. Upon the expiration or earlier termination of this Agreement,
Guarantor shall forthwith surrender and deliver and cause the Developer to
surrender and deliver to the Owner any space in the Premises occupied by
Guarantor and shall make delivery to the Owner or to the Owner's designee any
funds of the Owner held by Guarantor or the Developer with respect to the
Project, and all records, plans, specifications, permits and other governmental
approvals, purchase agreements, contracts, receipts for deposits, unpaid bills
and all other records, papers and documents in the possession of Guarantor
relating to the Project and the development and construction thereof. In
addition, Guarantor shall furnish such information and take such action as the
Owner shall reasonably require (including, if applicable, cooperating with the
person or entity designated by the Owner as the new Guarantor of the Project
after the occurrence of an Event of Default hereunder) to effectuate an orderly
and systematic termination of Guarantor's duties and activities under this
Agreement and of the Developer's activities under the Development Agreement.
7. MISCELLANEOUS
7.1. This Agreement embodies the entire agreement and understanding
between the parties relating to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter, and it is
agreed that there are no terms, understandings, representations or warranties,
expressed or implied, other than those set forth herein.
7.2. This Agreement shall be binding upon the parties hereto and
their respective successors and permitted assigns. This Agreement may not be
assigned by either of the parties hereto without the written consent of the
other party, except that the rights of the Owner hereunder may be collaterally
assigned to American Health as security for the performance of Guarantor under
the Facility Agreement.
7.3. The descriptive headings of the articles and sections of this
Agreement are inserted for convenience only, and are not intended to and shall
not be construed to limit, enlarge or affect the scope or intent of this
Agreement or the meaning of any provision hereof.
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<PAGE> 12
7.4. All notices, consents, waivers, directions, requests or other
instruments or communications provided for under this Agreement shall be in
writing, signed by the party giving the same or such party's attorney, and shall
be deemed properly given if sent by reputable overnight service, by telegram or
by registered or certified United States mail, return receipt requested, postage
prepaid, and addressed as follows:
If to Guarantor: Balanced Care Corporation
5021 Loouise Drive, Suite 200
Mechanicsburg, Pennsylvania 17055
With a Copy to: Kirkpatrick and Laockhart, LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
If to the Owner: AHP of [ ], Inc.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Attention: President and General Counsel
or to such other address as a party may from time to time designate in writing
in the manner set forth above.
7.5. This Agreement may not be changed or modified except by an
agreement in writing executed by each of the parties hereto.
7.6. Unless otherwise specifically provided herein, all rights,
privileges and remedies afforded to the parties by this Agreement shall be
cumulative and not exclusive, and the exercise of any one of such remedies shall
not be deemed to be a waiver of any other rights, remedies or privileges
provided for herein or available at law or in equity or under any other document
executed in connection with this Agreement.
7.7. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.8. THIS AGREEMENT SHALL BE GOVERNED BY AND IN ACCORDANCE WITH THE
LAWS OF THE STATE OF [INDIANA]. If any provision of this Agreement is declared
or found by a court of competent jurisdiction to be unenforceable or null and
void, such provision shall be deemed stricken from this Agreement, and the
remaining provisions hereof shall continue in full force and effect.
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<PAGE> 13
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on this 1st day of February 1998, to be effective as of the day
and year first above written.
AHP OF [INDIANA], INC.,
an Indiana corporation
By: /s/ Signature Illegible
------------------------------
Name:
Title:
Its Authorized Representative
BALANCED CARE CORPORATION,
a Delaware corporation
By: /s/ Signature Illegible
------------------------------
Name:
Title:
Its Authorized Representative
<PAGE> 15
Schedule to Exhibit 10.81 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Completion Guaranty
<TABLE>
<CAPTION>
Location Owner
<S> <C>
Jackson, TN AHP of Tennessee, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.82
BALANCED CARE CORPORATION
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
February 6, 1998
to Be Effective as of January 30, 1998
VIA FAX 303-796-9708
ORIGINAL VIA FEDERAL EXPRESS
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
6400 South Fiddler's Green Circle, Suite 1800
Englewood, Colorado 80111
Re: Transaction Documents relating to Property located in Madison County,
City of Jackson, Tennessee (the "TENNESSEE PROPERTY") and Transaction
Documents Relating to Property located in Madison County, City of
Anderson Indiana (the "INDIANA PROPERTY")
---------------------------------------------------------------------
Gentlemen and Ladies:
This letter constitutes the binding agreement ("AGREEMENT") and irrevocable
covenant and commitment of Balanced Care Corporation, a Delaware corporation
("BCC") as to the matters set forth below. In that regard, reference is made to
the following Agreements:
1. that certain Facility Agreement dated as of January 30, 1998 (the
"FACILITY AGREEMENT") and entered into by and between American Health
Properties, Inc., a Delaware corporation ("AMERICAN HEALTH") and BCC;
and
2. those certain "TRANSACTION DOCUMENTS" (as such term is defined in the
Facility Agreement) executed by any one or more of AHP of Indiana,
Inc., an Indiana corporation ("AHP INDIANA"), BCC, BCC Development and
Management Co., a Delaware corporation ("DEVELOPER"), Balanced Care at
Anderson, Inc., a Delaware corporation ("ANDERSON MANAGER"), Assisted
Care Operators, LLC, a Delaware limited liability company and Oakhaven
Senior Living, Inc., a California corporation (collectively, "TENANT
PARENT") and Assisted Care Operators of Anderson, LLC ("ANDERSON
TENANT") with respect to the purchase, development,
<PAGE> 2
BALANCED CARE CORPORATION
- -------------------------
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
February 6, 1998
to be effective as of January 30, 1998
Page 2
leasing and operation of the Indiana Property (which Transaction
Documents are referred to herein collectively as the "ANDERSON
TRANSACTION Documents"); and
3. those certain Transaction Documents executed by any one or more of AHP
of Tennessee, Inc., a Tennessee corporation ("AHP TENNESSEE"), BCC, BCC
Development and Management Co., a Delaware corporation ("DEVELOPER"),
Balanced Care at Jackson, Inc., a Delaware corporation ("JACKSON
MANAGER"), Assisted Care Operators, LLC, a Delaware limited liability
company and Tenant Parent and Assisted Care Operators of Jackson, LLC
("JACKSON TENANT") with respect to the purchase, development, leasing
and operation of the Tennessee Property (which Transaction Documents
are referred to herein collectively as the "JACKSON TRANSACTION
DOCUMENTS") (the Indiana Property and the Tennessee Property being
referred to herein collectively as the "PROPERTIES" and the Anderson
Transaction Documents and the Jackson Transaction Documents being
referred to herein collectively, together with the Facility Agreement
as the "TRANSACTION DOCUMENTS").; and
BCC acknowledges and irrevocably covenants and agrees that:
(a) those certain conditions to the purchase and development by
AHP Indiana of the Anderson Property and to the purchase by
AHP Tennessee of the Tennessee Property as set forth in the
Transaction Documents, more particularly set forth on Exhibit
"A" to this Agreement attached hereto and incorporated herein
and made a part hereof by this reference as if set forth
herein at length (collectively, the "CONDITIONS"), have not
been fulfilled to the satisfaction of AHP as required under
the Transaction Documents; and
(b) AHP Indiana has agreed to acquire the Indiana Property
notwithstanding the failure of such Conditions based upon and
with justified reliance on the express understandings,
covenants and agreements of BCC as set forth in this
Agreement; and
(c) AHP Tennessee has agreed to acquire the Tennessee Property
notwithstanding the failure of such Conditions based upon and
with justified reliance on the express understandings,
covenants and agreements of BCC as set forth in this
Agreement; and
(d) BCC intends to and shall satisfy in full, and to the complete
satisfaction of AHP Indiana, AHP Tennessee and American Health
(such entities being
<PAGE> 3
BALANCED CARE CORPORATION
- -------------------------
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
February 6, 1998
to be effective as of January 30, 1998
Page 3
collectively referred to herein as "AHP"), all Conditions no later than
Monday, March 9, 1998
(e) If the Conditions have not been satisfied to the complete and
full satisfaction of AHP by Monday March 9, 1998, AHP may at
any time within 30 days thereafter terminate BCC's rights
under each of the Transaction Documents upon notice delivered
to BCC during that 30-day period and, upon such termination,
may require BCC to purchase both or either of the Properties
from AHP for a purchase price equal to the total amounts
expended with respect to (i) the cost of the acquisition of
the Properties plus all Costs of the Work (inclusive of all
Hard Costs and Soft Costs advanced by AHP under the
Development Agreement including but not limited to the amount
of any Developer Fees), (ii) all transaction expenses and
other costs advanced by AHP with respect to the development
and construction of each Project and the Facility constructed
upon any either of the Properties (whether or not such Project
or Facility is in the course of construction and without
obligation of AHP to fund any such costs of Development until
the Conditions have been satisfied as provided in this
Agreement) and (iii) all costs and expenses incurred by AHP in
the negotiation and preparation of the Transaction Documents.
(f) BCC shall indemnify, defend (with counsel acceptable to AHP)
and hold AHP harmless from and against any and all losses,
claims, liabilities, costs, and expenses (including attorneys'
fees and costs) of any nature whatsoever which may be alleged,
claimed or arise with respect to (i) the failure of BCC or any
other Person to satisfy any of the Conditions or (ii) any
breach by BCC of its obligations under this Agreement.
The obligations of BCC under this Agreement may be enforced by specific
performance in addition to any and all remedies which may otherwise by available
to AHP at law, in equity or otherwise, with each such available remedy being
cumulative with one another.
This Agreement shall take effect immediately upon the purchase of either or both
the Tennessee Property and the Indiana Property, and shall terminate upon
delivery by AHP of the notice referred to in the immediately following sentence.
Upon the satisfaction of all the Conditions to AHP's complete satisfaction and
in its sole and absolute discretion, AHP shall execute and deliver to BCC a
notice stating that all Conditions have been satisfied (or, to the extent
applicable, waived by AHP) and upon BCC's receipt of that notice, the
obligations of BCC provided herein shall have terminated.
<PAGE> 4
BALANCED CARE CORPORATION
- -------------------------
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
February 6, 1998
to be effective as of January 30, 1998
Page 4
This Agreement shall not in any manner impair, diminish, amend or modify the
obligations or covenants of BCC, Developer, each Manager, Tenant, or Tenant
Parent under any of the Transaction Documents nor shall the acquisition of the
Properties by AHP be construed in any manner as a waiver by AHP of such
obligations nor of the conditions set forth in the Transaction Documents for the
benefit of AHP.
If you are in agreement with the foregoing, please show your asset by executing
this letter in the space provided below.
Sincerely,
BALANCED CARE CORPORATION
By: /s/ Brian L. Barth
---------------------------------------
Brian L. Barth, Vice President
Its authorized representative
THE UNDERSIGNED ACKNOWLEDGE AND AGREE TO
THE CONTENT OF THE FOREGOING AGREEMENT AND
AGREES TO ACQUIRE THE PROPERTIES REFERRED TO
THEREIN IN EXPRESS RELIANCE ON THE PROVISIONS THEREOF
AMERICAN HEALTH PROPERTIES, INC
By: /s/ Steven A. Roseman
---------------------------------------
Steven A. Roseman, Senior Vice President
AHP OF TENNESSEE, INC.
By: /s/ Steven A. Roseman
---------------------------------------
Steven A. Roseman, Vice President
AHP OF INDIANA. INC.
By: /s/ Steven A. Roseman
---------------------------------------
Steven A. Roseman, Vice President
<PAGE> 5
BALANCED CARE CORPORATION
- -------------------------
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
February 6, 1998
to be effective as of January 30, 1998
Page 5
EXHIBIT A
CONDITIONS
1. Counsel for AHP shall have received original counterparts of legal
opinions from the following counsel, as contemplated in the Transaction
Documents, each of which shall be in form and substance satisfactory to
AHP:
(a) from Kirkpatrick & Lockhart, counsel to BCC and its
affiliates, and from Tennessee and Indiana counsel to BCC and
its affiliates, each of which shall opine that (i) each of the
Developer, each Manager and Balanced Care are duly formed and
valid existing in good standing under the jurisdiction of
their formation and are qualified to conduct business within
the jurisdictions where the business, properties or activities
of such entities so requires and (ii) each of the Transaction
Documents have been duly authorized, executed and delivered by
BCC and its affiliates and are the legal, valid and binding
obligation of the parties thereto, enforceable against the
parties thereto in accordance with their terms other than as
may be limited by standard exceptions relating to rights of
creditors, generally and the availability or impact of
equitable remedies and (iii) that counsel is not aware of any
breach or conflict arising by reason of the execution,
delivery or performance of any of the Transaction Documents to
which such entities are parties, (iv) there are no actions, or
proceedings instituted or pending which would materially and
adversely affect the ability of the parties to enter into the
Transaction Documents and to carry out and perform the
obligations and other matters required thereunder and (v) such
other customary matters as AHP or its counsel may reasonably
request, and
(b) from Cooley Godward LLP, counsel to Tenant and Tenant Parent
and from Indiana and Tennessee counsel to each Tenant and
Tenant Parent (as defined in the Transaction Documents), which
counsel shall opine that (i) each of Tenant, each Tenant
Parent are duly formed and valid existing in good standing
under the jurisdiction of their formation and are qualified to
conduct business within the jurisdictions where the business,
properties or activities of such entities so requires and
requires and (ii) each of the Transaction Documents have been
duly authorized, executed and delivered by each Tenant and
Tenant Parent and its affiliates and are the legal, valid and
binding obligation of the parties thereto, enforceable against
the parties
<PAGE> 6
BALANCED CARE CORPORATION
- -------------------------
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
February 6, 1998
to be effective as of January 30, 1998
Page 6
thereto in accordance with their terms other than as may be limited by
standard exceptions relating to rights of creditors, generally and the
availability or impact of equitable remedies and (iii) that counsel is
not aware of any breach or conflict arising by reason of the execution,
delivery or performance of any of the Transaction Documents to which
such entities are parties, (iv) there are no actions, or proceedings
instituted or pending which would materially and adversely affect the
ability of the parties to enter into the Transaction Documents and to
carry out and perform the obligations and other matters required
thereunder and (v) such other customary matters as AHP or its counsel
may reasonably request.
2. AHP shall have received and shall be satisfied, in the exercise of its
reasonable business discretion, with the form and substance of each of
the following items with respect to each of the Properties and the
project to be constructed thereon:
(a) owner architect agreement and assignment thereof to AHP with
originals of the consent of architect thereto in the form
required under each Development Agreement;
(b) owner contractor agreement and assignment thereof to AHP with
consent of architect thereto in the form required under each
Development Agreement;
(c) payment and performance surety bond(s) in form and substance
satisfactory to AHP and in an aggregate amount not less than
150% of the Maximum Project Amount ultimately approved by AHP,
including a rider thereto naming AHP as dual obligee
thereunder;
(d) Plans and Specifications for each Project which shall have
been approved by AHP and by one or more Inspecting Architects
which may be engaged by AHP;
(e) satisfactory evidence that each Project and each Property is
in compliance with Applicable Laws;
(f) soils and geotechnical reports addressed to AHP for its
reliance in acquiring each Property and funding the
development of the Facilities thereon;
(g) a radon remediation and monitoring plan with respect to each
project;
<PAGE> 7
BALANCED CARE CORPORATION
- -------------------------
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
February 6, 1998
to be effective as of January 30, 1998
Page 7
(h) a letter from the Architect for each project stating that the
structural foundations for each project have been adequately
designed considering soil conditions at the site
(i) Financial Statements of each of BCC, Tenant, Tenant Parent and
Developer in the form required under the Facility Agreement
and each Lease, Guaranty of Payment and Performance and
Development Agreement with respect to each Property;
(j) copies of the Deed, Memorandum of Lease, Assignment of Leases,
Rents, and Receivables with respect to the Anderson Property
recorded in the office of the County Recorder of Madison
County, Indiana; and
(k) copies of the Deed, Memorandum of Lease, Assignment of Leases,
Rents, and Receivables with respect to the Jackson Property
recorded in the office of the County Register of Madison
County, Tennessee.
3. Each of the following Conditions shall have been fulfilled:
(a) BCC shall have provided to AHP a breakdown of the Initial
Budget including breakdowns of the costs of all of the Work by
trades, jobs and trade contractors and subcontractors;
(b) AHP and BCC shall have agreed upon the Approved Budget for
each project as contemplated in Section 2.1(a) of each
Development Agreement and the Project Schedule for each
project as contemplated in Section 2.1(b) of each Development
Agreement (and AHP and BCC shall have agreed in writing as to
the Maximum Project Amount and final date for Substantial
Completion of the Project which Developer must meet in order
to earn the Developer Incentive Fee);
(c) AHP shall have received evidence that all insurance required
under Section 14.1 of each Lease and Section 6.5 of each
Development Agreement is in full force and effect in the form
required under such Transaction Document, together with
evidence of errors and omissions insurance of each Architect;
and
<PAGE> 8
BALANCED CARE CORPORATION
- -------------------------
American Health Properties, Inc.
AHP of Indiana, Inc.
AHP of Tennessee, Inc.
February 6, 1998
to be effective as of January 30, 1998
Page 8
(d) Developer shall have fulfilled all conditions to the making of
Construction Advances pursuant to each Development Agreement.
4. No Event of Default shall have occurred and be continuing with respect
to any one or more of Tenant, Tenant Parent, BCC, Developer or Manager
under any Transaction Document and, without limitation on the
foregoing, BCC shall not be in breach under the Working Capital
Assurances Agreement.
5. Each of the Transaction Documents shall be and remain enforceable
against the parties thereto in accordance with the terms thereof.
<PAGE> 1
EXHIBIT 10.83
WORKING CAPITAL ASSURANCE AGREEMENT
(LEWISBURG)
THIS AGREEMENT is made as of the 31st day of December, 1997, by and
among BALANCED CARE CORPORATION, a Delaware corporation, with a principal place
of business at 5021 Louise Drive, Suite 200, Mechanicsburg, PA 17055 ("BCC"),
BLACK BOX OF LEWISBURG, INC., a Delaware corporation (the "Lessee"), BLACK BOX
HOLDING COMPANY, a Delaware corporation (the "Pledgor"), both the Lessee and
Pledgor with their principal place of business at 65 Allerton Street, Boston,
Massachusetts, 02119, and MEDITRUST ACQUISITION CORPORATION II, a Delaware
corporation, with a principal place of business at 197 First Avenue, Needham
Heights, Massachusetts (the "Lessor").
W I T N E S S E T H:
WHEREAS, the Lessor and the Lessee have agreed to enter into that
certain Facility Lease Agreement, of even date herewith, relating to certain
premises located in East Buffalo Township, Union County, Pennsylvania (the
"Lease") and all capitalized terms used herein and not otherwise defined herein
shall have the same meanings as ascribed to such terms in the Lease; and
WHEREAS, pursuant to the terms of the Note, the Lessor has agreed to
advance to the Pledgor funds to be used by the Pledgor as equity contributions
to the Lessee, so that the Lessee may use such funds for certain working capital
obligations, as more particularly set forth in the Note, and the maximum
aggregate amount of such funds to be advanced under the Note shall equal the
Working Capital Reserve; and
WHEREAS, because the Lessee shall receive a direct benefit from the
advances made under the Note (which shall be deemed to be equity contributions
to the Lessee), the Lessee has executed and delivered to the Lessor a guaranty
of even date, guarantying the obligations of the Pledgor under the Note (the
"Lessee's Guaranty");
WHEREAS, as additional security for the Lease Obligations, the Lessor
has requested the execution and delivery of this Agreement.
NOW THEREFORE, for good and valuable consideration paid by each of the
parties hereto to the other, the receipt and sufficiency of which is hereby
acknowledged and in consideration of the covenants and agreements set forth
herein, the parties hereto agree as follows:
<PAGE> 2
1. Subject to the terms of Sections 5 and 6 hereof, from the date
hereof until the complete payment and performance of the Lease Obligations, BCC
unconditionally agrees to pay to the Lessee, on a monthly basis, sufficient
funds, by means of working capital loans (collectively, the "Working Capital
Loans"), to pay and satisfy the amount by which the Lessee's cash requirements
to meet its obligations (including, without limitation, operating expenses, debt
service and the Lease Obligations) due and payable during any month and the
obligations of the Pledgor under the Note due and payable during such month
exceed the Gross Revenues received by the Lessee during such month (the
"Shortfall"). Without limiting the foregoing, BCC hereby acknowledges and agrees
that it shall advance the Working Capital Loans as required hereunder
notwithstanding any default, breach of condition or failure to satisfy any
condition under the Shortfall Agreement and/or any of the other Working Capital
Loan Documents. It is further acknowledged and agreed that the term Lease
Obligations includes, together with all other obligations set forth in the
definition thereof in the Lease, all of the Lessee's obligations under the
Lessee's Guaranty and the Pledgor's obligations under the Note.
2. The Working Capital Loans shall be completely subordinate to the
Lease Obligations pursuant to the terms and conditions of that certain
Subordination and Standstill Agreement of even date by and between the Lessor
and BCC.
3. Subject to the terms of Sections 5 and 6 hereof, but without regard
to any default, breach of condition or failure to satisfy any condition under
the Shortfall Agreement and/or any of the other Working Capital Loan Documents,
BCC shall, without further direction, advance to the Lessee, each month, the
amount equal to the Shortfall in a timely fashion so that the Lessee is able to
meet all of its working capital obligations (including, without limitation, the
Lease Obligations) when due and so that the payments due under the Note are made
in a timely fashion. Such portion of the funds advanced under the Shortfall
Agreement that are advanced to satisfy the Pledgor's obligations under the Note
shall be advanced directly to the Lessor to satisfy the Pledgor's obligations
under the Note and shall be deemed to be payments made by the Lessee under the
Lessee's Guaranty. Notwithstanding anything to the contrary set forth under the
Shortfall Agreement and/or any of the other Working Capital Loan Documents, BCC
hereby waives all rights of subrogation it may have against Bruce A. Rendina
(the "Shareholder") at law or in equity as a consequence of any payment by BCC
of the Pledgor's obligations under the Note or the Lessee's obligations under
the Lessee's Guaranty.
4. BCC acknowledges that the covenants and agreements made hereunder by
BCC are being made to (a) induce the Lessor to enter into and accept the Lease
and the other Lease Documents, (b) induce the Lessor to accept the Note from the
Pledgor and the Lessee's Guaranty from the Lessee and to lend to the Pledgor the
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<PAGE> 3
sums to be advanced under the Note in accordance with the terms thereof, and (c)
enable the Pledgor to make equity contributions to the Lessee (up to the
original principal amount of the Note) to enable the Lessee, upon the complete
disbursement of the original principal amount of the Note (which amount shall
equal the Working Capital Reserve) and upon receipt of the corresponding equity
contributions to be made by the Pledgor to the Lessee, to fulfill the Lessee's
working capital obligations, including, without limitation, the Lease
Obligations and (d) induce the Shareholder to execute and deliver a guaranty of
even date herewith guarantying the Pledgor's obligations under the Note.
Accordingly, it is expressly intended by BCC that the covenants and agreements
by BCC hereunder may be relied upon and enforced by the Lessor, the Lessee and
the Pledgor.
Furthermore, BCC agrees 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, reasonably
incurred or expended by the Lessor in connection with the collection or
enforcement of the obligations hereunder. Any amounts owed to the Lessor under
this Section 4 shall be a demand obligation and, if not paid within ten (10)
days after demand, shall thereafter, to the extent then permitted by applicable
law, bear interest at the Overdue Rate until the date of payment. The provisions
of this Section 4 shall survive the expiration or earlier termination of the
Agreement.
5. Notwithstanding anything to the contrary set forth herein, BCC's
obligations to provide the Working Capital Loans to the Lessee and advance to
the Lessee the Shortfall each month shall not commence until such time as BCC
has received written confirmation from the Lessor that the Lessor has advanced
the original principal amount of the Note (which amount shall equal the Working
Capital Reserve) in accordance with the terms of the Note.
6. Notwithstanding anything to the contrary set forth herein, in the
event of (a) the occurrence of a Lease Default and/or (b) a termination of the
Lease as a result of the exercise by the Lessor of any of its rights and/or
remedies thereunder, upon written notice from the Lessor, BCC shall without
further direction advance to the Lessor, each month, the amount equal to the
Rental Shortfall (as hereinafter defined) in a timely fashion until the
expiration of the Fixed Term or, if the Lessee had exercised its option to
extend the Lease, the expiration of the Extended Term in effect as of the date
of the termination of the Lease. In the event of any such termination of the
Lease, the Lessor agrees that it shall use its best efforts to relet the Leased
Property, so as to mitigate the amount due and payable under this Section 6 by
BCC.
As used herein, the term "Rental Shortfall" shall mean the
-3-
<PAGE> 4
difference, if positive, between (i) the sum of the Rent that would have
otherwise been due under the Lease plus the amounts payable under the Note minus
(ii) the aggregate rent due under the leases affecting the Leased Property and
any damages or other payments (other than any reimbursement for expenses
incurred by the Lessor) received by the Lessor from the Lessee or any endorser,
surety or guarantor of the Lease Obligations as a result of the termination of
the Lease.
7. The obligations of BCC hereunder shall not be affected by the
termination, discontinuance, release or modification of any agreement from (a)
any endorser, surety or guarantor of the Lease Obligations and/or (b) any other
endorser, surety or guarantor of any of the other Obligations; provided,
however, that, notwithstanding the foregoing, as long as no Lease Default has
occurred, nor any event which, with notice and/or the passage of time could
constitute a Lease Default, the Lessor hereby covenants and agrees with BCC that
the Lessor shall not amend any of the Lease Documents without BCC's prior
written consent, in each instance, which consent, shall not be unreasonably
withheld, conditioned or delayed. 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 Agreement; and
subject to the terms of Section 5 hereof, BCC 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 for the Lease Obligations.
In addition, the Lessor hereby covenants and agrees with BCC that,
except in connection with the exercise of any of its rights and/or remedies
under the Lease Documents, as long as no Lease Default has occurred, nor any
event which, with notice and/or the passage of time could constitute a Lease
Default, the Lessor shall not terminate the Lease without the prior written
consent of BCC, which consent shall not be unreasonably withheld, conditioned or
delayed.
8. The Lessor shall be at liberty, without giving notice to or
obtaining the assent of BCC and without relieving BCC 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 reasonable discretion, deems fit. The Lessor
and the other Meditrust Entities have full authority (in their reasonable
discretion) to do any or all of the following things, none of which shall
discharge or affect BCC's liability hereunder:
(a) extend credit, make loans and afford other financial accommodations
to the Lessee, any other member of the Leasing Group and/or any of the Related
Parties at such times, in such amounts and on such terms as the Lessor may
approve;
-4-
<PAGE> 5
(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;
(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 Agreement;
(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 any
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;
provided, however, that notwithstanding the foregoing, as long as the Lessee is
not an Affiliate of BCC, the Lessor and the Meditrust Entities shall not elect
to take any of the actions described in clauses (b), (g), (h) and/or (i) above
without the prior consent of BCC, which consent shall not be unreasonably
withheld, conditioned or delayed.
9. The obligations of BCC 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 or by reason of any disability of the Lessee, any
other member of
-5-
<PAGE> 6
the Leasing Group, or any Related Party. This Agreement shall be in addition to
any guaranty or other security for the Obligations, and it shall not be
prejudiced or rendered unenforceable by the invalidity of any such guaranty or
security. This Agreement 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. BCC covenants to take no action of any
kind which might be the basis for a claim that BCC has any defense hereunder
other than the complete payment of the Shortfall or the Rent Shortfall, as the
case may be.
10. In order to induce the Lessor to enter into or accept this
Agreement, BCC hereby warrants and represents to, and covenants and agrees with,
the Lessor that:
10.1. Formation and Authority of BCC.
(a) BCC is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. BCC 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) BCC is duly authorized to make and enter into this Agreement and
all of the other Working Capital Loan Documents to which BCC is a party and to
carry out the transactions contemplated therein. This Agreement and all of the
other Working Capital Loan Documents to which BCC is a party have each been duly
executed and delivered by BCC, and each is a legal, valid and binding obligation
of BCC, enforceable in accordance with its terms;
10.2. No Violations.
The execution, delivery and performance of this Agreement and the other
Working Capital Loan 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 BCC
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 BCC is a party or by which BCC may be
bound or affected and do not violate or contravene any Legal
-6-
<PAGE> 7
Requirement;
10.3. 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 BCC's execution
and delivery of this Agreement or any of the other Working Capital Loan
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 all of the other parties to this Agreement and the
other Working Capital Loan Documents) or enforceability of any of the same;
10.4. Financial Condition.
(a) BCC 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 BCC's knowledge and belief, threatened:
i. against or affecting BCC which, if adversely resolved
against BCC would materially adversely affect the ability of BCC to
perform its obligations under this Agreement or any of the other
Working Capital Loan Documents to which it is a party; or
ii. which may involve or affect the validity, priority or
enforceability of this Agreement or any of the other Working Capital
Loan Documents, at law or in equity, or before or by any arbitrator or
Governmental Authority;
(b) After giving effect to the consummation of the transactions
contemplated by this Agreement and the other Working Capital Loan Documents,
BCC: 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 this Agreement);
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) BCC is not a party to any agreement, the terms of which now have
or, based upon current circumstances, as far as can be
-7-
<PAGE> 8
reasonably foreseen, may have a material adverse effect on its financial
condition or business;
(d) BCC is not delinquent or claimed to be delinquent under any
material obligation for the payment of borrowed money;
10.5. Commercial Acts.
BCC's performance of and compliance with the obligations and conditions
set forth herein and the other Working Capital Loan Documents to which it is a
party will constitute commercial acts done and performed for commercial
purposes;
10.6. Filing of Tax Returns.
BCC 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 BCC. No tax liability has been asserted by the Internal Revenue
Service against BCC 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
10.7. Accuracy of Financial Statements and Other Information.
The financial statements of BCC given to the Lessor in connection with
the consummation of the transaction contemplated by this Agreement were true,
complete and accurate and fairly presented the financial condition of BCC 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 BCC.
There has been no material adverse change since such date with respect to the
Tangible Net Worth or liquidity of BCC or with respect to any other matters
referred to or contained therein and no additional material liabilities,
including, without limitation, contingent liabilities of BCC 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 BCC 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 BCC or (b) no
material depletion of BCC's cash or decrease in working capital.
10.8. Working Capital Loan Documents.
-8-
<PAGE> 9
True and correct copies of the Working Capital Loan Agreement and the
other Working Capital Loan Documents have been delivered to Lessor and the
transaction contemplated by the Working Capital Loan Documents has closed in
accordance with the terms thereof and in compliance with all applicable Legal
Requirements. Attached hereto as EXHIBIT A is a true and correct list of all of
the Working Capital Loan Documents. There are no agreements in force and effect
between Lessee and BCC or any Affiliate of BCC, other than (i) the Leasehold
Improvement Agreement, (ii) the Affiliated Party Subordination Agreement, (iii)
the Current Management Agreement and (iv) the Working Capital Loan Documents.
BCC shall not terminate, amend, abridge, modify or otherwise limit any of the
Working Capital Loan Documents without the prior written consent of the Lessor,
in each instance, which consent may be withheld in the Lessor's sole and
absolute discretion. Notwithstanding the foregoing, from and after the date
hereof, BCC shall not enter into, nor permit any of its Subsidiaries to enter
into, any contractual arrangement with the Lessee without the prior written
consent of the Lessor, in each instance, which consent may be withheld in the
Lessor's sole and absolute discretion.
10.9. Financial Covenants.
BCC shall maintain, at all times, a ratio of Consolidated Current
Assets to Consolidated Current Liabilities equal to or greater than 1 to 1. In
addition, BCC shall maintain a Tangible Net Worth equal to or greater than (a)
SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000) from July 1, 1997 through June
30, 1998 and (b) ONE MILLION DOLLARS ($1,000,000) from July 1, 1998 through the
end of the Term.
10.10. Non-competition.
BCC acknowledges and agrees that BCC, the Current Manager and the
Developer are members of the Leasing Group and, as such, the terms of Section
11.5.4 of the Lease shall apply to each of the foregoing parties and any Person
holding or controlling, directly or indirectly, any interest in any of the
foregoing parties. Accordingly the terms of Section 11.5.4 of the Lease are
hereby incorporated herein by reference, mutatis, mutandis. The provisions of
this Section 10.10 shall survive the expiration or earlier termination of this
Agreement and/or the Lease.
11. All representations and warranties contained in this Agreement
shall constitute continuing representations and warranties which shall remain
true, correct and complete as long as this Agreement is in force and effect.
Notwithstanding the provisions of the foregoing sentence but without derogation
from any other terms and provisions of this Agreement, including, without
limitation, those terms and provisions containing covenants to be performed or
conditions to be satisfied on the part of BCC, the representations and
warranties contained in
-9-
<PAGE> 10
Sections 10.4(a), 10.4(c), 10.4(d), in the second sentence of Section 10.6 and
in the second and third sentences of Section 10.7 hereof shall not constitute
continuing representations and warranties hereunder.
12. Without limiting BCC's obligations to provide the Working Capital
Loans, upon the occurrence of any default under any of the Lease Documents, BCC
shall have the right, but not the obligation, to cure such default within any
applicable notice and grace periods and, to the extent permitted by law, enter
upon the Leased Property, if necessary, for such purpose and take all such
actions as BCC may deem necessary or appropriate to remedy such default. The
Lessor agrees to give written notice to BCC simultaneous with the provision by
the Lessor of any notice to the Lessee (or any other member of the Leasing
Group) relating to any such default. The Lessor agrees to accept any remedy
performed by BCC as if the same had been performed by the Lessee, but,
nevertheless, reserves the right to determine whether any remedy performed by
BCC cures any such default to the Lessor's satisfaction.
13. Subject to the provisions of Section 5 hereof, no set-off,
counterclaim, reduction or diminution of any obligation, or any claim or defense
of any kind or nature which BCC 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 BCC. Subject to the terms of the Working Capital
Assurance Documents, BCC shall not assert and hereby waives any right whatsoever
that BCC 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.
14. 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 BCC: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Attn: President
With copies to: Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
-10-
<PAGE> 11
Attn: General Counsel
and
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attn: Donald Kortlandt, Esq.
If to the Lessee: Black Box of Lewisburg, Inc.
65 Allerton Street
Boston, MA 02119
Attn: Walter K. McDonough
If to the Pledgor:Black Box Holding Company
65 Allerton Street
Boston, MA 02119
Attn: Walter K. McDonough
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, Massachusetts 02110
Attn: Marianne Ajemian
or at such other place as any of the parties hereto may from time to time
hereafter designate by a written notice to the others in such manner. Any notice
given to BCC or the Lessee by the Lessor at any time shall not imply that such
notice or any further or similar notice was or is required.
15. This Agreement shall be construed, and the rights and obligations
of the Lessor, the Lessee and BCC shall be determined, in accordance with the
laws of the Commonwealth of Massachusetts.
Notwithstanding anything to the contrary set forth in any of the
Working Capital Loan Documents, BCC and the Lessee each 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
-11-
<PAGE> 12
other proceeding arising out of or with respect to this Agreement, any of the
other Working Capital Assurance Documents and/or any of the other Working
Capital Loan Documents, the negotiation and/or consummation of the transactions
evidenced by this Agreement, the other Working Capital Assurance Documents and
the other Working Capital Loan Documents and/or the performance of any
obligation or the exercise of any remedy under this Agreement, any of the other
Working Capital Assurance Documents and/or any of the other Working Capital Loan
Documents and BCC and the Lessee each expressly waives any and all objections it
may have as to venue in any of such courts.
16. The provisions of Article 23 and Sections 2.2, 16.8 through 16.10,
24.2, 24.3, 24.5 through 24.10 and 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.
17. Without limiting any other provisions of any of the other Lease
Documents, this Agreement and BCC's obligations hereunder shall automatically
terminate upon BCC's purchase of all of the issued and outstanding capital stock
of the Lessee in accordance with the terms of Section 19.4 of the Lease.
18. BCC agrees that, as long as this Agreement remains in force and
effect, BCC shall provide to the Lessor, all of the Consolidated Financials
required to be provided by the Guarantor under the terms of the Lease (whether
or not the Lease is then in effect) and such other information relating to the
financial condition of BCC as the Lessor may reasonably request.
19. The Lessor covenants and agrees with BCC that, as long as no Lease
Default has occurred, nor any event which, with notice and/or the passage of
time could constitute a Lease Default, the Lessor shall not consent to any
assignment of the Lessee's interest under the Lease (except as provided in, and
in accordance with the terms of, Section 19.4 of the Lease) or any transfer of
substantially all of the Lessee's assets or any transfer of the issued and
outstanding capital stock of the Lessee without the prior written consent of
BCC, which consent, BCC may withhold in its sole and absolute discretion. In
addition, in the event that, in violation of the terms of the Lease, (a) the
Lessee attempts to assign its interest in the Lease (or transfer substantially
all of its assets), (b) the current holders of the issued and outstanding
capital stock of the Lessee attempt to transfer any such stock or (c) if any of
the events described in Section 16.1 (f) occurs, the Lessor covenants and agrees
with BCC that, subject to the provisions of applicable Legal Requirements, the
Lessor shall terminate the Lease (in accordance with the terms thereof) and
shall enter into a new lease of the Leased Property with BCC (or any of its
wholly-owned Subsidiaries, provided, that, BCC executes and delivers a guaranty
of any such lease, in form and substance
-12-
<PAGE> 13
acceptable to the Lessor), in form and substance acceptable to the Lessor;
provided, however, that any such lease shall be substantially similar to the
Lease. In connection with the execution and delivery of any such lease, (a) BCC
and its Subsidiaries shall execute and deliver any additional documents that the
Lessor may request, in form and substance similar to the Lease Documents (such
as assignments of Contracts and Permits, a pledge of the issued and outstanding
capital stock of the new lessee, an affiliated party subordination agreement,
etc.) and (b) BCC shall deliver to the Lessor such evidence as Lessor shall
request, in form and substance acceptable to the Lessor, that the new lease and
all other documents executed and delivered in connection therewith have been
duly authorized, executed and delivered and are enforceable (such as opinions,
certificates of legal existence and good standing and certified copies of
corporate resolutions). BCC agrees to pay all of the costs and expenses
reasonably incurred by the Lessor (including, without limitation, attorneys'
fees and expenses) in connection with the performance of the Lessor's
obligations under this Section 19.
20. BCC covenants and agrees with the Lessor that BCC shall not assign
any interest that it holds in any of the Working Capital Loan Documents without
the prior written consent of the Lessor, in each instance, which consent may be
withheld in the Lessor's sole and absolute discretion.
[Signatures begin on the next page.]
-13-
<PAGE> 14
EXECUTED as a sealed instrument as of the date first written above.
WITNESS: BCC:
BALANCED CARE CORPORATION, a
Delaware corporation
By:
______________________________
Name: Name:
Title:
WITNESS: LESSEE:
BLACK BOX OF LEWISBURG, INC.,
a Delaware corporation
By:
______________________________
Name: Name:
Title:
WITNESS: PLEDGOR:
BLACK BOX HOLDING COMPANY, a
Delaware corporation
By:
Name: Name:
Title:
WITNESS: LESSOR:
MEDITRUST ACQUISITION
CORPORATION II,a Delaware
corporation
By:
______________________________
Name: Name:
Title:
<PAGE> 15
EXHIBIT A
1. The Shortfall Agreement
2. The Leasehold Mortgage
3. The BCC Option Agreement
4. The Current Management Agreement
5. The Promissory Notes now or hereafter made by the Lessee to the order
of the Guarantor pursuant to the terms of the Shortfall Agreement
<PAGE> 16
Schedule to Exhibit 10.83 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Working Capital Assurance Agreement
<TABLE>
<CAPTION>
Location Parties Date of Agreement
<S> <C> <C>
Maumelle, AR Meditrust Acquisition Corporation II (Lessor) 12/19/97
TC Realty of Maumelle, Inc.(Lessee)
Reading, PA Meditrust Acquisition Corporation II (Lessor) 12/19/97
TC Realty of Reading, Inc. (Lessee)
Sherwood, AR Meditrust Acquisition Corporation II (Lessor) 12/19/97
TC Realty of Sherwood, Inc. (Lessee)
Mountain Home, AR Meditrust Acquisition Corporation II (Lessor) 12/19/97
TC Realty of Mountain Home, Inc. (Lessee)
Altoona, PA Meditrust Acquisition Corporation II (Lessor) 12/19/97
TC Realty of Altoona, Inc. (Lessee)
Blytheville, AR Meditrust Acquisition Corporation II (Lessor) 12/19/97
TC Realty of Blytheville, Inc. (Lessee)
Pocahontas, AR Meditrust Acquisition Corporation II (Lessor) 12/19/97
TC Realty of Pocahontas, Inc. (Lessee)
Chippewa, PA Meditrust Acquisition Corporation II (Lessor) 1/7/98
TC Realty of Chippewa, Inc. (Lessee)
Lewistown, PA Meditrust Acquisition Corporation II (Lessor) 1/7/98
TC Realty of Lewistown, Inc. (Lessee)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C>
Berwick, PA Meditrust Acquisition Corporation II (Lessor) 1/7/98
TC Realty of Berwick, Inc. (Lessee)
Martinsburg, WV Meditrust Acquisition Corporation II (Lessor) 1/7/98
Black Box of Martinsburg, Inc. (Lessee)
Peckville, PA Meditrust Acquisition Corporation II (Lessor) 12/31/97
Black Box of Peckville, Inc. (Lessee)
Dillsburg, PA Meditrust Acquisition Corporation II (Lessor) 12/31/97
Black Box of Dillsburg, Inc. (Lessee)
</TABLE>
<PAGE> 1
EXHIBIT 10.84
DEMAND PROMISSORY NOTE
(ALTOONA)
$123,822 Boston, Massachusetts
As of December 19, 1997
FOR VALUE RECEIVED, BRUCE A. RENDINA, a resident of Florida, having an
address c/o DASCO Companies, 3801 PGA Boulevard, Suite 1000, Palm Beach Gardens,
Florida 33410 (the "Maker") promises to pay, ON DEMAND (in accordance with the
terms hereof), to the order of MEDITRUST ACQUISITION CORPORATION II, a Delaware
corporation ("Lender") (the Lender together with each successor, owner,
endorsee, bearer and holder of this Note being hereinafter referred to as the
"Holder") at its principal place of business located at 197 First Avenue,
Needham Heights, Massachusetts, 02194, or at such other place as the Holder of
this Note may from time to time designate in writing, in lawful money of the
United States of America, in immediately available Federal funds or the
equivalent the principal sum of ONE HUNDRED TWENTY-THREE THOUSAND EIGHT HUNDRED
TWENTY-TWO DOLLARS ($123,822) or so much thereof as shall have been advanced
from time to time hereunder (the "Loan Proceeds"), with interest on so much
thereof as shall from time to time be outstanding at the applicable interest
rate set forth below.
This Note makes reference to that certain First Amended and Restated
Facility Lease Agreement of even date herewith by and among the Holder, as
Lessor, and TC Realty of Altoona, Inc., a Delaware corporation (the "Lessee")
and wholly-owned subsidiary of the TC Realty Holding Company, a Delaware
corporation, as Lessee (the "Facility Lease"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Facility Lease.
1. ADVANCES. The Loan Proceeds are to be used solely for application
towards the payment of any obligation evidenced by that certain Promissory Note
of even date made by TC Realty Holding Company, a Delaware corporation, to the
order of the Holder, in the original principal amount of $825,477 (the
"Underlying Note"). NOTWITHSTANDING THE FACT THAT THE PRINCIPAL AMOUNT OF THE
UNDERLYING NOTE IS IN EXCESS OF THIS NOTE, THE MAXIMUM PRINCIPAL AMOUNT THAT MAY
BE ADVANCED HEREUNDER IS ONE HUNDRED TWENTY-THREE THOUSAND EIGHT HUNDRED
TWENTY-TWO DOLLARS ($123, 822) The Loan Proceeds may be advanced by the Holder
to the Holder, at any time, upon five (5) Business Days' prior written notice to
the Maker, after a default or breach of condition continuing beyond any
applicable notice and/or grace periods has occurred and is continuing under the
Underlying Note (an "Underlying Default"). Notwithstanding the foregoing, it is
acknowledged and agreed that the Holder shall have no
<PAGE> 2
obligation to make any advance hereunder after the occurrence of an Underlying
Default and that the Holder shall not waive its rights to make an advance
hereunder if, in any instance, the Holder fails to make an advance hereunder
after the occurrence of an Underlying Default.
2. TERMS OF PAYMENT. The Loan Proceeds, together with accrued and
unpaid interest and all costs, charges and other amounts due under this Note,
are payable upon demand. Notwithstanding and without limiting the foregoing, on
the Maturity Date (as hereinafter defined), the Maker shall pay to the Holder
the entire principal balance, if any, then remaining unpaid, together with
accrued and unpaid interest and all costs, charges and other amounts due under
this Note. In the event that there is no principal balance or any other amounts
outstanding hereunder as of the Maturity Date, this Note shall automatically
terminate and be null and void without further recourse to the Maker.
As used herein, the term "Maturity Date" shall mean the earlier to
occur of (X) the date of the consummation of the Stock Transfer in accordance
with Section 19.4 of the Facility Lease, (Y) the date which is fifteen (15)
Business Days' after the "Maturity Date" as defined in the Underlying Note or
(Z) the date upon which the Underlying Note is cancelled, returned to TC Realty
Holding Company and/or is no longer in force and effect. The period from the
date hereof through the Maturity Date shall be referred to herein as the "Loan
Term."
All payments hereunder received by the Holder shall be applied by the
Holder, without any marshalling of assets, towards payment of the items
immediately set forth below in the following order:
(I) attorneys' fees and expenses, court costs and all other amounts due
under this Note, excluding the amounts described in subparagraphs (ii)
and (iii) immediately below;
(II) any and all accrued and unpaid interest due hereunder; and
(III) the outstanding principal balance due under this Note.
3. INTEREST RATE. For the period from the date hereof through and
including the day immediately preceding the Conversion Date, the "Interest Rate"
shall be defined as the variable rate per annum equal to one hundred ninety
(190) basis points over the Prime Rate. The Interest Rate shall be recalculated
on the Conversion Date, and from the Conversion Date through the day immediately
preceding the commencement of the second Lease Year, the "Interest Rate" shall
be defined as the rate per annum which is 340 basis points over the Index, using
the Index in effect on the Conversion Date. If the Index is no longer published
or announced or becomes unascertainable for any reason, the Holder shall
designate a comparable reference rate which shall be deemed to be the Index
hereunder. Interest hereunder shall be calculated on the basis of a 360-day
year, but charged for the actual days elapsed during each calendar year (or
portion thereof) that the indebtedness evidenced by this Note remains
outstanding.
-2-
<PAGE> 3
In addition, on the first day of the second Lease Year and on the first
day of each Lease Year (or portion thereof) thereafter during the Loan Term
(each such date is hereinafter referred to as an "Interest Rate Adjustment
Date"), the Interest Rate shall be increased by multiplying (I) the Interest
Rate in effect as of the day immediately preceding the applicable Interest Rate
Adjustment Date by (II) two percent (2%).
NOTWITHSTANDING THE FOREGOING, INTEREST SHALL ACCRUE HEREUNDER ONLY IF
THE MAKER FAILS TO MAKE ANY PAYMENT OWED HEREUNDER TO THE HOLDER WITHIN TEN (10)
DAYS AFTER DEMAND IS MADE FOR SUCH PAYMENT.
4. INTENTIONALLY OMITTED.
5. INTENTIONALLY OMITTED.
6. ACCELERATION OF MATURITY. Any one or more of the following events
shall be defined as an "Event of Default":
(I) the failure to pay any installment of interest or of any
other sum due under this Note within ten (10) days following the date when such
payment was due;
(II) the occurrence of any Underlying Default; and
(III) the failure to pay, on the Maturity Date, the entire
principal balance then remaining unpaid, together with accrued and unpaid
interest and all costs, charges and other amounts due under this Note.
7. INTENTIONALLY OMITTED.
8. COLLECTION AND ENFORCEMENT COSTS. Upon demand, the Maker shall
reimburse the Holder for all costs and expenses, including, without limitation,
attorneys' fees and expenses and court costs, paid or incurred by the Holder in
connection with the collection of any sum due hereunder, or in connection with
the enforcement of any of the Holder's rights or the Maker's obligations under
this Note.
9. CONTINUING LIABILITY. The obligation of the Maker to pay the
outstanding principal balance, interest and all other costs, charges and sums
due hereunder shall continue in full force and effect and in no way shall be
impaired, until the actual payment thereof to the Holder.
10. INTENTIONALLY OMITTED
-3-
<PAGE> 4
11. WAIVERS. The Maker waives presentment for payment, demand, notice
of nonpayment, notice of dishonor, protest of any dishonor, suretyship defenses,
notice of protest and protest of this Note, and all other notices in connection
with the delivery, acceptance, performance, default (except notice of default as
specifically elsewhere herein required), or enforcement of the payment of this
Note, and agrees that his 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 Holder; and the Maker consents to any and all extensions of
time, renewals, waivers or modifications that may be granted or consented to by
the Holder with respect to the payment or performance of any obligations under
this Note and agrees that additional makers, endorsers, guarantors or sureties
may become parties hereto without notice to him or affecting his liability
hereunder.
12. INTENTIONALLY OMITTED
13. INVALIDITY. If any provision of this Note or the application
thereof to any Person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, neither the remainder of this Note, nor the
application of such provision to any other Person or circumstance shall be
affected thereby, but rather the same shall be enforced to the maximum extent
permitted by law. Notwithstanding the foregoing, if such provision relates to
the payment of a monetary sum, then the Holder may, at its option, declare the
entire indebtedness evidenced hereby due and payable upon sixty (60) days' prior
written notice to the Maker.
Notwithstanding the foregoing, it is the intention of the Maker and the
Holder that if any provision of this Note 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.
14. USURY. In the event that fulfillment of any provision of this Note,
at the time performance of such provision shall be due and as a result of any
circumstance, shall involve transcending the limit of validity presently or
hereinafter prescribed by any applicable usury statute or any other 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 Note that is in
excess of the limit of such validity. In no event shall the Maker be bound to
pay for the use, forbearance or detention of the money loaned pursuant hereto,
interest of more than the maximum rate, if any, permitted by law to be charged
by the Holder; the right to demand any such excess being hereby expressly waived
by the Holder.
15. GOVERNING LAW. THIS NOTE AND THE OBLIGATIONS OF THE MAKER HEREUNDER
SHALL BE GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS
OF THE COMMONWEALTH
-4-
<PAGE> 5
OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
16. GENERAL PROVISIONS; RULES OF CONSTRUCTION. The provisions set forth
in (I) Articles 22 and 23 and Sections 2.2, 16.8 through 16.10, 24.2 through
24.5, Sections 24.7 through 24.10 and Section 24.12 of the Facility Lease are
hereby incorporated herein by reference, mutatis, mutandis and shall be
applicable to this Note as if set forth in full herein. The notice address for
the Maker shall be the same as for the Lessee under Article 22 of the Lease.
[END OF DOCUMENT -- REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Maker has signed this Promissory Note as of the
date and in the year first above written.
WITNESS: MAKER:
- --------------------------- ----------------------------
Name: BRUCE A. RENDINA
-6-
<PAGE> 7
Schedule to Exhibit 10.84 filed pursuant to Instruction 2 to Item
601(a) of Regulation S-K
Demand Promissory Note
<TABLE>
<CAPTION>
Project Lessee Principal Sum Original Principal
Amount
<S> <C> <C> <C>
Maumelle, AR TC Realty of Maumelle, $92,451.00 $616,343.00
Inc.
Blytheville, AR TC Realty of Blytheville, $92,399.00 $615,993.00
Inc.
Mountain Home, AR TC Realty of Mountain $87,000.00 $580,002.00
Home, Inc.
Pocahontas, AR TC Realty of Pocahontas, $76,127.00 $507,513.00
Inc.
Sherwood, AR TC Realty of Sherwood, $84,680.00 $564,533.00
Inc.
Reading, PA TC Realty of Reading, Inc. $122,559.00 $817,060.00
</TABLE>
<PAGE> 1
BALANCED CARE CORPORATION EXHIBIT 11.1
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 issuance of (1):
Convertible preferred stock..... 3,757 -- --
Common Stock.................... 242 242 242
Stock Options................... 478 478 478
Warrants........................ 240 240 240
Shares assumed repurchased........ 494 494 494
------- ------- --------
Weighted average common and
common equivalent shares
outstanding................... 7,806 2,940 2,791
======== ======= ========
Net loss per share................ $ (.58) $ (.31) --
======== ======= ========
</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 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
SUPPLEMENTARY EARNINGS PER SHARE COMPUTATION
(In Thousands Except Per Share Data)
EXHIBIT 11.2
<TABLE>
<CAPTION>
September
30, 1997 1997
--------- --------
<S> <C> <C>
Net Loss.................................. $ (655) $ (4,492)
Interest savings on debt
retirement(2)......................... 215 806
-------- --------
Adjusted net loss......................... (440) (3,686)
======== ========
Weighted average common shares
outstanding........................... 3,783 3,583
Additional shares assuming exercise
or issuance of(1):
Convertible preferred stock............. 3,757 3,757
Common Stock............................ 242 242
Stock Options........................... 504 478
Warrants................................ 240 240
Shares assumed repurchased................ (522) (494)
Incremental shares issued for retirement
of debt(2)............................ 1,160 1,160
--------- --------
Adjusted shares outstanding............... 9,164 8,966
========= ========
Supplementary net loss
per common share...................... $ (.05) $ (.41)
========= ========
</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 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.
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 $7.00).
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Balanced Care Corporation
We consent to the use of our reports included herein and to the reference to
our Firm under the headings "Selected Consolidated Financial and Operating Data"
and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
- --------------------------
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
February 11, 1998
<PAGE> 1
EXHIBIT 23.3
Page 1 of 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated September 12, 1997 on our audits of the financial statements of
Butler Senior Care, Inc. and our report dated September 29, 1997 on our audits
of the financial statements of Feltrop's Personal Care Home. We also consent to
the references to our firm under the caption "Experts".
/s/ Coopers & Lybrand LLP
- ------------------------------
COOPERS & LYBRAND LLP
Pittsburgh, Pennsylvania
February 11, 1998
<PAGE> 2
Page 2 of 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated September 23, 1997, on our audits of the financial statements of
Gethsemane Affiliates. We also consent to the references to our firm under the
caption "Experts".
/s/ Coopers & Lybrand LLP
- --------------------------------
COOPERS & LYBRAND LLP
Harrisburg, Pennsylvania
February 11, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-1 of our
report dated July 17, 1997, on our audits of the financial statements of Foster
Health Care Affiliates and our report dated September 12, 1997 on our audit of
the financial statements of Heavenly Health Care, Inc., d/b/a Joe Clark
Residential Care Homes. We also consent to the references to our firm under the
caption "Experts."
/s/ Baird, Kurtz & Dobson
- ---------------------------
Springfield, MO
February 11, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-1 of our
report dated May 13, 1997 on our audits of the financial statements of Keystone
Affiliates. We also consent to the reference to our firm under the caption
"Experts."
/s/ Snyder & Clemente
SNYDER & CLEMENTE
Kingston, Pennsylvania
February 11, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-1 of our
report dated October 20, 1997 on our audits of the financial statements of
Triangle Retirement Services, Inc. d/b/a Northridge Retirement Center. We also
consent to the reference to our firm under the caption "Experts."
/s/ Hodge, Steward & Company, P.A.
- ----------------------------------
3120 Highwoods Blvd., Suite 207
Raleigh, North Carolina
February 11, 1998
