<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended December 31, 1998
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER: 1-13845
BALANCED CARE CORPORATION
-------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1761898
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5021 LOUISE DRIVE, SUITE 200, MECHANICSBURG, PA 17055
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(717) 796-6100
--------------
(Registrant's Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 10, 1999
----- --------------------------------
Common Stock, $.001 par value 16,720,971
<PAGE> 2
<TABLE>
<CAPTION>
BALANCED CARE CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1:
FINANCIAL STATEMENTS Page
----
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and 3
June 30, 1998
Consolidated Statements of Operations for the three months ended 4
December 31, 1998 and 1997
Consolidated Statements of Operations for the six months ended 5
December 31, 1998 and 1997
Consolidated Statement of Stockholders' Equity for the six months 6
ended December 31, 1998
Consolidated Statements of Cash Flows for the six months ended 7
December 31, 1998 and 1997
Notes to Consolidated Financial Statements 8
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 12
CONDITION AND RESULTS OF OPERATIONS
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 23
MARKET RISK
PART II - OTHER INFORMATION
ITEM 6:
EXHIBITS AND REPORTS ON FORM 8-K 24
(A) Exhibits
(B) Reports on Form 8-K
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
ITEM 1: FINANCIAL STATEMENTS
BALANCED CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
1998 June 30,
(unaudited) 1998
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,921 15,481
Accounts receivable (net of allowance for doubtful
accounts of $1,291 and $916, respectively) 20,178 19,630
Development contracts in process (net of allowance for losses) 4,076 2,534
Prepaid expenses and other current assets 1,706 1,203
Assets held for sale -- 2,800
-------- --------
Total current assets 31,881 41,648
Restricted investments 1,763 1,596
Property and equipment, net 28,912 27,862
Goodwill, net 15,323 13,466
Other assets 3,115 1,400
-------- --------
Total assets $ 80,994 85,972
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of long-term debt $ 234 177
Accounts payable 7,569 7,982
Accrued payroll 1,840 2,243
Accrued expenses 3,651 4,864
-------- --------
Total current liabilities 13,294 15,266
Deferred income taxes 638 638
Long-term debt, net of current portion 3,732 3,376
Straight-line lease liability 3,002 3,053
Deferred revenues and other liabilities 1,564 1,780
-------- --------
Total liabilities 22,230 24,113
-------- --------
Stockholders' equity
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued and outstanding -- --
Preferred stock, Series A authorized - 1,150,958 shares,
none issued and outstanding -- --
Common stock, $.001 par value - authorized - 50,000,000
shares; issued and outstanding - 16,718,971 shares at
December 31, 1998 and 16,695,343 shares at June 30, 1998 17 17
Additional paid-in capital 63,806 63,678
Deficit (5,059) (1,836)
-------- --------
Total stockholders' equity 58,764 61,859
-------- --------
Total liabilities and stockholders' equity $ 80,994 85,972
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
BALANCED CARE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended December 31
1998 1997
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Revenues:
Patient services $ 12,257 14,655
Resident services 5,604 4,569
Development fees 411 1,939
Management fees 308 18
Other revenues 102 74
-------- --------
Total revenues 18,682 21,255
-------- --------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits 8,296 7,841
Other operating expenses 5,614 8,481
Development, general and administrative expense 3,318 2,943
Provision for losses on termination of development projects 2,400 --
Provision for losses under shortfall funding agreements 2,360 --
Lease expense 2,407 2,692
Depreciation and amortization expense 537 724
-------- --------
Total operating expenses 24,932 22,681
-------- --------
Loss from operations: (6,250) (1,426)
Other income (expense):
Interest and other income 175 62
Interest expense (113) (615)
Gain (loss) on sale of assets (200) 2,858
-------- --------
Income (loss) before income taxes (6,388) 879
Provision for income taxes (benefit) (1,225) 30
-------- --------
Net income (loss) $ (5,163) 849
======== ========
Pro forma basic earnings (loss) per share $ (0.31) 0.10
======== ========
Pro forma diluted earnings (loss) per share $ (0.31) 0.09
======== ========
Weighted average shares - basic 16,709 8,645
======== ========
Weighted average shares - diluted 16,709 9,885
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
BALANCED CARE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
Six Months Ended December 31
1998 1997
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Revenues:
Patient services $ 24,622 29,151
Resident services 11,517 7,567
Development fees 5,674 3,565
Management fees 606 18
Other revenues 134 92
-------- --------
Total revenues 42,553 40,393
-------- --------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits 16,637 14,685
Other operating expenses 11,533 16,129
Development, general and administrative expense 6,960 5,622
Provision for losses on termination of development projects 2,400 --
Provision for losses under shortfall funding agreements 2,360 --
Lease expense 4,796 4,904
Depreciation and amortization expense 1,043 1,005
-------- --------
Total operating expenses 45,729 42,345
-------- --------
Loss from operations: (3,176) (1,952)
Other income (expense):
Interest and other income 479 175
Interest expense (218) (852)
Gain (loss) on sale of assets (200) 2,858
-------- --------
Income (loss) before income taxes (3,115) 229
Provision for income taxes 108 37
-------- --------
Net income (loss) $ (3,223) 192
======== ========
Pro forma basic earnings (loss) per share $ (0.19) 0.02
======== ========
Pro forma diluted earnings (loss) per share $ (0.19) 0.02
======== ========
Weighted average shares - basic 16,703 8,645
======== ========
Weighted average shares - diluted 16,703 9,877
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
BALANCED CARE CORPORATION
Consolidated Statement of Stockholders' Equity
For the six months ended December 31, 1998 (unaudited)
(Dollars in thousands)
COMMON STOCK
-------------------- ADDTL.
ISSUED PAR PAID-IN
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998 16,695 $17 $63,678 $(1,836) $61,859
Exercise of options 24 -- 128 -- 128
Net loss -- -- -- (3,223) (3,223)
------ --- ------- ------- -------
Balance at December 31, 1998 16,719 $17 $63,806 $(5,059) $58,764
====== === ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
<TABLE>
<CAPTION>
BALANCED CARE CORPORATION
Consolidated Statement of Cash Flows
(Dollars in thousands)
Six Months Ended December 31
----------------------------
1998 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (3,223) $ 192
Adjustments to reconcile net income (loss) to net cash used for operating
activities:
Depreciation and amortization 1,043 1,005
Deferred income taxes -- 16
Loss (gain) on sale of assets 200 (2,858)
Changes in operating assets and liabilities, excluding effects of
acquisitions:
Increase in receivables, net (548) (4,053)
Increase in development contracts in process, net (1,542) (1,027)
Increase in prepaid expenses and other current assets (503) (470)
Increase (decrease) in accounts payable, accrued payroll and
accrued expenses (2,416) 3,228
-------- --------
Net cash used for operating activities (6,989) (3,967)
-------- --------
Cash Flows from Investing Activities:
Proceeds from sale of assets 2,726 4,249
Purchases of property and equipment (2,073) (1,543)
Increase in restricted investments (166) (769)
Increase in other assets (1,715) (720)
Business acquisitions (1,617) (23,527)
-------- --------
Net cash used for investing activities (2,845) (22,310)
-------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 535 23,716
Payments on long-term debt (122) (44)
Proceeds from issuance of common stock 128 --
Decrease in other liabilities (267) (293)
-------- --------
Net cash provided by financing activities 274 23,379
-------- --------
Decrease in cash and cash equivalents (9,560) (2,898)
Cash and cash equivalents at beginning of period 15,481 7,908
-------- --------
Cash and cash equivalents at end of period $ 5,921 $ 5,010
======== ========
Supplemental Cash Flow Information:
Cash paid during the period for interest $ 218 $ 515
======== ========
Cash paid during the period for income taxes $ 25 $ --
======== ========
Supplemental Non-cash Investing and Financing Activities:
Assets and lease obligations capitalized $ -- $ 238
======== ========
Accretion of preferred B stock $ -- $ 1,253
======== ========
Goodwill and accrued contingent business acquisition payments $ 2,004 $ --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Background
Balanced Care Corporation (the "Company") was incorporated in April
1995 and is engaged in the operation, 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, dementia and Alzheimer's services, home health
care and skilled nursing. As of December 31, 1998, the Company owned, leased or
managed 45 assisted and independent living communities and 13 skilled nursing
facilities. Also at December 31, 1998, the Company had 31 assisted living
communities under construction.
(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 and six month periods
ended December 31, 1998 and 1997 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 and six month periods ended December 31,
1998 are not necessarily indicative of the operating results to be expected for
the full year or any other period. These financial statements and notes should
be read in conjunction with the financial statements and notes included in the
audited consolidated financial statements of the Company for the year ended June
30, 1998 as contained in the Company's annual report on Form 10-K.
2. INITIAL PUBLIC OFFERING
On February 18, 1998, the Company closed its initial public offering
for 7,000,000 shares of its common stock, par value $.001 per share ("Common
Stock") at a price of $6.50 per share (the "Offering"). Concurrent with the
Offering, 5,009,750 shares of Series B Preferred Stock and 1,150,958 shares of
Series A Preferred Stock were converted into 4,620,532 shares of Common Stock
(reflective of the three-for-four reverse split of Common Stock effective
October 14, 1997).
In connection with the Offering, the Company granted the underwriters
an option to purchase 1,050,000 additional shares of Common Stock at $6.50 per
share. The closing for this option was on March 17, 1998. After the consummation
of the Offering, the conversion of the preferred stock and the exercise of the
underwriters' option, the Company had 16,695,343 shares of Common Stock
outstanding. The Company's stock is traded on the American Stock Exchange under
the symbol BAL.
8
<PAGE> 9
3. PRO FORMA RESULTS OF OPERATIONS
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 period. The acquired businesses and their respective
acquisition dates were Heavenly Health Care, Inc. d/b/a Joe Clark Residential
Care Homes in August 1997, Feltrop's Personal Care Home and Butler Senior Care
in October 1997, Triangle Retirement Services, Inc. d/b/a Northridge Retirement
Center in December 1997, Gethsemane Affiliates in January 1998 and Potomac Point
in June 1998. There were no acquisitions during the six months ended December
31, 1998. The pro forma results include the impact of certain adjustments such
as: amortization of goodwill, depreciation of assets acquired, interest on
acquisition financing and lease payments on the leased facility (in thousands,
except for per share amounts):
SIX MONTHS ENDED
DECEMBER 31
1997
----
Revenue...................................... $ 45,575
Expense...................................... (45,582)
--------
Net loss..................................... $ (7)
========
Net loss per common share - diluted.......... $ --
========
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, 1997.
In addition, they are not intended to be a projection of future results of
operations.
4. ASSETS HELD FOR SALE
In December 1998, the Company completed the sale of the assets of its
Wisconsin assisted living facilities for net proceeds of approximately
$2,726,000. The Wisconsin facilities had been classified as an asset held for
sale since June 30, 1997. The sale resulted in a loss of $200,000 in the period
ended December 31, 1998.
5. BUSINESS ACQUISITIONS - STATEMENT OF CASH FLOWS
The $1,617,000 cash used for business acquisitions in the Statement of
Cash Flows for the six months ended December 31, 1998 consists of the following:
<TABLE>
<CAPTION>
DATE OF DATE RECORDED DATE
ACQUISITIONS ACQUISITION DESCRIPTION AS GOODWILL PAID AMOUNT
------------ ----------- ----------- ----------- ---- ------
<S> <C> <C> <C> <C> <C>
Gethsemane Affiliates 1/98 Contingent purchase 3/98 7/98 $1,200,000
price payment
Butler Senior Care 10/97 Contingent purchase 6/98 7/98 372,000
price payment
Potomac Point 6/98 Additional transaction 9/98 9/98 45,000
costs ----------
$1,617,000
==========
</TABLE>
9
<PAGE> 10
6. PRO FORMA EARNINGS PER SHARE
Pro forma earnings (loss) per share ("EPS") is computed using the
weighted average number of common shares and common equivalent shares
outstanding (using the treasury stock method) assuming the pro forma conversion
of preferred shares into common. For the three and six month periods ended
December 31, 1998, common equivalent shares from stock options and warrants are
excluded from the computation, as their effect is antidilutive.
A reconciliation of the weighted average shares used in the computation
of pro forma earnings per share follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 16,709 4,025 16,703 4,025
Pro forma conversion of preferred shares -- 4,620 -- 4,620
------ ----- ------ -----
Shares used for pro forma basic EPS 16,709 8,645 16,703 8,645
Stock options and warrants computed using the
Treasury stock method -- 1,240 -- 1,232
------ ----- ------ -----
Shares used for pro forma diluted EPS 16,709 9,885 16,703 9,877
====== ===== ====== =====
</TABLE>
7. RECENT DEVELOPMENTS
As discussed in prior quarterly reports, the Company's development
activities are significantly affected by volatility in the capital markets and
specific transaction terms which affect the Company's ability to utilize
non-binding financing commitments from real estate investment trusts ("REITs")
and other lenders. More specifically, the availability of REIT financing has
become substantially limited for new assisted living construction. Furthermore,
the ability of the Company to negotiate acceptable transaction terms and to
currently recognize income on development fees has become increasingly difficult
due to accounting pronouncements and guidance issued by the Emerging Issues Task
Force ("EITF") and the Securities and Exchange Commission staff. Finally, the
Company's leverage (i.e. debt and other financial commitments in relation to
equity) has increased due to its extensive use of operating leases to finance
the construction of its Outlook Pointe(R) signature series assisted living
facilities.
As a direct result of the foregoing, during the three months ended
December 31, 1998, the Company was not able to obtain financing on acceptable
terms to continue development of its Outlook Pointe(R) signature series assisted
living facilities. In recognition of the aforementioned events and circumstances
occurring in the second fiscal quarter, the Company: (i) concluded that
development fees on new projects scheduled to close in the second fiscal quarter
did not qualify for income recognition under contract terms considered
acceptable by management; (ii) decided to emphasize the focus of management's
efforts on the operations of existing facilities and facilities which are now
under construction; (iii) decided to substantially reduce its development
activities with respect to new sites and projects; and (iv) recorded a provision
for losses on termination of development projects of $2,400,000. This provision
is based on management's evaluation of capitalized costs, including land option
payments, on various projects that are not now consistent with the Company's
future plans.
10
<PAGE> 11
Due to the downscaling of development activities related to the
Company's Outlook Pointe(R) facilities, management has adopted a corporate
restructuring plan affecting certain departments and staff positions. This
restructuring plan, which was enacted in February 1999, will result in a
one-time charge of approximately $600,000 in the Company's third fiscal quarter
ending March 31, 1999, representing the estimated costs of employee terminations
and related costs to exit these activities.
8. WORKING CAPITAL SHORTFALL OBLIGATIONS
As previously disclosed, the Company manages certain assisted living
facilities owned by REITs and leased to special purpose entities owned by
independent third parties (the "Operator/Lessees"). As part of these
transactions, the Company has entered into shortfall funding agreements, whereby
the Company has agreed to make loans to the Operator/Lessees if the equity and
working capital loans provided to the Operator/Lessees are depleted by negative
cash flows from start-up operations of the facilities.
Certain of the Outlook Pointe(R) signature series assisted living
facilities have experienced slower than budgeted census ramp-ups and, as a
result, have incurred greater than budgeted negative cash flows from start-up
operations. During the three months ended December 31, 1998, the Company
incurred losses of $2,360,000 related to its obligations under the shortfall
funding agreements to fund the additional working capital needs of these managed
facilities. This amount has been charged to operations as a provision for losses
under the shortfall funding agreements and recorded as an allowance against
receivables on advances to Operator/Lessees. The Company records its loss on
shortfall funding agreements using the "modified equity accounting" approach.
Under this approach, the operating losses of the Operator/Lessees are allocated
first to the capital of the investors, and the losses in excess of such capital
are allocated to the Company to the extent of the Company's commitment under the
shortfall funding agreement.
11
<PAGE> 12
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis addresses the Company's results of
operations on a historical basis for the three and six month periods ended
December 31, 1998 and 1997, and the Company's liquidity and capital resources.
This information should be read in conjunction with the Company's consolidated
financial statements contained elsewhere in this report. This report 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 disclosed in "Risk Factors" in the Company's Annual Report on
Form 10-K for the year ended June 30, 1998.
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 continuums 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 care delivered
in a skilled nursing setting.
On February 18, 1998, the Company completed its initial public offering for
7,000,000 shares of its Common Stock, par value $.001 per share at a price of
$6.50 per share (the "Offering"). Concurrent with the Offering, 5,009,750 shares
of Series B Preferred Stock and 1,150,958 shares of Series A Preferred Stock
were converted into 4,620,532 shares of Common Stock (reflective of the
three-for-four reverse split of Common Stock effective October 14, 1997). In
connection with the Offering, the Company granted the underwriters an option to
purchase 1,050,000 additional shares of Common Stock at $6.50 per share. The
closing for this option was on March 17, 1998. After the Offering, the
conversion of the preferred stock and the exercise of the underwriters' option,
the Company had 16,695,343 shares of Common Stock outstanding. The Offering,
including the exercise of the underwriters' option, generated proceeds to the
Company of approximately $46,357,000, net of costs and underwriting discounts
and commissions. The proceeds were used to repay indebtedness of approximately
$29,675,000 incurred to fund the purchase of four acquisitions (seven
facilities) completed from October 1997 through January 1998, and to pay off
indebtedness of $5,019,000 related to the Company's Wisconsin assisted living
facilities in anticipation of their sale. The balance of the Offering has been
used for general corporate purposes.
The Company has grown primarily through acquisitions and by designing,
developing, operating and managing its Outlook Pointe(R) signature series
assisted living facilities. The following table summarizes the Company's
operating facilities at December 31, 1998 and 1997:
12
<PAGE> 13
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
1998 1997
--------------------------------- ----------------------------------
Owned Leased Managed Total Owned Leased Managed Total
----- ------ ------- ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Developed Assisted Living Facilities -- 1 22 23 -- 8 -- 8
Acquired Assisted Living Facilities 6 12 -- 18 12 11 -- 23
Skilled Nursing Facilities 3 10 -- 13 2 10 -- 12
Independent Living Facilities -- 4 -- 4 -- 4 -- 4
---- ---- ---- ---- ---- ---- ---- ----
9 27 22 58 14 33 -- 47
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
In December 1998, the Company sold its seven owned assisted living facilities in
Wisconsin, which had been carried as an asset held for sale since June 30, 1997.
After the Wisconsin sale, the Company has operations in Pennsylvania, Missouri,
Arkansas, Ohio, Virginia and North Carolina. These operating facilities have a
capacity for 2,456 assisted living residents, 1,294 skilled nursing patients and
117 independent living residents. The Company also operates a home health care
agency in Missouri and rehabilitation therapy operations in Pennsylvania and
Arkansas.
In addition to the 23 Outlook Pointe(R) facilities opened as of December 31,
1998, the Company has signed agreements to develop and manage an additional 31
assisted living facilities currently under construction (excluding 13 projects
for which the Company has entered into predevelopment agreements with
independent third parties that were included with the projects under
construction at September 30, 1998) which are scheduled to open through December
1999. In addition to increasing the depth of the Company's operations in
existing states, the Company will have operations in Tennessee, Indiana, West
Virginia, Florida, and Maryland. The Company also has land options to acquire an
additional 37 sites. The land options generally give the Company, or its
assignee, the right to purchase the land at an agreed-upon price for a specified
period of time in exchange for option payments. In general, the option payments
are credited towards the purchase price if the option is exercised. A portion of
the option payments (usually $15-$30,000 or less) may be non-refundable if the
option is not exercised. In general the land options may be assigned by the
Company to a third party without the land owners' consent. (See "Strategic
Changes and Charges.")
The Company generates revenues from four primary sources: patient services,
resident services, development fees and management fees. Patient services
revenues include charges for room and board, rehabilitation therapies, pharmacy,
medical supplies, subacute care, home health, and other programs provided to
patients in skilled nursing facilities as well as rehabilitation and home health
services provided to assisted living facility residents. 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.
Development fees and management fees are earned for developing and managing
assisted living facilities for REITs and other owners or lessees. As the Company
implements its business plan, management believes that the mix of the Company's
revenues will continue to change and that revenues from assisted living resident
services and management activities will increase as a percentage of total
revenues.
The Company classifies its recurring operating expenses into the following
categories: (i) facility operating expenses which include labor, food,
marketing, rehabilitation therapy costs and other direct facility expenses; (ii)
development, general and administrative expenses, which primarily include
corporate office expenses, regional office expenses, development 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. The Company has made significant
investments in its infrastructure. These investments include attracting
management and regional personnel and installing information systems to support
and manage growth.
13
<PAGE> 14
STRATEGIC CHANGES AND CHARGES
As discussed in prior quarterly reports, the Company's development activities
are significantly affected by volatility in the capital markets and specific
transaction terms which affect the Company's ability to utilize non-binding
financing commitments from REITs and other lenders. More specifically, the
availability of REIT financing has become substantially limited for new assisted
living construction. Furthermore, the ability of the Company to negotiate
acceptable transaction terms and to currently recognize income on development
fees has become increasingly difficult due to accounting pronouncements and
guidance issued by the EITF and the Securities and Exchange Commission staff.
Finally, the Company's leverage (i.e. debt and other financial commitments in
relation to equity) has increased due to its extensive use of operating leases
to finance the construction of its Outlook Pointe(R) assisted living facilities.
As a direct result of the foregoing, during the three months ended December 31,
1998, the Company was not able to obtain financing on acceptable terms to
continue development of its Outlook Pointe(R) signature series assisted living
facilities. In recognition of the aforementioned events and circumstances
occurring in the second fiscal quarter, the Company (i) concluded that
development fees on new projects scheduled to close in the second fiscal quarter
did not qualify for income recognition under contract terms considered
acceptable by management; (ii) decided to emphasize the focus of management's
efforts on the operations of existing facilities and/or facilities which are now
under construction; (iii) decided to substantially reduce its development
activities with respect to new sites and projects; and (iv) recorded a provision
for losses on termination of development projects of $2,400,000. This provision
is based on management's evaluation of capitalized costs, including land option
payments, on various projects that are not now consistent with the Company's
future plans. Management has taken these steps to focus on building market share
in existing markets, to channel its financial and human resources into meeting
facility occupancy goals, and to build brand recognition throughout the Balanced
Care continuum of services.
Due to the downscaling of development activity of the Company's Outlook
Pointe(R) facilities, management has adopted a corporate restructuring plan
affecting certain departments and staff positions. This restructuring plan,
which was enacted in February 1999, will result in a one-time charge of
approximately $600,000 in the Company's third fiscal quarter ending March 31,
1999, representing the estimated costs of employee terminations and related
costs to exit these activities. The Company expects these actions to reduce
development, general and administrative expenses by approximately $2,000,000
annually.
The Company announced that it has appointed Clint T. Fegan as the Company's
Chief Financial Officer (CFO). Paul Kruis, formerly Chief Financial Officer, has
left the Company to pursue other interests. Mr. Fegan was Vice President and
Controller of Balanced Care from July, 1997 until his appointment as CFO. Prior
to joining Balanced Care, Mr. Fegan served as a financial officer of a senior
care company and as a senior manager in the KPMG LLP health care audit practice.
As discussed above, at December 31, 1998, the Company had 31 assisted living
facilities under construction and an additional 37 sites under land options. The
Company plans to complete construction, open and manage all 31 assisted living
facilities under construction over the next 12 months. With respect to the 37
sites that the Company has the right to acquire under land options, the Company
plans to evaluate each site to determine its strategic merit given the Company's
focus on its operations and branding. Those projects that meet the Company's
market cluster criteria will be purchased under the land options and developed
when, and if, financing can be obtained under suitable terms. The land options
for those projects that do not meet the Company's clustering strategy will be
assigned or left to expire on a selective basis. The Company's preliminary
evaluation is reflected in the provision for losses on development projects.
14
<PAGE> 15
In addition to the charge of $2,400,000 related to the reduction of development
activities, as more specifically set forth below, certain of the Outlook
Pointe(R) signature series assisted living facilities have experienced slower
than budgeted census ramp ups and, as a result, have incurred greater than
budgeted negative cash flows from start up operations. During the three months
ended December 31, 1998, the Company incurred losses related to obligations
under the shortfall funding agreements in the amount of $2,360,000 to fund the
additional working capital needs of these managed facilities. This amount has
been charged to operations as a provision for losses under the shortfall funding
agreements and recorded as an allowance against receivables on advances to
Operator/Lessees.
Of the 54 Outlook Pointe(R) facilities open (23) or under construction (31) and
managed by the Company at December 31, 1998, the Company estimates it may be
required to make future working capital shortfall contributions in connection
with 31 managed projects. In addition to the $2,360,000 incurred during the
three months ended December 31, 1998, the Company estimates that it may be
required to make additional funding advances of $8 to $12 million through June
30, 2000. This estimate is based on the conservative assumption that the ramp up
timetable experienced with initial projects will continue on all projects
currently open and under construction. The additional working capital needs
relate primarily to projects that closed on construction financing on or before
March 31, 1998.
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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------- -----------------
STATEMENT OF OPERATIONS DATA: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Patient services 65.6% 68.9% 57.9% 72.2%
Resident services 30.0 21.5 27.1 18.7
Development fees 2.2 9.1 13.3 8.8
Management fees 1.6 0.1 1.4 --
Other 0.6 0.4 0.3 0.3
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Operating expenses:
Facility operating expenses 74.4 76.8 66.2 76.3
Development, general and administrative expense 17.8 13.8 16.4 13.9
Charge for termination of development projects 12.8 -- 5.6 --
Charges under shortfall funding agreements 12.6 -- 5.5 --
Lease expense 12.9 12.7 11.3 12.1
Depreciation and amortization expense 2.9 3.4 2.5 2.5
----- ----- ----- -----
Loss from operations (33.4) (6.7) (7.5) (4.8)
Other income (expense) (0.8) 10.8 0.2 5.4
----- ----- ----- -----
Income (loss) before income taxes (34.2) 4.1 (7.3) 0.6
Provision for income taxes (benefit) (6.6) 0.1 0.3 0.1
----- ----- ----- -----
Net income (loss) (27.6) 4.0 (7.6) 0.5
===== ===== ===== =====
</TABLE>
15
<PAGE> 16
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE THREE MONTHS
ENDED DECEMBER 31, 1997
Total Revenue. Total revenue for the three months ended December 31, 1998
decreased by $2,573,000 to $18,682,000 compared to $21,255,000 for the three
months ended December 31, 1997. This decrease was the result of a $2,398,000
decrease in patient service revenues, which was primarily the result of a
$3,500,000 decrease due to new Medicare reimbursement methodology and rates, the
Prospective Payment System ("PPS"), offset by revenues of approximately $800,000
at a skilled nursing facility acquired January 1, 1998 and increased outpatient
therapy revenues. There also was a $1,528,000 decrease in development fees due
to the Company's decision to reduce its development activities. This decrease
was partially offset by additional resident service revenues of $1,035,000,
primarily from facilities acquired or opened during, or subsequent to, the three
months ended December 31, 1997 and increased management fees of $290,000.
Patient services comprised 66% and 69% of total revenues for the three months
ended December 31, 1998 and 1997, respectively.
Operating Expenses. Total operating expenses increased by $2,251,000 to
$24,932,000 for the three months ended December 31, 1998 from $22,681,000 for
the three months ended December 31, 1997. This increase is primarily
attributable to: (i) increased expenses of $1,819,000 at facilities acquired
during or after the December 31, 1997 quarter; (ii) a $375,000 increase in
development, general and administrative expenses; and (iii) the previously
discussed provision for losses on termination of development projects of
$2,400,000 and the provision for losses under the shortfall funding agreements
of $2,360,000. These increases were partially offset by: (i) decreased operating
expenses of $3,159,000 at the Company's skilled nursing facilities as a result
of cost reduction efforts primarily in the area of therapy delivery; and (ii)
decreased operating expenses of $1,518,000 at newly developed assisted living
facilities that were leased during the three months ended December 31, 1997, but
managed effective January 1, 1998 as a result of the sale of the leasehold
interests to an independent Operator/Lessee.
Facility operating expenses for the three months ended December 31, 1998
decreased by $2,412,000 to $13,910,000 from $16,322,000 for the three months
ended December 31, 1997. The decrease is the result of a cost reduction program
and a patient acuity management system put in place at the Company's skilled
nursing facilities, which resulted in cost reductions of approximately
$3,159,000, primarily in the area of therapy delivery. Facility operating
expenses also decreased by approximately $1,218,000 at newly developed assisted
living facilities that were leased during the three months ended December 31,
1997, but managed during the three months ended December 31, 1998, as a result
of the Company's sale of the leasehold interests to an independent
Operator/Lessee on January 1, 1998. These cost savings were partially offset by
costs at new assisted living facilities which were developed or acquired during,
or after, the December 1997 quarter. As a percentage of total revenue, facility
operating expenses were 74.4% for the three months ended December 31, 1998, and
76.8% for the three months ended December 31, 1997.
Development, general and administrative expenses increased by $375,000 to
$3,318,000 for the three months ended December 31, 1998 from $2,943,000 for the
three months ended December 31, 1997. As a percentage of total revenue, these
expenses increased to 17.8% for the three months ended December 31, 1998 from
13.8% for the three months ended December 31, 1997. The increase in expense was
attributable to the Company's new facility growth. The disproportionate increase
in the expense as a percentage of revenue was due to the lower revenue base.
16
<PAGE> 17
Information concerning the provision for losses on termination of development
projects of $2,400,000 and the provision for losses under shortfall funding
agreements of $2,360,000 during the three months ended December 31, 1998 are
discussed above under the heading "Strategic Changes and Charges".
Lease expense decreased to $2,407,000 for the three months ended December 31,
1998 from $2,692,000 for the three months ended December 31, 1998, a decrease of
$285,000. This decrease was primarily the result of the January 1, 1998 sale of
the leasehold interests of start up facilities to an independent
Operator/Lessee. As a percentage of total revenue, these expenses totaled 12.9%
for the three months ended December 31, 1998 and 12.7% for the three months
ended December 31, 1997.
Depreciation and amortization decreased by $187,000 to $537,000 for the three
months ended December 31, 1998 from $724,000 for the three months ended December
31, 1997. This decrease resulted from depreciation and amortization related to
the Wisconsin assisted living facilities in the December 1997 quarter.
Other Income (Expense). Interest and other income for the three months ended
December 31, 1998 increased by $113,000 to $175,000 from $62,000 in the three
months ended December 31, 1997. The increase is attributable to the higher level
of invested funds from the proceeds of the Offering in February 1998. Interest
expense for the three months ended December 31, 1998 decreased by $502,000 to
$113,000 from $615,000 for the three months ended December 31, 1997. This was
primarily due to the repayment of $23,625,000 in bridge financing with proceeds
of the Offering in February 1998, borrowed for the purchase of five assisted
living facilities between October and December 1997, and the repayment of
$5,019,000 in debt on the Company's Wisconsin assisted living facilities in June
1998 from proceeds of the Offering.
In December 1998, the Company completed the sale of the assets of its Wisconsin
assisted living facilities for net proceeds of approximately $2,726,000. The
Wisconsin facilities had been classified as an asset held for sale since June
30, 1997. The sale resulted in a loss of $200,000 in the three months ended
December 31, 1998. In October 1997 the Company sold the inventory, furniture and
equipment, certain prepaid assets and the operations of a pharmacy for
approximately $4,700,000, net of transaction costs. This resulted in a gain of
$2,858,000 during the three months ended December 31, 1997.
Provision for Income Taxes (Benefit). Income tax benefit of $1,225,000 for the
three months ended December 31, 1998 is the result of the Company's revised
fiscal 1999 tax position due to the development changes that occurred during the
three months ended December 31, 1998. Income tax expense of $30,000 for the
three months ended December 31, 1997 resulted from taxable income reported on
individual state corporate tax returns in states that do not permit consolidated
filings.
Net Income (Loss). The Company's net loss of ($5,163,000) for the three months
ended December 31, 1998 from a net income of $849,000 for the three months ended
December 31, 1997, is a decrease of $6,012,000. This decrease was the result of:
(i) decreased gain on sale of assets of $3,058,000; (ii) the provision for
losses on termination of development projects of $2,400,000; (iii) decreased
income from development fees of $1,644,000; (iv) the provision for losses under
shortfall funding agreements of $2,360,000; and (v) reduced profitability in the
Company's skilled nursing facilities of approximately $370,000, primarily due to
the implementation of PPS. These amounts were partially offset by: (i) decreased
income taxes of $1,255,000; (ii) the contribution of $613,000 from facilities
acquired during or after the December 31, 1997 quarter; (iii) the absence of
17
<PAGE> 18
start up losses of $1,321,000 incurred in 1997 at assisted living facilities
where the Company sold the leasehold interests to an independent Operator/Lessee
on January 1, 1998; (iv) decreased interest expense of $502,000; and (v)
contributions from management fees of $148,000.
The Company continues to evaluate the impact of the Balanced Budget Act of 1997
(the "Budget Act") upon future operating results. While the Budget Act was
passed in August 1997, specifics relating to each business line will continue to
be released until the year 2000. The assumptions used by the Company to evaluate
the impact of the Budget Act are based upon the most accurate information
available at this time. At present, the Company believes it is responding to all
of the known changes created by the Budget Act; however, it cannot predict the
impact of unforeseen reductions in anticipated rates issued by the federal
government.
During the three months ended December 31, 1998, the Company sold the license
rights for the use of prototype construction and development plans on seven
projects to an independent contractor ("Owner") for $2,950,000. Because the
Company anticipates entering into a management services agreement with the
Owner, the Company has deferred the recognition of the sale of these plans.
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE SIX MONTHS ENDED
DECEMBER 31, 1997
Total Revenue. Total revenue for the six months ended December 31, 1998
increased by $2,160,000 to $42,553,000 compared to $40,393,000 for the six
months ended December 31, 1997. This increase was the result of: (i) additional
resident service revenues of $3,950,000, primarily from facilities acquired or
opened during, or subsequent to, the six months ended December 31, 1997; and
(ii) increased development and management fee revenues during the first quarter
of fiscal 1999 of $2,697,000 due to the Company's expanded development and
management efforts. These increases were partially offset by a $4,529,000
decrease in patient service revenues, which was primarily the result of PPS
offset by a $1,600,000 increase due to a skilled nursing facility acquisition on
January 1, 1998. Patient services comprised 58% and 72% of total revenues for
the six months ended December 31, 1998 and 1997, respectively. The decrease in
this percentage of total revenues was due to the Company's implementation of its
business plan which focuses on assisted living development and operations, and
the aforementioned decrease due to PPS.
Operating Expenses. Total operating expenses increased by $3,384,000 to
$45,729,000 for the six months ended December 31, 1998 from $42,345,000 for the
six months ended December 31, 1997. This increase was primarily attributable to:
(i) increased expenses of $4,423,000 at facilities acquired during or after
the December 31, 1997 quarter; (ii) a $1,338,000 increase in development,
general and administrative expenses; (iii) the provision for losses on
termination of development projects of $2,400,000; (iv) the provision for losses
under shortfall funding agreements of $2,360,000; and (v) a $422,000 increase in
operating expenses related to volume increases at the Company's rehabilitation
therapy operations in Pennsylvania and Arkansas. These increases were partially
offset by: (i) decreased operating expenses of $5,985,000 at the Company's
skilled nursing facilities as a result of cost reduction efforts primarily in
the area of therapy delivery; and (ii) decreased operating expenses of
$1,619,000 at newly developed assisted living facilities that were leased during
the three months ended December 31, 1997, but managed effective January 1, 1998
as a result of the sale of the leasehold interests to an independent
Operator/Lessee.
18
<PAGE> 19
Facility operating expenses for the six months ended December 31, 1998 decreased
by $2,644,000 to $28,170,000 from $30,814,000 for the six months ended December
31, 1997. The decrease is the result of a cost reduction program and a patient
acuity management system put in place at the Company's skilled nursing
facilities, which resulted in reductions in costs of approximately $5,985,000,
primarily in the area of therapy delivery. Facility operating expenses also
decreased by approximately $1,107,000 at newly developed assisted living
facilities that were leased during the three months ended December 31, 1997, but
managed during the three months end December 31, 1998, as a result of the
Company's sale of the leasehold interests to an Operator/Lessee on January 1,
1998. These cost savings at the Company's skilled nursing facilities were offset
by costs at new assisted living facilities which were developed or acquired
during, or after, the December 1997 quarter. As a percentage of total revenue,
facility operating expenses were 66.2% for the six months ended December 31,
1998, and 76.3% for the six months ended December 31, 1997.
Development, general and administrative expenses increased by $1,338,000 to
$6,960,000 for the six months ended December 31, 1998 from $5,622,000 for the
six months ended December 31, 1997. As a percentage of total revenue, these
expenses increased to 16.4% for the six months ended December 31, 1998 from
13.9% for the six months ended December 31, 1997. The increase was attributable
to the Company's increased level of development activities in the first quarter
of fiscal 1999 and the increase in the number of facilities.
Information concerning the provision for losses on termination of development
projects of $2,400,000 and the provision for losses under shortfall funding
agreements of $2,360,000 for the six months ended December 31, 1998 are
discussed above under the heading "Strategic Changes and Charges".
Lease expense decreased by $108,000 to $4,796,000 for the six months ended
December 31, 1998 from $4,904,000 for the six months ended December 31, 1997.
This decrease was primarily the result of the January 1, 1998 sale of the
leasehold interests of start up facilities to an independent Operator/Lessee.
This was partially offset by rents at newly opened and acquired facilities and
rental increases under lease agreements at existing facilities. As a percentage
of total revenue, these expenses totaled 11.3% for the six months ended December
31, 1998 and 12.1% for the six months ended December 31,1997.
Depreciation and amortization increased by $38,000 to $1,043,000 for the six
months ended December 31, 1998 from $1,005,000 for the six months ended December
31, 1997. The increase resulted from depreciation and amortization taken on
assets acquired during, and after, the three months ended December 31, 1997
Other Income (Expense). Interest and other income for the six months ended
December 31, 1998 increased by $304,000 to $479,000 from $175,000 in the six
months ended December 31, 1997. The increase is attributable to the higher level
of invested funds from the proceeds of the Offering in February 1998. Interest
expense for the six months ended December 31, 1998 decreased by $634,000 to
$218,000 from $852,000 for the six months ended December 31, 1997. This was
primarily due to the repayment of $23,625,000 in bridge financing with proceeds
of the Offering in February 1998, borrowed for the purchase of five assisted
living facilities between October and December 1997, and the repayment of
$5,019,000 in debt on the Company's Wisconsin assisted living facilities in June
1998 from proceeds of the Offering.
In December 1998, the Company completed the sale of the assets of its Wisconsin
assisted living facilities for net proceeds of approximately $2,726,000. The
Wisconsin facilities had been classified as an asset held for sale since June
30, 1997. The sale resulted in a loss of $200,000 in the six months
19
<PAGE> 20
ended December 31, 1998. In October 1997 the Company sold the inventory,
furniture and equipment, certain prepaid assets and the operations of a pharmacy
for approximately $4,700,000, net of transaction costs. This resulted in a gain
of $2,858,000 during the six months ended December 31, 1997.
Provision for Income Taxes. Income tax expense of $108,000 for the six months
ended December 31, 1998 and of $37,000 for the six months ended December 31,
1997 resulted from taxable income reported on individual state corporate tax
returns in states that do not permit consolidated filings.
Net Income (Loss). The Company's net loss of ($3,223,000) for the six months
ended December 31, 1998 from a net income of $192,000 for the six months ended
December 31, 1997, is a decrease of $3,415,000. This decrease in net income
resulted primarily from: (i) decreased gain on sale of assets of $3,058,000;
(ii) the provision for losses on termination of development projects and under
shortfall funding arrangements of $4,760,000; and (iii) reduced profitability in
the Company's skilled nursing facilities of approximately $532,000, primarily
due to the implementation of PPS. These amounts were partially offset by (i) the
pretax contribution of $1,055,000 from increased development activities; (ii)
the contribution of $1,225,000 from facilities acquired during or after the
December 31, 1997 quarter; (iii) the reduction in start up losses of $1,536,000
at assisted living facilities where the Company sold the leasehold interests to
an independent Operator/Lessee on January 1, 1998; (iv) decreased interest
expense of $634,000; and (v) contributions from management fees of $324,000.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company has opened 23 of its Outlook Pointe(R) signature series assisted
living facilities as of December 31, 1998. In addition, the Company had 31
Outlook Pointe(R) signature series assisted living facilities under construction
and 37 sites under control. As discussed above under the heading "Strategic
Changes and Charges", the Company has stopped seeking additional sites for
Outlook Pointe(R) facilities. The Company has adequate financing to complete
construction on the 31 facilities under construction at December 31, 1998. These
facilities are expected to open by December 31, 1999. With respect to the 37
sites under land options, the Company plans to evaluate each site to determine
its strategic benefit to the Company's focus on clustering new projects in
existing markets only. Those projects that meet these criteria will be purchased
under the land options and developed when, and if, financing can be obtained
under suitable terms. The land options for those projects that do not meet the
Company's long term objectives will be assigned or left to expire. The Company's
preliminary evaluation in this respect is reflected in the provisions for
estimated losses on development projects. The Company had previously disclosed
its expectations to develop more than 40 facilities during its June 30, 1999
fiscal year. As a result of the Company's revised development strategy, the
Company now expects to develop less than 40 facilities in fiscal 1999. The exact
number will depend on the Company's evaluation of the sites under land option
and financing availability.
The Company's development projects have generally involved entering into
development agreements with third party owners, which are REITs (each, an
"Owner"). A third party Operator/Lessee leases the assisted living facility from
the Owner when construction has been completed and provides funding for the
working capital during the initial occupancy period. The Company manages the
assisted living facility pursuant to a management agreement for a term of two to
nine years in return for a management fee approximating 6% of the net revenue of
the facility. The foregoing off-balance sheet financing structure is referred to
as the "Black-Box Structure".
20
<PAGE> 21
For development projects utilizing the Black-Box Structure that were committed
to prior to September 24, 1998, the Company has the option to purchase the
equity or assets of the Operator/Lessee at a purchase price based on a formula
set forth in an Option Agreement and a Shortfall Funding Agreement,
respectively. As consideration for the option, which is exercisable by the
Company at any time during the term of the Option Agreement, the Company pays
option payments to the Operator/Lessee. Without the Owner's prior consent, the
Operator/Lessee may not sell its equity or assets to any third party other than
the Company. The Company has closed 52 development projects for which the
Company holds the foregoing type of option.
The Company believes that in order to satisfy its current and future capital
needs, it will be necessary to obtain: (i) access to working capital through the
use of a line of credit or other means; (ii) working capital commitments from
Operator/Lessees to fund losses during the initial operating period
(approximately $1,000,000 per project) for sites under land options that the
Company chooses to develop; (iii) development financing to fund the construction
of assisted living facilities (approximately $5,000,000 per project) for sites
under land options that the Company chooses to develop; and (iv) approximately
$55 - $65 million through fiscal 2001 if the Company exercises its options to
purchase the stock or assets of the Operator/Lessees for all projects developed
under the Black Box structure through and including the anticipated fiscal 1999
development projects. Based on capital availability, the Company plans to
continue to make option payments as required to Operator/Lessees and exercise
its purchase option rights upon the achievement of stabilized occupancy.
By June 30, 1999, the Company expects to access cash using seven of its owned
facilities as collateral. Approximately $15-$20 million is expected to be raised
by entering into a sale/leaseback transaction with a REIT, a line of credit, or
a combination thereof. The Company is currently pursuing other financing
alternatives including private equity and debt financing, and possible asset
divestitures, to fund the capital needs discussed above. The Company's capital
needs are significantly in excess of existing financing arrangements. There can
be no assurance that any additional financing needed to fund the Company's
growth plans will be available.
Recent turmoil in capital markets has detrimentally affected the availability of
development funding from REITs and forced the Company to substantially reduce
its development activities. In addition, a recent revision to an accounting
pronouncement, Emerging Issues Task Force Issue 97-10, The Effect of Lessee
Involvement in Asset Construction ("EITF 97-10"), has affected the accounting
treatment of transactions committed to after September 24, 1998 under the
Company's typical Black-Box Structure discussed above. As a result of EITF
97-10, the Company is attempting to modify its Black-Box Structure on future
development projects to achieve the same development fee revenue recognition
treatment previously realized, or development fee revenue will be amortized over
the related lease terms. These modifications have been difficult to negotiate
and, coupled with the current capital market turmoil, could result in less
favorable terms for the Company in future development projects.
In September 1998, the Company entered into management agreements, option
agreements and other transaction documents with six Operator/Lessees that are
owned by Financial Care Investors, LLC, a Delaware limited liability company
("FCI"). FCI is owned by Brad E. Hollinger, Chairman of the Board, President and
Chief Executive Officer of the Company. FCI and its six wholly owned
Operator/Lessees also entered into lease agreements with a REIT. The terms of
the agreements among the parties are similar to the terms of the agreements the
Company has entered into with independent third party Operator/Lessees. The
Company has not made any payments to the aforementioned parties in connection
with these transactions.
21
<PAGE> 22
Most of the facilities operated or managed by the Company are leased under
long-term operating leases. Lease obligations for the next 12 months are
approximately $9,800,000. The lease documents contain financial covenants and
other restrictions which: (i) require the Company to meet certain financial
tests and maintain certain escrow funds, (ii) limit, among other things, the
ability of the Company and certain of its subsidiaries to borrow additional
funds, dispose of assets or engage in mergers or other business combinations,
and (iii) prohibit the Company from operating competing facilities within a
designated radius of existing facilities. Management believes the Company is in
compliance with these lease covenants.
The Company's lease arrangements are generally for initial terms of nine to 15
years with aggregate renewal terms 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% to 3% of the prior year's total rent and is
based on either the annual increase in gross revenues of the facility or the
increase in the consumer price index. The Company's lease arrangements generally
contain an option to purchase the facility at its fair market value at the end
of the initial lease term and each renewal term.
Operating Activities
Cash used by operations increased by $3,022,000 to $6,989,000 for the six months
ended December 31, 1998 from cash used by operations of $3,967,000 for the six
months ended December 31, 1997. The increase in the cash used was due to
increases in accounts receivable, and prepaid expenses and other current assets
and decreases in accounts payable and accrued liabilities.
Investing and Financing Activities
Cash used for investing activities decreased by $19,465,000 to $2,845,000 for
the six months ended December 31, 1998 from $22,310,000 for the six months ended
December 31, 1997. Cash provided by financing activities decreased by
$23,105,000 to $274,000 for the six months ended December 31, 1998 from
$23,379,000 for the six months ended December 31, 1997. The decreases in cash
provided by financing activities and cash used for investing activities from the
1997 quarter to the 1998 quarter was a result of the reduction of the Company's
acquisition activities. During the six months ended December 31, 1998, the
Company used the cash remaining from the Offering for general corporate
purposes.
YEAR 2000 DISCLOSURE
Computer software and/or hardware that was designed to define the year with a
two digit date field rather than a four digit field may fail or miscalculate
data in the year 2000, causing disruption to the operations or business
activities of the Company.
State of Readiness. The Company uses high quality hardware and operating systems
from current and proven technologies to ensure reliability and optimum system
performance. In order to evaluate these systems and other electronic systems not
related to information technology ("Non-IT Systems"), the Company formed an
oversight committee comprised of information systems, operations, legal and
accounting professionals.
Phases. The committee has performed an inventory and risk assessment of the
Company's internal operating systems, as well as an inventory of third party
relationships and their impact on the Company. In response to requests, the
committee has already received certification of year 2000 readiness from key
hardware and software providers, including suppliers of critical data processing
and financial systems. Internal testing of all critical electronic systems began
in early 1999.
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<PAGE> 23
The committee will also oversee the testing of Non-IT Systems. The testing of
these systems and the timeframe for completion are in the planning stages. For
those non-critical systems, that cannot be readily tested, the Company will
inquire of third party vendors as to the status of year 2000 compliance within
these systems.
Material Third Parties. Based on the committee's review, the Company has
determined that third party relationships provide the highest risk related to
year 2000 issues. The third party relationships deemed most critical are the
Company's banking relationships and its relationships with third party
intermediaries for skilled nursing facility reimbursement under Medicare and
Medicaid programs. The Company's third party reimbursement intermediaries have
been proactive in testing for year 2000 compliance. Some intermediaries are
requiring the submission of test billings that demonstrate year 2000
compatibility with their payment software. Where required, the Company completed
these tests by December 31, 1998. The committee's inquiry and testing process to
assure that the Company's financial institutions are year 2000 compliant is in
the inquiry stage.
Costs. Based upon the Company's progress to date in addressing year 2000 issues,
management does not expect these issues to have a material impact on financial
position, results of operations or cash flows in future periods, including the
cost of remediation. Costs incurred to date are internal staff costs of salary,
benefits and nominal administrative expenses associated with the activities of
the oversight committee. The Company expects future costs to be of a similar
nature.
Risks and Contingency Plans. At this time the Company is unable to determine its
most reasonably likely worst case scenarios as a result of year 2000 issues. The
committee continues to analyze possible scenarios as part of its inventory and
risk assessment process, and will develop and modify its contingency plans as
more information becomes available. Based on the outcomes of inquiries and
testing, the oversight committee is currently coordinating the preparation of
contingency plans.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company did not have any investment securities subject to market risk as of,
or during the six months ended, December 31, 1998.
23
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* Restated to include the current year acquisitions accounted for as
poolings of interests.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit
Number Description
------ -----------
2.1 Asset Purchase Agreement among BCC of Wisconsin,
Inc., the Company and Urquhart Company dated
at of September 30, 1998 (filed herewith)
10.1 Form of License Agreement between BCC Investments
Corp., Inc. and Smith/Packett Med-Com. Inc.
(filed herewith)
10.2 Schedule to Form of License Agreement between BCC
Investments Corp., Inc. and Smith/Packett
Med-Com. Inc. (filed herewith)
27.1 Financial Data Schedule (filed herewith)
(B) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1998.
24
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SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BALANCED CARE CORPORATION
Date: February 16, 1999 By: /s/ CLINT T. FEGAN
------------------
Clint T. Fegan
Chief Financial Officer
25
<PAGE> 26
EXHIBIT INDEX
2.1 Asset Purchase Agreement among BCC of Wisconsin, Inc., the Company and
Urquhart Companies dated as of September 30, 1998 (filed herewith)
10.1 Form of License Agreement between BCC Investments Corp., Inc., Balanced
Care Corporation and Smith/Packett Med-Com. Inc. (filed herewith)
10.2 Schedule to Form of License Agreement between BCC Investments Corp.,
Inc., Balanced Care Corporation and Smith/Packett Med-Com. Inc.
(filed herewith)
27.1 Financial Data Schedule (filed herewith)
26
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Exhibit 2.1
ASSET PURCHASE AGREEMENT
by and among
BCC OF WISCONSIN, INC.,
a Delaware corporation and wholly owned subsidiary of Balanced Care Corporation,
also a Delaware corporation and the sole shareholder of the capital stock of BCC
of Wisconsin, Inc.,
and
URQUHART COMPANIES,
a Minnesota partnership
September 30, 1998
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ARTICLE I. CERTAIN DEFINITIONS..................................................................... 1
1.1. "Accounts Receivable"........................................................................... 1
1.2. "Accreditation Body"............................................................................ 1
1.3. "Accrued Expenses".............................................................................. 2
1.4. "Affiliate"..................................................................................... 2
1.5. "Agreement"..................................................................................... 2
1.6. "Ancillary Agreements".......................................................................... 2
1.7. "Annual Financial Statements"................................................................... 2
1.8. "Assumed Liabilities"........................................................................... 2
1.9. "Books and Records"............................................................................. 2
1.10. "Business"...................................................................................... 2
1.11. "CARF".......................................................................................... 2
1.12. "Champus"....................................................................................... 2
1.13. [Intentionally Omitted.]........................................................................ 2
1.14. "Closing"....................................................................................... 2
1.15. "Closing Date".................................................................................. 2
1.16. "Closing Inventory"............................................................................. 2
1.17. "Code".......................................................................................... 3
1.18. "Contract"...................................................................................... 3
1.19. "Current Liabilities"........................................................................... 3
1.20. "Damages"....................................................................................... 3
1.21. "Department of Health and Family Social Services"............................................... 3
1.22. "Division of Aging"............................................................................. 3
1.23. "Employee"...................................................................................... 3
1.24. "Encumbrance"................................................................................... 3
1.25. "Environmental Law"............................................................................. 3
1.26. "ERISA"......................................................................................... 4
1.27. "Escrow Agent".................................................................................. 4
1.28. "Escrow Agreement".............................................................................. 4
1.29. "ERISA Plans"................................................................................... 4
1.30. "Excluded Assets"............................................................................... 4
1.31. "Facilities".................................................................................... 4
1.32. "Financial Statements".......................................................................... 4
1.33. "GAAP".......................................................................................... 4
1.34. "Governmental Authorities or Authority"......................................................... 4
1.35. [Intentionally Omitted.]........................................................................ 4
1.36. "Indemnifying Party"............................................................................ 4
1.37. "Indemnified Party"............................................................................. 4
1.38. "Interim Financial Statements".................................................................. 4
1.39. "Inventory"..................................................................................... 4
1.40. "JCAHO"......................................................................................... 5
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1.41. "Knowledge"..................................................................................... 5
1.42. "Legal Requirements"............................................................................ 5
1.43. "Managed Care Plans"............................................................................ 5
1.44. "Management Agreement".......................................................................... 5
1.45. "Medicaid"...................................................................................... 5
1.46. "Medicare"...................................................................................... 5
1.47. "Noncompetition Agreement"...................................................................... 5
1.48. "Party"......................................................................................... 5
1.49. "Payables"...................................................................................... 5
1.50. "Payroll Practice / Employee Arrangement"....................................................... 5
1.51. "Permits"....................................................................................... 5
1.52. "Permitted Encumbrances"........................................................................ 6
1.53. "Person"........................................................................................ 6
1.54. "Prepaid Expenses".............................................................................. 6
1.55. "Proprietary Rights"............................................................................ 6
1.56. "Provider Agreements"........................................................................... 6
1.57. "Purchase Price"................................................................................ 6
1.58. "Purchased Assets".............................................................................. 6
1.59. "Purchaser"..................................................................................... 6
1.60. "Purchaser Damages"............................................................................. 6
1.61. "Purchaser Indemnitees"......................................................................... 6
1.62. "Real Property"................................................................................. 6
1.63. [Intentionally Omitted.]........................................................................ 6
1.64. [Intentionally Omitted.]........................................................................ 6
1.65. "Regulated Substance"........................................................................... 7
1.66. "Related Party"................................................................................. 7
1.67. "Resident's Agreements"......................................................................... 7
1.68. "Retained Liabilities".......................................................................... 7
1.69. "Security Right"................................................................................ 7
1.70. "Security Right"................................................................................ 7
1.71. "Seller"........................................................................................ 7
1.72. "Seller Damages"................................................................................ 7
1.73. "Seller Indemnitees"............................................................................ 7
1.74. "Taxes"......................................................................................... 7
1.75. "Tax Return".................................................................................... 7
1.76. "Third Party Payor Programs".................................................................... 8
1.77. "Third Party Payors"............................................................................ 8
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ARTICLE II. TRANSFER OF ASSETS AND PROPERTIES........................................................ 8
2.1. Purchased Assets................................................................................ 8
2.1.1. Real Property Owned................................................................. 8
2.1.2. [Intentionally Omitted.]............................................................ 8
2.1.3. Equipment, Machinery and Other Tangible Personal Property........................... 8
2.1.4. Assumed Contracts Relating to the Business Relating to the Business................. 8
2.1.5. Sales, Rental and Marketing Materials, Manuals...................................... 8
2.1.6. Permits, Licenses................................................................... 8
2.1.7. Trade Secrets....................................................................... 9
2.1.8. Trade Name Property................................................................. 9
2.1.9. Goodwill............................................................................ 9
2.1.10. [Intentionally Omitted.]............................................................ 9
2.1.11. Inventory........................................................................... 9
2.1.12. Resident Funds...................................................................... 9
2.1.13. Prepaid Expenses.................................................................... 9
2.1.14. Computer Software and Hardware...................................................... 9
2.1.15. Other Intangible Assets............................................................. 9
2.2. Excluded Assets................................................................................. 9
2.2.1. Cash................................................................................ 9
2.2.2. Accounts Receivable................................................................. 9
2.2.3. Consideration....................................................................... 10
2.2.4. Pensions............................................................................ 10
2.2.5. Corporate Books..................................................................... 10
2.2.6. Third Party Claims.................................................................. 10
2.2.7. Taxes............................................................................... 10
2.2.8. Insurance Policies.................................................................. 10
2.2.9. Other Assets........................................................................ 10
2.2.10. Non-assumed Contracts............................................................... 10
2.3. License to Use Certain Assets................................................................... 10
ARTICLE III. CONSIDERATION AND TERMS................................................................. 10
3.1. Consideration for Purchased Assets.............................................................. 10
3.1.1. Purchase Price.......................................................................... 10
3.1.2. Other Consideration..................................................................... 11
3.2. Allocation of Purchase Price.................................................................... 11
3.3. Closing Prorations and Adjustments.............................................................. 12
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ARTICLE IV. ASSUMPTION OF LIABILITIES; EMPLOYEE MATTERS............................................. 13
4.1. General Limitation on Assumption of Liabilities................................................. 13
4.2. Assumed Liabilities and Obligations of Seller................................................... 13
4.3. Excluded Liabilities............................................................................ 13
4.4. Offer of Employment............................................................................. 14
4.5. Vacation, Workers' Compensation and Disability Claims........................................... 15
4.5.1. Seller's Liability...................................................................... 15
4.5.2. Purchaser's Liability................................................................... 15
4.5.3. Workers'Compensation; Unemployment Compensation......................................... 15
ARTICLE V. CLOSING................................................................................. 15
5.1. Time; Location.................................................................................. 15
5.2. Seller's Document Deliveries.................................................................... 15
5.2.1. Deeds .................................................................................. 16
5.2.2. Bill of Sale............................................................................ 16
5.2.3. Escrow Agreement........................................................................ 16
5.2.4. Title Certificates...................................................................... 16
5.2.5. Property Tax Statements................................................................. 16
5.2.6. Plans and Specifications................................................................ 16
5.2.7. Building Permits........................................................................ 16
5.2.8. Contracts and Other Permits............................................................. 16
5.2.9. Rent Roll............................................................................... 16
5.2.10. Seller's Certificate.................................................................... 17
5.2.11. Secretary's Certificate................................................................. 17
5.2.12. Actions and Proceedings................................................................. 17
5.2.13. Covenant Not to Compete................................................................. 17
5.2.14. Opinion of Counsel...................................................................... 18
5.2.15. Closing Documents....................................................................... 18
5.2.16. Other Documents......................................................................... 18
5.3. Purchaser's Document Deliveries................................................................. 18
5.3.1. Balance of Purchase Price............................................................... 18
5.3.2. Bill of Sale............................................................................ 18
5.3.3. Escrow Agreement........................................................................ 18
5.3.4. Purchaser's Certificate................................................................. 18
5.3.5. Secretary's Certificate................................................................. 18
5.3.6. Actions and Proceedings................................................................. 19
5.3.7. Opinion of Counsel...................................................................... 19
5.3.8. Other Documents......................................................................... 19
5.4. Reasonable Steps................................................................................ 19
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ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER................................................ 19
6.1. Organization, Good Standing and Power........................................................... 19
6.2. Authorization of Agreement...................................................................... 19
6.3. Enforceability.................................................................................. 20
6.4. No Violation; Consents.......................................................................... 20
6.5. Financial Statements............................................................................ 20
6.5.1. Annual Financial Statements............................................................. 20
6.5.2. Interim Financial Statements............................................................ 20
6.6. [Intentionally Omitted]......................................................................... 21
6.7. Inventory....................................................................................... 21
6.8. Absence of Certain Changes or Events............................................................ 21
6.8.1. Seller.................................................................................. 21
6.9. Real Property................................................................................... 22
6.9.1. Title to Properties; Absence of Liens and Encumbrances.................................. 22
6.9.2. Structures and Improvements............................................................. 22
6.9.3. Boundaries; Location.................................................................... 22
6.9.4. Location and Physical Condition of Facilities........................................... 22
6.9.5. Use and Operation....................................................................... 23
6.9.6. Utilities............................................................................... 23
6.9.7. Assessments; Notices.................................................................... 23
6.9.8. Condemnation............................................................................ 23
6.9.9. Access.................................................................................. 23
6.10. Proprietary Rights.............................................................................. 24
6.10.1. Logos and Tradenames.................................................................... 24
6.10.2. Licenses................................................................................ 24
6.10.3. Infringement............................................................................ 24
6.11. Contracts and Commitments....................................................................... 24
6.11.1. Seller.................................................................................. 24
6.11.2. Permits, Licenses....................................................................... 25
6.12. Compliance with Laws............................................................................ 26
6.13. Legal Proceedings............................................................................... 26
6.13.1. Seller.................................................................................. 26
6.13.2. Absence of Undisclosed Liabilities...................................................... 26
6.13.3. Books and Records....................................................................... 26
6.13.4. Employees............................................................................... 26
6.13.5. Labor Disputes.......................................................................... 27
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6.14. Payroll Practice/Employee Arrangement........................................................... 27
6.14.1. Benefit Plans........................................................................... 27
6.14.2. Plan Liability.......................................................................... 27
6.14.3. Retirement Benefits..................................................................... 27
6.14.4. No Finder............................................................................... 27
6.15. Condition of Equipment.......................................................................... 27
6.16. Affiliate Transactions.......................................................................... 28
6.17. Compliance With Environmental Matters........................................................... 28
6.17.1. Compliance; No Liability................................................................ 28
6.17.2. Treatment; CERCLA....................................................................... 28
6.17.3. Notices; Existing Claims; Certain Hazardous Materials; Storage Tanks.................... 28
6.18. Insurance....................................................................................... 28
6.19. No Significant Items Excluded................................................................... 29
6.20. Surveys......................................................................................... 29
6.21. Occupancy Reports............................................................................... 29
6.22. Discounted Rates; Rate limitations; Free Care................................................... 29
6.23. Tax Returns..................................................................................... 30
6.24. NOI ........................................................................................... 30
6.25. Completeness and Accuracy....................................................................... 30
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER............................................. 31
7.1. Organization, Good Standing, Power.............................................................. 31
7.2. Authorization of Agreement and Enforceability................................................... 31
7.3. Enforceability.................................................................................. 31
7.4. No Violations; Consents......................................................................... 31
7.5. Legal Proceedings............................................................................... 32
7.6. No Finder....................................................................................... 32
ARTICLE VIII. COVENANTS OF SELLER PRIOR TO CLOSING DATE............................................... 32
8.1. Required Actions................................................................................ 32
8.1.1. Access to Information................................................................... 32
8.1.2. Surveys; Occupancy; Operations.......................................................... 32
8.1.3. Conduct of Business..................................................................... 32
8.1.4. Maintenance of Properties............................................................... 33
8.1.5. Maintenance of Books and Records........................................................ 33
8.1.6. Compliance with Applicable Law.......................................................... 33
8.1.7. Performance of Obligations.............................................................. 33
8.1.8. Approvals, Consents..................................................................... 33
8.1.9. Notice of Material Damage............................................................... 33
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8.1.10. Pay Employees to Closing Date........................................................... 33
8.1.11. Cost Reports............................................................................ 33
8.1.12. Transfer of Employees................................................................... 34
8.1.13. Compliance with Agreement............................................................... 34
8.1.14. Update Schedules........................................................................ 34
8.1.15. Repairs and Alterations prior to Closing................................................ 34
8.2. Prohibited Actions.............................................................................. 34
8.2.1. Sale of Purchased Assets................................................................ 34
8.2.2. Business Changes........................................................................ 34
8.2.3. Incurrence of Material Obligations...................................................... 34
8.2.4. Incurrence of Liens..................................................................... 34
8.2.5. Change in Employee Compensation and Benefits............................................ 34
8.2.6. Publicity; Advertisement................................................................ 35
8.2.7. No Release.............................................................................. 35
8.2.8. No Termination or Modification.......................................................... 35
ARTICLE IX. COVENANTS OF PURCHASER PRIOR TO CLOSING DATE............................................ 35
9.1. Required Actions................................................................................ 35
9.1.1. Advise of Changes....................................................................... 35
9.1.2. Compliance with Agreement............................................................... 35
9.1.3. Examinations............................................................................ 35
9.1.4. Seller's Employees...................................................................... 35
9.1.5. Intentionally Omitted................................................................... 35
9.1.6. Seller's Employees...................................................................... 35
9.2. Investigation................................................................................... 36
9.3. Approvals, Consents............................................................................. 36
9.4. Publicity; Advertisement........................................................................ 36
ARTICLE X. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER....................................... 36
10.1. Accuracy of Representations and Warranties...................................................... 36
10.2. Performance of Agreement........................................................................ 36
10.3. Purchaser's Certificate......................................................................... 37
10.4. Secretary's Certificate......................................................................... 37
10.5. Injunction...................................................................................... 37
10.6. Actions and Proceedings......................................................................... 37
10.7. Opinion of Counsel.............................................................................. 38
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ARTICLE XI. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER........................................ 38
11.1. Accuracy of Representations and Warranties...................................................... 38
11.2. Performance of Agreement........................................................................ 38
11.3. Seller's Certificate............................................................................ 38
11.4. Secretary's Certificate......................................................................... 38
11.5. Injunction...................................................................................... 39
11.6. Actions and Proceedings......................................................................... 39
11.7. Consents........................................................................................ 39
11.8. Arrangements with Employees..................................................................... 39
11.9. Business Investigation.......................................................................... 39
11.10. Physical Inspection............................................................................. 39
11.11. Environmental Report............................................................................ 40
11.12. Title Insurance................................................................................. 40
11.13. [Intentionally Omitted.]........................................................................ 40
11.14. Closing Documents............................................................................... 40
11.15. Other Deliveries................................................................................ 40
11.15.1.Surveys................................................................................. 40
11.15.2.Affidavits.............................................................................. 40
11.15.3.FIRPTA Certificates..................................................................... 40
11.16. Intentionally Omitted........................................................................... 41
11.17. Opinion of Counsel.............................................................................. 41
11.18. Authorization................................................................................... 41
11.19. Opinion of Counsel.............................................................................. 41
ARTICLE XII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER....................................... 41
12.1. Accuracy of Representations and Warranties...................................................... 41
12.2. Performance of Agreement........................................................................ 41
12.3. Purchaser's Certificate......................................................................... 41
12.4. Secretary's Certificate......................................................................... 41
12.5. Injunction...................................................................................... 42
12.6. Actions and Proceedings......................................................................... 42
ARTICLE XIII. OBLIGATIONS AFTER THE CLOSING DATE...................................................... 42
13.1. Covenant Not to Interfere....................................................................... 42
13.2. Noncompetition.................................................................................. 42
13.3. Transition of Employees......................................................................... 43
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13.4. Certain Transitional Matters..................................................................... 43
13.4.1. Transfer of Assets...................................................................... 43
13.4.2. Endorsement of Checks................................................................... 43
13.4.3. Seller's Remittance of Funds............................................................ 43
13.4.4. Purchaser's Remittance of Funds......................................................... 43
13.4.5.Assumed Liabilities Controlled by Purchaser.............................................. 43
13.5. Audits.......................................................................................... 44
13.6. Preservation of Records......................................................................... 44
13.7. Seller's Access to Resident Records............................................................. 44
13.8. Further Assurances of Seller.................................................................... 44
13.9. Further Assurances of Purchaser................................................................. 45
ARTICLE XIV. TERMINATION.............................................................................. 45
14.1. Termination of Agreement........................................................................ 45
14.2. Return of Documents............................................................................. 45
14.3. Remedies........................................................................................ 46
14.4. Earnest Money................................................................................... 46
14.5. Licensure Requirements.......................................................................... 46
14.6. Damage or Condemnation.......................................................................... 46
ARTICLE XV. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.............................. 46
15.1. Survival of Representations and Warranties...................................................... 46
15.2. Indemnification by Seller....................................................................... 47
15.3. Indemnification by Purchaser.................................................................... 47
15.4. Notice of Claims................................................................................ 47
15.5. Third Party Claims.............................................................................. 48
15.6. Limitation of Liability......................................................................... 48
15.6.1. Threshold............................................................................... 48
15.6.2. Time Period............................................................................. 48
15.6.3. Fraud; Intentional Misrepresentation.................................................... 49
15.7. Survival of Representations and Warranties...................................................... 49
15.8. Indemnification by Seller....................................................................... 49
15.9. Indemnification by Purchaser.................................................................... 49
15.10. Notice of Claims................................................................................ 50
15.11. Third Party Claims.............................................................................. 50
15.12. Other Remedies.................................................................................. 50
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ARTICLE XVI. GENERAL ............................................................................................ 50
16.1. Expenses ......................................................................................... 50
16.2. Publicity ........................................................................................ 51
16.3. Confidentiality .................................................................................. 51
16.4. Waivers .......................................................................................... 51
16.5. Binding Effect; Benefits ......................................................................... 51
16.6. Notices .......................................................................................... 51
16.6.1. Notice to Seller ......................................................................... 52
16.6.2. Notice to Purchaser ...................................................................... 52
16.7. Entire Agreement ................................................................................. 53
16.8. Counterparts ..................................................................................... 53
16.9. Headings ......................................................................................... 53
16.10. Construction ..................................................................................... 53
16.11. Governing Law and Choice of Forum ................................................................ 53
16.12. Cooperation ...................................................................................... 53
16.13. Severability ..................................................................................... 53
16.14. Attorney's Fees .................................................................................. 53
16.15. Successors and Assigns ........................................................................... 54
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 30th day of September, 1998 by and among BCC of Wisconsin, Inc., a
Delaware corporation and wholly owned subsidiary of Balanced Care Corporation,
also a Delaware corporation and the sole shareholder of the capital stock of BCC
of Wisconsin, Inc. (hereinafter, collectively referred to as "Seller"), and
Urquhart Companies, a Minnesota partnership ("Purchaser").
RECITALS:
WHEREAS, Seller is the owner of certain community-based residential
care facilities that are operated under the name "Harmony Manor" and located in
Portage, Pardeeville, Waupun, Mauston, Beloit, Monroe and Tomah, Wisconsin
(collectively, the "Facilities"); and
WHEREAS, the Seller is in the business of providing adult
personal/assisted living care services and other ancillary health care services
to its residents at the aforementioned Facilities (the "Business"); and
WHEREAS, Balanced Care Corporation owns all of the issued and
outstanding shares of the capital stock of BCC of Wisconsin, Inc.; and
WHEREAS, Seller desires to sell certain assets used or held for use in
the operation of each of the Facilities and the Business to Purchaser on the
terms and conditions hereinafter set forth, to which Purchaser is agreeable.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, and for good and other valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto, each
intending to be legally bound hereby, do covenant and agree as follows:
ARTICLE I. CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1. "Accounts Receivable" shall mean as of any date any trade accounts
receivable (including, without limitation, any third party receivables arising
in connection with any Third Party Payor Programs), notes receivable, bid or
performance deposits, employee advances and other miscellaneous receivables
associated with the Business through and as of such date.
1.2. "Accreditation Body" shall mean CARF, JCAHO, the Wisconsin
Department of Health and Family Social Services Department of Social Services,
the Division of Aging and all other Persons having jurisdiction over the
accreditation, certification, evaluation or operation of the Business.
<PAGE> 13
1.3. "Accrued Expenses" shall mean as of any date accrued rents,
insurance premiums, payroll and benefits (including, without limitation,
vacation, sick pay, disability pay) and other accrued expenses as would appear
on a balance sheet of Seller as of such date prepared in accordance with GAAP
consistently applied, including those described in Schedule 1.3.
1.4. "Affiliate" shall mean any company or other entity which
controls, is controlled by or is under common control with the designated Party.
For the purpose of the foregoing, ownership, directly or indirectly, of 120% or
more of the voting stock or other equity interest shall be deemed to constitute
control.
1.5. "Agreement" shall mean this Asset Purchase Agreement.
1.6. "Ancillary Agreements" shall mean the Escrow Agreement, a form of
which is attached in Schedule 1.26, real property conveyances described in
Section 5.2.1, and the Bill of Sale, Assignment and Assumption described in
Section 5.2.2, a form of which is attached in Schedule 5.2.2, and the
Noncompetition Agreement, a form of which is attached in Schedule 5.2.13.
1.7. "Annual Financial Statements" shall have the meaning given to it
in Section 6.5.1.
1.8. "Assumed Liabilities" shall have the meaning given to it in
Section 4.2.
1.9. "Books and Records" shall have the meaning given to it in Section
6.156.
1.10. "Business" shall mean the operation of the an adult care
residential Facilities and any other ancillary health care services owned,
operated, delivered, managed, developed, constructed, maintained, used, occupied
or possessed by Seller in connection therewith (including, without limitation,
any outpatient and contract rehab therapy services or any Alzheimer's units).
1.11. "CARF" shall mean the Commission on Accreditation of
Rehabilitation Facilities.
1.12. "Champus" shall mean the Civilian Health and Medical Program of
the Uniform Service, a program of medical benefits covering retirees and
dependents of members or former members of a uniformed service provided,
financed and supervised by the United States Department of Defense and
established by 10 U.S.C Sections 1071 et seq.
1.13. [Intentionally Omitted.]
1.14. "Closing" shall have the meaning given to it in Section 5.1.
1.15. "Closing Date" shall have the meaning given to it in Section 5.1.
1.16. "Closing Inventory" shall mean all closing inventories of
supplies, drugs, food, beverages, medical supplies, linens and other similar
disposables and consumables which are owned by Seller and are usable and on hand
as of the Closing Date; Inventory relating to the Business on the Closing Date.
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1.17. "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time, and any successor thereto. Any reference herein to a
specific section or sections of the Code shall be deemed to include a reference
to any corresponding provision of future law.
1.18. "Contract" shall mean all alliance agreements, transfer
agreements, other agreements (including, without limitation, Resident's
Agreements described on Schedule 1.621 , Management Agreements and Provider
Agreements), contracts, contract rights, commitments, customer accounts, orders,
leases, guarantees, warranties and representations, franchises and books and
records of account benefiting, relating to the Business or the ownership,
construction, development, maintenance, repair, management, use, occupancy,
possession or operation thereof, or the operation of any of the programs or
services in conjunction with the Business and all renewals, replacements and
substitutions therefor, issued by any Governmental Authority, Accreditation Body
or Third Party Payor or maintained or used by Seller with any third Person.
1.19. "Current Liabilities" shall mean all liabilities classified as
current liabilities in accordance with GAAP.
1.20. "Damages" shall have the meaning given to such term in Sections
14.2 and 14.34.
1.21. "Department of Health and Family Social Services" shall mean the
Wisconsin Department of Health and Commonwealth of Virginia, Department of
Family Services.
1.22. "Division of Aging" shall mean the Commonwealth of Virginia,
Department of Social Services, Division of Aging.
1.23. "Employee" shall mean any individual employed by Seller in the
conduct of the Business as listed on Schedule 1.212 (such Schedule being subject
to change between the date hereof and the Closing Date as a result of employee
changes in the ordinary course of business consistent with past practices).
1.24. "Encumbrance" shall mean any right to, or interest in, property,
which subsists in a third-party and which constitutes a claim, lien, charge or
liability attached to and binding upon the property, including, but not limited
to, a mortgage, judgment lien, mechanic's lien, lease, security interest,
easement and right-of-way.
1.25. "Environmental Law" shall mean any federal [including but not
limited to the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 et
seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the
Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Sections 9601 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et seq.), and
the Federal Insecticide Fungicide and Rodenticide Act (7 U.S.C. Sections 136 et
seq.)], other Legal Requirements, any common law doctrine and any provision or
condition of any permit, license or other operating authorization relating to
(i) the protection of the environment or the public welfare from actual or
potential exposure (or the effects of exposure) to any actual or potential
release, discharge, disposal or emission (whether past or present) of any
Regulated Substance or
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(ii) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Regulated Substance.
1.26. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.27. "Escrow Agent" shall mean the agent designated by the Chicago
Title Insurance Company to enter into an agreement with the Seller and Purchaser
in order to administer the terms and conditions of the Escrow Agreement.
1.28. "Escrow Agreement" shall mean the escrow agreement entered into
between Escrow Agent, Seller, and Purchaser in substantially the same form as
attached in Schedule 1.26.
1.29. "ERISA Plans" shall mean defined benefit pension plans and
defined contribution pension plans qualified under Section 401(a) of the Code.
1.30. "Excluded Assets" shall mean those assets that are not included
in the sale contemplated hereby and as are further defined in Section 2.2.
1.31. "Facilities" shall have the meaning given to it in the Recitals
mean Potomac Point Residential and Geriatric Care Facility, described in the
Recitals of this Agreement.
1.32. "Financial Statements" shall mean the Annual Financial Statements
and the Interim Financial Statements, collectively.
1.33. "GAAP" shall mean generally accepted accounting principles in the
United States of America.
1.34. "Governmental Authorities or Authority" shall mean all agencies,
authorities, bodies, boards, commissions, courts, instrumentalities,
legislatures and offices of any nature whatsoever of any government,
quasi-governmental unit or political subdivision, whether with a federal, state,
county, district, municipality, city or otherwise.
1.35. [Intentionally Omitted.]
1.36. "Indemnifying Party" shall have the meaning given to such term in
Sections 14.2 and 14.34.
1.37. "Indemnified Party" shall have the meaning given to such term in
Sections 14.2 and 14.34.
1.38. "Interim Financial Statements" shall have the meaning given to it
in Section 6.5.2.
1.39. "Inventory" shall mean the inventory of Seller, including,
without limitation, dry storage goods, janitorial supplies, food and beverage
supplies, office supplies, medical supplies, s and pharmaceutical supplies,
linens and other similar disposables and consumables.
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1.40. "JCAHO" shall mean the Joint Commission on Accreditation of
Healthcare Organizations.
1.41. "Knowledge" and words of similar import shall mean, with respect
to any Party, actual knowledge of a particular fact or other matter being
possessed by an individual, and the knowledge that reasonably could be expected
to be obtained in the course of conducting a reasonably comprehensive
investigation concerning the subject matter.
1.42. "Legal Requirements" shall mean all statutes, ordinances,
by-laws, codes, rules, regulations, restrictions, orders, judgments, decrees and
injunctions (including, without limitation, all applicable building, health
code, zoning, subdivision and other land use and health care licensing statutes,
ordinances, by-laws, codes, rules and regulations), promulgated or issued by any
Governmental Authority, Accreditation Body or Third Party Payor. Without
limiting the foregoing, the term Legal Requirements includes all Environmental
Laws and all Permits and Contracts issued or entered into by any Governmental
Authority, any Accreditation Body and/or any Third Party Payor and all Permitted
Encumbrances.
1.43. "Managed Care Plans" shall mean all health maintenance
organizations, preferred provider organizations, individual practice
associations, competitive medical plans and similar arrangements.
1.44. "Management Agreement" shall mean any agreement, whether written
or oral, between Seller and any other Person pursuant to which Seller provides
any payment, fee or other consideration to any other Person to operate or manage
the Business (except any employment agreements).
1.45. "Medicaid" shall mean the medical assistance program established
by Title XIX of the Social Security Act (42 U.S.C. Sections 1396 et seq.) and
any statute succeeding thereto.
1.46. "Medicare" shall mean the health insurance program for the aged
and disabled established by Title XVIII of the Social Security Act (42 U.S.C.
Sections 1395 et seq.) and any statute succeeding thereto.
1.47. "Noncompetition Agreement" shall mean the noncompetition
agreement entered into between Seller and Purchaser, in substantially the same
form as attached in Schedule 5.2.13.
1.48. "Party" shall mean either the Seller or Purchaser, individually,
as the context so requires, and the term "Parties" shall mean the Seller and
Purchaser together.
1.49. "Payables" as of any date shall mean any of the trade accounts
payable of Seller with respect to the Purchased Assets or the Business as of
such date in accordance with GAAP consistently applied.
1.50. "Payroll Practice / Employee Arrangement" shall have the meaning
given to such term in Section 6.189.
1.51. "Permits" shall mean all permits, licenses, approvals,
qualifications, rights, variances, permissive uses, accreditations,
certificates, certifications, consents, contracts, interim
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licenses, permits and other authorizations of every nature whatsoever required
by, or issued to or on behalf of Seller under any Legal Requirements benefiting,
relating to or effecting the Business or the construction, development,
maintenance, management, use or operation thereof, or the operation of any
programs or services in conjunction with the Business and all renewals,
replacements and substitutions therefor, now or hereafter required or issued by
any Governmental Authority, Accreditation Body or Third Party Payor.
1.52. "Permitted Encumbrances" shall mean all Real Property liens for
taxes, assessments and governmental charges not yet past due and payable and
such other title exceptions that existed when Seller acquired title to the Real
Property as specifically set forth in Schedule B to those certain title
insurance policies issued by Chicago Title Insurance Company to Seller, copies
of which are attached hereto in Schedule 1.49. those Encumbrances as
specifically set forth on Schedule 1.46 hereto.
1.53. "Person" shall mean any individual, corporation, company, limited
or general partnership, trust or estate, joint venture, association or other
entity.
1.54. "Prepaid Expenses" as of any date shall mean payments made by
Seller with respect to the Purchased Assets or, with respect to Seller, the
Business, which constitute prepaid expenses in accordance with GAAP consistently
applied.
1.55. "Proprietary Rights" shall have the meaning given to such term in
Section 6.910.1.
1.56. "Provider Agreements" shall mean all participation, provider and
reimbursement agreements or arrangements for the benefit of Seller in connection
with the operation of the Business relating to any right to payment or other
claim arising out of or in connection with Seller's participation in any Third
Party Payor Program.
1.57. "Purchase Price" shall have the meaning given to such term in
Section 3.1.1.
1.58. "Purchased Assets" shall have the meaning given to such term in
Section 2.1.
1.59. "Purchaser" shall have the meaning given to such term in the
preamble of this Agreement.
1.60. "Purchaser Damages" shall have the meaning given to such term in
Section 14.2.
1.61. "Purchaser Indemnitees" shall have the meaning given to such
term in Section 14.2.
1.62. "Real Property" shall mean the real property owned by Seller, and
used in connection with the Facility and the Business as more fully described in
Schedule 1.596 hereto.
1.63. [Intentionally Omitted.]
1.64. [Intentionally Omitted.]
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1.65. "Regulated Substance" shall mean petroleum, petroleum
hydrocarbons or petroleum products and any other chemical, material, substance
or waste that is identified (by listing or characteristic) and regulated (or the
clean-up of which can be required) by any Legal Requirement intended to protect
the environment or the public health or welfare, including but not limited to
Legal Requirements relating to clean air, clean water, hazardous and solid waste
disposal, safe drinking water, endangered species, occupational safety and
health, oil spill prevention, groundwater protection, and toxic substances
control.
1.66. "Related Party" means (i) Seller, (ii) any Affiliate of Seller,
and (iii) any officer, director, shareholder or partner of any Person identified
in clauses (i) or (ii) preceding, and (iv) any spouse, sibling, ancestor or
lineal descendant of any natural Person identified in any one of the preceding
clauses.
1.67. "Resident's Agreements" shall mean copies of all contracts,
agreements and consents executed by or on behalf of any resident or other Person
seeking services at the Facility as more fully described in Schedule 1.67
hereto, including, without limitation, assignments of benefits and guarantees,
and such resident's related medical and/or other records.
1.68. "Retained Liabilities" has the meaning given that term in Section
4.32.
1.69. "Security Right" means, with respect to any security, any option,
warrant, subscription right, preemptive right, other right, proxy, put, call,
demand, plan, commitment, agreement, understanding or arrangement of any kind
relating to such security, whether issued or unissued, or any other security
convertible into or exchangeable for any such security.
1.70. "Security Right" includes any right relating to issuance, sale,
assignment, transfer, purchase, redemption, conversion, exchange, registration
or voting and includes rights conferred by statute, by the issuer's governing
documents or by agreement.
1.71. "Seller" shall have the meaning given to such term in the
preamble of this Agreement, individually or collectively, as the context may
require.
1.72. "Seller Damages" shall have the meaning given to such term in
Section 14.3.
1.73. "Seller Indemnitees" shall have the meaning given to such term
in Section 14.3.
1.74. "Taxes" shall mean all taxes, duties, charges, fees, levies or
other assessments imposed by any Governmental Authority, including, without
limitation, income, gross receipts, value-added, excise, withholding, personal
property, real estate, sales, use, ad valorem, license, lease, service,
severance, stamp, transfer, payroll, employment, customs, duties, alternative,
add-on minimum, estimated and franchise taxes (including any interest, penalties
or additions attributable to or imposed on or with respect to day such
assessment).
1.75. "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
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1.76. "Third Party Payor Programs" shall mean all third party payor
programs which Seller participates, including, without limitation, Medicare,
Medicaid, Champus, Blue Cross and/or Blue Shield, Managed Care Plans, other
private insurance plans and employee assistance programs.
1.77. "Third Party Payors" shall mean Medicare, Medicaid, Blue Cross
and/or Blue Shield, private insurers and any other Person which maintains Third
Party Payor Programs.
ARTICLE II. TRANSFER OF ASSETS AND PROPERTIES
2.1. Purchased Assets. Subject to the terms and conditions of this
Agreement, Seller shall sell and convey to Purchaser, free and clear of all
Encumbrances whatsoever (other than Permitted Encumbrances and except as
expressly provided herein), and Purchaser shall purchase from Seller on a
going-concern basis, all of Seller's respective right, title and interest in and
to the assets, properties and rights of every kind and description, real,
personal and mixed, tangible and intangible, wherever situated owned by Seller
and used or useful in connection with the Business (the "Purchased Assets") as
the same shall exist on the Closing Date (other than the Excluded Assets),
including, without limitation, the following:
2.1.1. Real Property Owned. The Real Property, together with
the buildings, structures, improvements and fixtures located thereon, and all
rights, privileges, easements, licenses, hereditaments and other appurtenances
relating thereto;
2.1.2. [Intentionally Omitted.]
2.1.3. Equipment, Machinery and Other Tangible Personal
Property. All machinery, equipment, leasehold improvements, automobiles,
supplies, office furniture and office equipment, computing and
telecommunications equipment and other items of personal property, including
those described in Schedule 2.1.3 hereto;
2.1.4. Assumed Contracts Relating to the Business Relating to
the Business. All the Contracts listed on Schedule 2.1.3 and the Residents'
Agreements listed on Schedule 1.67 hereto, and other Contracts entered into
hereinafter with Purchaser's approval, and other Residents' Agreements entered
into hereinafter within the ordinary course of contracts relating to the
acquisition or ownership of the Purchased Assets or the operating on of the
Business,; including, without limitation, the Contracts listed on Schedule 2.1.4
and the Resident's Agreements listed on Schedule 1.67 hereto, which Purchaser
elects in writing to assume pursuant to this Agreement, to the extent such
Contracts are transferable to Purchaser;
2.1.5. Sales, Rental and Marketing Materials, Manuals. All
sales data, rental data, catalogs, brochures, reference sources, suppliers'
names, mailing lists, art work, photographs, public relations and advertising
material used in the Business, whether in electronic form or otherwise;
2.1.6. Permits, Licenses. All Permits relating to the
acquisition or ownership of the Purchased Assets or the operation of the
Business, including, without limitation, those permits listed in Schedule 2.1.56
hereto, to the extent such Permits are transferable to Purchaser;
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2.1.7. Trade Secrets. All policies and procedures, methods
of delivery of services, trade secrets, designs, drawings and specifications,
market studies, consultants' reports, prototypes, and all similar property of
any nature, tangible or intangible, used in connection with the Business;
2.1.8. Trade Name Property. All of the Seller's right,
title and interest in and to the trade name "Harmony Manor" or variations
thereof; patents, trademarks, trademark registrations, trade names, service
marks, copyrights and copyright registrations used in connection with the
Business, including, without limitation, those described in Schedule 2.1.8;
2.1.9. Goodwill. All goodwill incident to the Business,
including but not limited to the value of the names associated with the Business
and the value of good customer relations;
2.1.10. [Intentionally Omitted.]
2.1.11. Inventory. All Closing Inventory;
2.1.12. Resident Funds. All prepaid rents, deposits and
escrow accounts of, or for the benefit of, the Facilities' residents at the
Closing Date;
2.1.13. Prepaid Expenses. All Prepaid Expenses of, or for
the benefit of, the Purchased Assets or the Business at the Closing Date
including those described in Schedule 2.1.13, to the extent the benefits thereof
are transferable to Purchaser;
2.1.14. Computer Software and Hardware. All computer
applications software, owned or licensed, whether for general business usage
(e.g., accounting, word processing, graphics, spreadsheet analysis, etc.), or
specific, unique-to-the-business usage, and all computer operating, security or
programming software, owned or licensed and used in the operation of the
Business; , provided, however it is understood that Seller makes no
representations regarding year 2000 compliance of such software or any purchased
computer hardware; and
2.1.15. Other Intangible Assets. All other intangible
assets (including all causes of action, rights of action, contract rights and
warranty and product liability claims against third parties) relating to the
Purchased Assets or the Business.
2.2. Excluded Assets. Notwithstanding Section 2.1, the following
assets (collectively, the "Excluded Assets") shall be excluded from this
Agreement, and shall not be assigned or transferred to Purchaser:
2.2.1. Cash. All other cash, cash equivalents on hand or
in bank accounts, short-term notes receivable and unbilled costs and fees up
through and including the Closing Date;
2.2.2. Accounts Receivable. All Accounts Receivable of
Seller existing on the Closing Date;
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2.2.3. Consideration. The consideration paid to Seller r
pursuant to this Agreement;
2.2.4. Pensions. Assets constituting any pension or other
funds for the benefit of Employees existing on the Closing Date;
2.2.5. Corporate Books. Corporate minute book, and stock
book and tax returns of Seller;
2.2.6. Third Party Claims. Any claims and rights against
third parties (including, without limitation, insurance carriers) to the extent
they relate to liabilities or obligations that are not assumed by Purchaser
hereunder (except the amount of costs and expenses Purchaser shall have incurred
with respect to such claims and rights);
2.2.7. Taxes. Claims for refunds of Taxes and other
charges imposed by any Governmental Authority; and
2.2.8. Insurance Policies. Any insurance policies of
Seller as identified on Schedule 2.2.8; and
2.2.9. Other Assets. Assets listed on Schedule 2.2.97.
2.2.10. Non-assumed Contracts. All contracts which
Purchaser does not elect in writing to assume under this Agreement.
2.3. License to Use Certain Assets. To the extent that there are
any tangible or intangible assets used by Seller in connection with the
Purchased Assets or the Business that are not specifically designated as
Excluded Assets by Section 2.2 (without reference to this Section), the
Purchased Assets shall include an irrevocable, nonexclusive, perpetual, paid-up,
royalty-free, transferable license to utilize such assets in connection with the
operation of the Business after the Closing Date. To the extent that any such
assets may not be licensed, Seller shall take all steps required to assure that
Purchaser obtains the benefit of such assets.
ARTICLE III. CONSIDERATION AND TERMS
3.1. Consideration for Purchased Assets.
3.1.1. Purchase Price. The aggregate consideration to be paid
by Purchaser to Seller for the Purchased Assets of and the Business (the
"Purchase Price") shall consist of a cash payment in the amount of
$23,90420,000, subject to the adjustments to be made as set forth in Section 3.3
below, to be paid by certified or cashier's check drawn on a national bank or by
wire transfer and distributed as follows:
(i) $520,000 to be paid directly to Seller (the "$50,000 Payment")
to be paid to deposited with the Escrow Agent pursuant to the Escrow Agreement,
pursuant to the Escrow Agreement within two (2) working days of the t execution
of this Agreement and the Escrow Agreement, and applied to the Purchase Price at
Closing; and, otherwise to be disbursed as
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provided in the Escrow Agreement and Section 13.4 hereof.; provided, however,
that if Closing fails to occur, the $50,000 payment is nonrefundable and shall
be retained by Seller in any event (the "$50,000 Payment"); previously paid to
Seller on or about March 9, 1998 (the "$20,000 Payment");and
(ii) the Purchase Price less the $50,000 Payment above, and plus or
minus the adjustments to be made as set forth in Section 3.3 below, to be paid
at Closing.
If Closing fails to occur as contemplated herein by this Agreement, the
$50,000 Payment shall be paid to Seller by Escrow Agent in any event except in
the case of (i) a failure of the conditions contained in either Section 11.7
("Consents"), or Section 11.9 ("Environmental Report"), or Section 11.11
("Financing"), but in the case of the financing condition, only if the financing
condition is unsatisfied due to the disapproval by Purchaser's lender of Real
Property zoning and variance land use exceptions or restrictions granted by the
proper Governmental Authorities; (ii) a material breach of warranty or
representation by Seller; or (iii) Seller's failure to otherwise perform
hereunder, in which case the $50,000 Payment shall be returned by Escrow Agent
to Purchaser upon written demand therefor. Notwithstanding the foregoing, the
$50,000 Payment shall be paid to Seller by Escrow Agent (i) if there is a
material breach of warranty or representation by Purchaser or (ii) Purchaser
fails to otherwise perform hereunder. $80,000 to be paid directly to Seller
within two (2) working days of the execution of this Agreement (the "80,000
Payment"); and
In order to facilitate the transaction contemplated herein, the Parties
agree to enter into an Escrow Agreement with an approved agent for the Chicago
Title Insurance Company contemporaneously with the execution of this Agreement,
in substantially the same form as attached to Schedule 1.26 hereto (the "Escrow
Agreement").
(iii) the remaining balanced to be paid by certified or cashier's check
drawn on a national bank or by wire transfer to Seller at the time of Closing.
All of the payments in (i) - (iii) above shall be credited against the
purchase price at Closing. The $20,000 Payment is nonrefundable and shall be
retained by Seller in any event. The $80,000 Payment shall be retained by Seller
in any event except in the case of (i) a failure of any condition contained in
Article X; (ii) a material breach of warranty or representation by Seller; or
(iii) Seller's failure to otherwise perform hereunder, in which case the $80,000
Payment shall be returned by Seller to Purchaser upon written demand therefor.
3.1.2. Other Consideration. As additional consideration,
Purchaser shall also assume the Assumed Liabilities at the time of Closing.
3.2. Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets and the Business in accordance with the
allocation set forth in Schedule 3.23. Purchaser and Seller shall report the
federal, state and local income and other tax consequences of the purchase and
sale contemplated hereby in a manner consistent with such allocation, and shall
not take any position inconsistent therewith upon examination of any tax return,
in any refund claim, in any litigation or otherwise to the extent permitted
under applicable law.
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3.3. Closing Prorations and Adjustments. The following shall be
prorated and adjusted between Seller and the Purchaser as of the Closing Date,
except as otherwise specified:
(a) The cost of the Title Insurance, and Survey, and the documentary
state, county and local transfer taxes relating to the instruments of conveyance
contemplated herein shall be paid by Purchaser;
(b) Amounts paid or payable under Contracts relating to the business,
if any, shall be prorated as set forth below;
(c) All assessments, general or special, which are due and payable
and/or levied due and payable prior to Closing, shall be paid by Seller prior to
Closing;
(d) All documentary state, county and local transfer taxes relating to
the instruments of conveyance contemplated herein shall be paid by Seller; all
general real estate taxes shall be prorated at the time of closing based on the
most recently ascertainable real estate tax bill and be prorated as set forth
below;
(e) All general real estate taxes shall be prorated at the time of
closing based on the most recently ascertainable real estate tax bill and
reported as set forth below;
(f) Resident rents relative to the Purchased Assets shall be prorated
as set forth below;
(g) A $15,000 Payment shall be made by Seller to Purchaser and
accounted for as a Purchase Price adjustment credit in favor of the Purchaser
for the upgrade of the fire protection systems at the Facilities as required by
the Department of Health and Family Services for community-based residential
care licenses issued after January 1, 1997; and
(h) Such other items agreed to in writing between the parties or that
are customarily prorated in transactions of this nature shall be ratably
prorated.
For purposes of calculating prorations, Seller shall be deemed to be in
title to the Facilities for the entire day upon which the Closing occurs. All
such prorations shall be made on the basis of the actual number of days of the
year and month which shall have elapsed as of the Closing Date. To the extent
not ascertainable at the Closing Date, the amount of such prorations shall be
adjusted in cash after Closing as and when complete and accurate information
becomes available but only in the event that such proration is greater than
$250. Seller and Purchaser agree to cooperate and use their diligent and good
faith efforts to make such adjustments no later than 30 days after the Closing.
Items of income and expense for the period prior to and including the Closing
Date will be for the account of Seller and items of income and expense for the
period after the Closing Date will be for the account of Purchaser, all as
determined by the accrual method of accounting. Bills received after Closing
which relate to expenses incurred, services performed or other amounts allocable
to the period prior to and including the Closing Date will be paid by Seller.
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ARTICLE IV. ASSUMPTION OF LIABILITIES; EMPLOYEE MATTERS
4.1. General Limitation on Assumption of Liabilities. Except for
Permitted Encumbrances and as otherwise provided in Sections 4.2, 4.3 and 4.54
below, Seller shall transfer the Purchased Assets to Purchaser free and clear of
all Encumbrances, and without any assumption of liabilities and obligations, and
Purchaser shall not, by virtue of its purchase of the Purchased Assets, assume
or become responsible for any liabilities or obligations of Seller or any other
Person. For purposes of this Section 4.1 the phrase "liabilities and
obligations" shall include, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured
or unsecured.
4.2. Assumed Liabilities and Obligations of Seller. On the Closing
Date, Purchaser shall acquire the Purchased Assets subject only to, and shall
undertake, assume, perform and otherwise pay, satisfy and discharge, and hold
Seller harmless from the following liabilities and obligations, excluding any
liabilities and obligations to Affiliates of Seller (collectively, the "Assumed
Liabilities"):
(i) All liabilities and obligations of Seller accruing
subsequent to the Closing Date under the Contracts contemplated by Section
2.1.34, provided that the rights thereunder have been duly and effectively
assigned to Purchaser; and
(ii) All liabilities and obligations of Seller accruing
after the Closing Date under the Permits described in Section 2.1.56, provided
that the rights thereunder have been duly and effectively assigned to Purchaser.
4.3. Excluded Liabilities. Except for the Assumed Liabilities,
Purchaser does not and shall not assume or in any way undertake to pay, perform,
satisfy or discharge any other liability of Seller existing on the Closing Date
or arising out of any transactions entered into, or any state of facts existing,
prior to the Closing Date (the "Retained Liabilities"), and Seller agrees to pay
and satisfy when due all of such Seller's respective Retained Liabilities.
Except for the obligations and liabilities included in the Assumed Liabilities,
the term "Retained Liabilities" shall include, without limitation, liabilities:
(i) for or in connection with any dividends, distributions,
redemptions, or Security Rights with respect to any security of Seller;
(ii) arising out of any transaction affecting Seller or
obligations incurred by Seller after Closing;
(iii) for expenses or fees incident to or arising out of the
negotiation, preparation, approval or authorization of this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, all legal and accounting fees and all brokers or finders fees or
commissions payable by Seller;
(iv) under or arising out of this Agreement;
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(v) against which Seller is insured or otherwise
indemnified or which would have been covered by insurance (or indemnification)
but for a claim by the insurer (or the indemnitor) that the insured (or the
indemnities) had breached its obligations under the policy of insurance (or the
contract of indemnity) or had committed fraud in the insurance application;
(vi) to any Related Party;
(viii) to indemnify Seller's officers, directors,
shareholders, Employees or agents;
(ix) for federal, state or local tax liabilities or
obligations of Seller in respect to periods prior to Closing, and the
transactions contemplated hereunder, including, without limitation, income taxes
payable under the Code, any income tax, any franchise tax, any tax recapture,
any FICA, workers' compensation, vacation liability and other employee benefits,
any insurance premiums, rents, or other accruals and any and all other taxes or
amounts due or payable for a period prior to Closing; notwithstanding the
foregoing, all state and local recordation taxes arising by reason of the
transfers contemplated by this Agreement shall be paid by Purchaser and all tax
constituting a Grantor's Tax, as defined under Virginia law (excluding all
federal, state and local income and gross receipt taxes on the earnings or gross
receipts of Seller prior to the Closing Date, which shall remain the sole
responsibility of such Seller). shall be the responsibility of and shall be
borne by Seller (All any real estate and personal property taxes for the year in
which Closing occurs shall be pro-rated to the Closing Date [based on a calendar
year or fiscal year for which such taxes are levied basis; and], if the tax
rates for the year in which Closing occurs shall not be fixed prior to the
Closing Date for a particular item of the Purchased Assets, the pro-ration of
taxes thereon shall be based upon the tax rate for the year prior to Closing
applied to the latest assessment valuation; however, in the event that any such
taxes are increased or decreased for the year in which Closing occurs, Seller or
Purchaser shall then reimburse the other party for amounts in excess of or less
than the proration as determined as of the Closing Date);
(x) for long term indebtedness and other obligations or
guarantees of Seller;
(xi) for Current Liabilities of Seller at the Closing Date;
(xii) if applicable, for or in connection with any cost
reports required to be filed by Seller with respect to periods prior to Closing;
and
(xiii) for Accrued Expenses and Payables of Seller at the
Closing Date.
4.4. Offer of Employment. It is Purchaser's present intention to
offer employment on and as of Closing, on an at-will basis, to o all Employees
actively at work at the Facilities in the same or substantially similar jobs,
and at substantially the same base salaries or wages and substantially the same
benefits as were paid or provided by Seller immediately prior to the Closing
Date as reflected on Schedule 1.21 hereof; however, Purchaser assumes no
obligation to hire any employee at this time. Seller will cooperate with
Purchaser in arranging interviews with
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employees as requested by Purchaser and in inducing such employees as are
designated by Purchaser to enter into Purchaser's employment.
4.5. Vacation, Workers' Compensation and Disability Claims.
4.5.1. Seller's Liability. Seller shall remain liable for
all liability for all accrued vacation entitlements, workers' compensation,
disability and occupational diseases of or with respect to the Employees
attributable to entitlements, injuries, claims, conditions, events and
occurrences occurring on or before the Closing Date.
4.5.2. Purchaser's Liability. Purchaser shall be liable
for all liability for all vacation entitlements, workers' compensation,
disability and occupational diseases of or with respect to the Employees hired
by Purchaser attributable to entitlements, injuries, claims, conditions, events
and occurrences first occurring after the Closing Date.
4.5.3. Workers' Compensation; Unemployment Compensation.
Schedule 4.54.3 attached hereto sets forth a true and correct summary of the
following with respect to Seller and the Employees:
(i) a listing of all workers' compensation
contracts and;
(ii) the most recent workers' compensation loss
experience for the past three years; and
(iii) a summary report and loss experience rating
for unemployment compensation.; and
(iv) the turnover rates for the Facility.
ARTICLE V. CLOSING
5.1. Time; Location. The parties shall use their best efforts to
consummate the purchase and sale of the Purchased Assets contemplated hereunder
on or before October 30, 1998. However, the parties recognize that due to the
timing of approval from the Wisconsin Department of Health and Family Services,
the closing may be delayed beyond October September 30, 1998. The actual date of
closing shall be no later than ten (10) business days after all approvals
regarding the transfer or reissuance of all necessary Licenses have been
obtained unless mutually extended in writing by agreement of the parties, and in
no case later than September 30, 1998, unless extended in writing upon the
mutual agreement of the parties hereto. within forty-five days from the date of
this Agreement (the "Closing"). The date of the Closing shall be referred to as
the "Closing Date." The Closing shall take place at such time, date and place as
may be mutually agreed upon by the Parties.
5.2. Seller's Document Deliveries. At Closing, Seller shall , as
the case may be, execute or and deliver the following instruments of transfer
and assignment:
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5.2.1. Deeds. Duly executed general warranty deeds with
English covenants in favor of Purchaser or Purchaser's designee, in recordable
form, transferring good and marketable fee simple title to the Real Property,
subject only to Permitted Encumbrances, and such affidavits or other instruments
as Purchaser's title insurance company may reasonably request, including, but
not limited to, (i) affidavits required for the purpose of eliminating
exceptions for (A) judgments, bankruptcies, taxes and municipal claims, (B)
parties in possession other than current occupants pursuant to agreements with
Seller, (C) mechanics' or materialmens' liens and (D) encroachments or survey
discrepancies of any nature; (ii) payoff letters, lien releases and satisfaction
pieces and (iii) gap indemnities;
5.2.2. Bill of Sale. A duly executed general bill of sale,
assignment and assumption substantially in the form of Schedule Exhibit 5.2.2
hereto, transferring to Purchaser good and marketable title to all of the
tangible personal property included in the Purchased Assets, subject only to
Permitted Encumbrances and the Assumed Liabilities and assigning to Purchaser,
to the extent assignable, Seller's right, title and interest in each of the
contracts, permits and other agreements included in the Purchased Assets,
together with all consents of third parties that are required to make each such
assignment effective to such third parties;
5.2.3. Escrow Agreement. The Escrow Agreement, duly executed
by Seller, pursuant to Section 3.1 above;
5.2.4. Title Certificates. Certificates of title to all
vehicles included in the Purchased Assets with assignments to Purchaser;
5.2.5. Property Tax Statements. To the extent not delivered
prior to Closing, all real estate and personal property tax statements or bills
for or relating to the Real Property or any of the other Purchased Assets for
the applicable current tax year or years, and all tax assessments or notices
thereof upon which such taxes are based;
5.2.6. Plans and Specifications. To the extent not delivered
prior to Closing, all plans, specifications and other drawings used in the
construction of the Facilities y or any renovations thereof (including, without
limitation, any as-built plans and architectural specifications, ALTA surveys,
geotechnical reports, environmental reports, and fire marshal inspection
reports) and all guarantees and warranties made by third parties with respect to
the improvements, buildings, personalty or any of the other Purchased Assets;
5.2.7. Building Permits. To the extent not delivered prior to
Closing, all building permits, zoning permits, occupancy permits, subdivision
plans, surveys and hazardous waste studies in the possession of Seller that were
prepared within two years before the date hereof, for or relating to the
Facilities;
5.2.8. Contracts and Other Permits. To the extent not
delivered prior to Closing, all Contracts, Permits, or other instruments or
agreements relating to the ownership, operation, use, occupancy, licensure,
accreditation or maintenance of the Business;
5.2.9. Rent Roll. The rent roll of Seller listing all
residents of the Facilities y and its respective rent payments current as of not
earlier than one week prior to August 1, 1998;
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5.2.10. Seller's Certificate. Purchaser shall have
received a certificate from Seller, dated as of the Closing Date, reasonably
satisfactory in form and substance to Purchaser and its counsel, certifying as
to the matters specified in Section 11.1 and Section 11.2 hereof. The matters
set forth in such certificate shall constitute representations and warranties of
Seller hereunder;
5.2.11. Secretary's Certificate. Purchaser shall have
received a certificate, dated as of the Closing Date, of the Secretary or any
Assistant Secretary of Seller with respect to:
(i) the resolutions of the board of directors of
Seller and, if necessary, the stockholders of Seller, authorizing the execution
and delivery of this Agreement and the Ancillary Agreements to which Seller is a
party and the performance by Seller of the transactions contemplated hereby and
thereby;
(ii) the incumbency and specimen signature of
each officer or representative of Seller executing this Agreement, the
certificate referred to in Section 11.3, and the Ancillary Agreements to which
Seller is a party; and
(iii) the effect that the governing documents of
Seller delivered pursuant to Section 11.6 were in effect at the date of adoption
of such resolutions, the date of execution of this Agreement and the Closing
Date;
5.2.12. Actions and Proceedings. All corporate actions,
proceedings, instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental hereto and all other related legal
matters shall be reasonably satisfactory to counsel for Purchaser, and such
counsel shall have been furnished with such certified copies of such corporate
actions and proceedings and such other instruments and documents as it shall
have reasonably requested, including, without limitation:
(i) certificates of the appropriate public
officials to the effect that Seller is a validly existing corporation in good
standing in its state of incorporation as of a date not more than 30 days prior
to the Closing Date;
(ii) incumbency and specimen signature
certificates dated as of the Closing Date, signed by the officers of Seller and
certified by its Secretary; and
(iii) true and correct copies of (A) the charter
documents of Seller as of a date not more than 30 days prior to the Closing
Date, certified by the Secretary of State of its state of incorporation and (B)
the bylaws of Seller as of the Closing Date, certified by the Secretary of
Seller;
5.2.13. Covenant Not to Compete. Seller shall deliver to
Purchaser the Noncompetition Agreement as provided for in Section 12.2 below,
substantially in the form attached hereto as Schedule 5.2.13;
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5.2.14. Opinion of Counsel. Seller shall provide an opinion
addressed to Purchaser and, if necessary, Purchaser's lender, regarding the
matters set forth in Sections 6.1, 6.2, 6.3, and 6.4, substantially in the form
attached in Schedule 5.2.14 hereto; and
5.2.15. Closing Documents. To the extent not delivered prior
to Closing, the documents referred to in Section 8.1.2 and Section 8.1.8; and
5.2.16. Other Documents. Such other documents and instruments
of conveyance and transfer as may reasonably be requested by Purchaser, its
counsel, or the Escrow Agent which may be necessary to consummate this
transaction and to otherwise affect the agreements of the parties hereto. The
Ancillary Agreements, and such additional instruments of conveyance and transfer
as Purchaser may reasonably require in order to more effectively vest in it, and
put it in possession of, the Purchased Assets.
5.3. Purchaser's Document Deliveries. At Closing, Purchaser shall
execute or deliver the following instruments of transfer and assignment:
5.3.1. Balance of Purchase Price. The balance of the Purchase
Price as calculated in Section 3 above;
5.3.2. Bill of Sale. An executed general bill of sale,
assignment and assumption pursuant to Section 4.1 above, substantially in the
form of Exhibit 5.2.2 hereto;
5.3.3. Escrow Agreement. The Escrow Agreement, duly executed
by Purchaser, pursuant to Section 3.1 above;
5.3.4. Purchaser's Certificate. Seller shall have received a
certificate from Purchaser, dated as of the Closing Date, reasonably
satisfactory in form and substance to Seller and its counsel, certifying as to
the matters specified in Section 10.1 and Section 10.2 hereof. The matters set
forth in such certificate shall constitute representations and warranties of
Purchaser hereunder;
5.3.5. Secretary's Certificate. Seller shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Purchaser with respect to:
(i) the resolutions of the board of directors of
Purchaser and, if necessary, the stockholders of Purchaser, authorizing the
execution and delivery of this Agreement and the Ancillary Agreements to which
Purchaser is a party and the performance by Purchaser of the transactions
contemplated hereby and thereby;
(ii) the incumbency and specimen signature of each
officer or representative of Purchaser executing this Agreement, the certificate
referred to in Section 10.3, and the Ancillary Agreements to which Purchaser is
a party; and
(iii) the effect that the governing documents of
Purchaser delivered pursuant to Section 10.6 were in effect at the date of
adoption of such resolutions, the date of execution of this Agreement and the
Closing Date;
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5.3.6. Actions and Proceedings. All corporate actions,
proceedings, instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental hereto and all other related legal
matters shall be reasonably satisfactory to counsel for Seller, and such counsel
shall have been furnished with such certified copies of such corporate actions
and proceedings and such other instruments and documents as it shall have
reasonably requested, including, without limitation:
(i) certificates of the appropriate public
officials to the effect that Purchaser is a validly existing entity in good
standing in its state of organization as of a date not more than 30 days prior
to the Closing Date;
(ii) incumbency and specimen signature
certificates dated as of the Closing Date, signed by the officers of Purchaser
and certified by its Secretary; and true and correct copies of (A) the charter
documents of Purchaser as of a date not more than 30 days prior to the Closing
Date, certified by the Secretary of State of its state of organization and (B)
the bylaws or operating agreement of Purchaser as of the Closing Date, certified
by the Secretary of Purchaser;
5.3.7. Opinion of Counsel. Purchaser shall provide an
opinion addressed to Seller regarding the matters set forth in Sections 7.1,
7.2, 7.3, and 7.4, substantially in the form attached to Schedule 5.2.14 hereto;
5.3.8. Other Documents. Such other documents and
instruments of conveyance and transfer as may reasonably be requested by Seller,
its counsel, or the Escrow Agent which may be necessary to consummate this
transaction and to otherwise affect the agreements of the parties hereto; and
5.4. Reasonable Steps. Seller and Purchaser shall make such
reasonable efforts as may be appropriate so that on the Closing Date, Purchaser
shall be placed in actual possession and control of all of the Purchased Assets.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller, represents and
warrants to Purchaser, that each of the following representations and warranties
is true and correct as of the date hereof:
6.1. Organization, Good Standing and Power. Seller is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, and has all requisite corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is a
party, to consummate the transactions contemplated hereby and thereby and to
perform all the terms and conditions hereof and thereof and to be performed by
it.
6.2. Authorization of Agreement. Seller has taken all necessary
corporate action to authorize the execution and delivery of this Agreement and
the Ancillary Agreements to which it
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is a party, the performance by it of all terms and conditions hereof and thereof
to be performed by it and the consummation of the transactions contemplated
hereby and thereby.
6.3. Enforceability. This Agreement constitutes, and the Ancillary
Agreements to which Seller is party, upon such Seller's execution and delivery
thereof, will constitute the legal, valid and binding obligations of such
Seller, enforceable in accordance with their terms except to the extent that
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws presently or hereafter in effect relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law).
6.4. No Violation; Consents. The execution, delivery and
performance by Seller of this Agreement and the Ancillary Agreements to which
Seller is a party, and the consummation of the transactions contemplated hereby
and thereby will not (with or without the giving of notice or the lapse of time,
or both) (i) violate any provision of the charter or bylaws of Seller; (ii)
except with respect to notices and consents (if any) required to be given by
Seller to any Accreditation Body or Governmental Authority in connection with
the sale and change of ownership of the Purchased Assets and the Business,
violate or require any consent, authorization or approval of, or exemption by,
or filing under any provision of any law, statute, rule or regulation to which
Seller, the Business or the Purchased Assets are subject; (iii) violate any
judgment, order, writ or decree of any court applicable to Seller, the Business
or the Purchased Assets; (iv) except as identified on Schedule 2.1.34, conflict
with, result in a breach of, constitute a default under, or accelerate or permit
the acceleration of the performance required by, or require any consent,
authorization or approval under any contract or other instrument, document or
undertaking to which Seller is a party or any of the Purchased Assets is bound
or (v) result in the creation or imposition of any Encumbrances upon the
Purchased Assets.
6.5. Financial Statements.
6.5.1. Annual Financial Statements. Included with
Schedule 6.5.1 attached hereto are the unaudited consolidating balance sheet and
statement of operations data for the Business as of June 30, 1998 (collectively,
the "Annual Financial Statements"). Except as otherwise may be disclosed in
Schedule 6.5.1, the Annual Financial Statements (i) have been prepared in
accordance with the books and records of Seller, (ii) have been prepared in
accordance with GAAP, consistently applied throughout the periods covered
thereby, (iii) fairly present in all material respects the financial condition
and the results of operations of the Business as of the relevant dates thereof
and for the periods covered therein, and (iv) contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
results of operations of the Business as of the relevant dates thereof and for
the periods covered by the Annual Financial Statements.
6.5.2. Interim Financial Statements. Included with
Schedule 6.5.2 attached hereto is the monthly unaudited consolidating balance
sheet and statement of operations data of the Business for the July 1998 period
(collectively, the "Interim Financial Statements"). Except as otherwise may be
disclosed in Schedule 6.5.2, the Interim Financial Statements (i) have been
prepared in accordance with the books and records of Seller, (ii) have been
prepared in accordance with GAAP, consistently applied throughout the periods
covered thereby, (iii) fairly
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present in all material respects the financial condition and the results of
operations of the Business as of the relevant dates thereof and for the periods
covered therein, and (iv) contain and reflect all necessary adjustments and
accruals for a fair presentation of the financial condition and results of
operations of the Business as of the relevant dates thereof and for the periods
covered by the Interim Financial Statements.
Seller has delivered to Purchaser true and
complete copies of the unaudited (i) balance sheets of the Business at December
31, 1997, 1996 and 1995 and the related statements of income and cash flows for
the years then ended and (ii) monthly financial reports of receipts and expenses
for the first four (4) months of 1998 with respect to the operation of the
Facility and, in addition, Seller shall provide Purchaser, as promptly as the
same become available through the Closing Date, but no later than 15 days after
the last day of each month, monthly financial reports of receipts and expenses
of Seller for the Facility. In the event that the Closing Date occurs within the
first 15 days of a month, notwithstanding anything to the contrary herein,
Seller shall furnish Purchaser statements of profit and loss for the then
immediately preceding month no later than three days prior to the Closing Date.
True and correct copies of such financial statements and monthly reports are
attached hereto as Schedule 6.5. The foregoing financial statements have been
prepared from the Books and Records of Seller in accordance with GAAP
consistently applied throughout the periods involved except as may be noted
therein. Such financial statements, including the related notes, are true and
correct and fairly present the financial position of the Business at the dates
indicated and the results of operations and cash flows of the Business for the
periods then ended in accordance with GAAP.
6.6. [Intentionally Omitted]
6.7. Inventory. The Inventory was or will be acquired and
maintained in accordance with the regular business practices of Seller, consists
or will consist of new and unused items of a quality and quantity usable or
salable in the ordinary course of business consistent with past practice, and is
or will be valued in accordance with GAAP consistently applied.
6.8. Absence of Certain Changes or Events.
6.8.1. Seller. Except as set forth in Schedule 6.7 8
hereto, since the period covered by the Interim Financial Statements December
31, 1997 in connection with the Business, Seller has not:
(i) amended in any material respect or
terminated any Contract or Permit other than in the ordinary course of business
consistent with past practice;
(ii) suffered the occurrence of any events that,
individually or in the aggregate, have had, or could reasonably be expected to
have, a material adverse effect on results of operations of the Business,
including any damage or destruction by fire, storm or similar casualty, whether
or not covered by insurance;
(iii) sold, transferred, replaced or leased any of
the Purchased Assets, except for transactions in the ordinary course of business
consistent with past practice;
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(iv) waived or released any material rights with
respect to the Purchased Assets or the Business;
(v) transferred or granted any rights to any
Proprietary Rights;
(vi) entered into any transaction or made any
commitments (for capital expenditures or otherwise) other than in the ordinary
course of business consistent with past practice;
(vii) changed its methods of accounting;
(viii) increased the compensation of any of the
Employees, except following normal review procedures or as reasonably deemed
necessary in the ordinary course of business consistent with past practice;
(ix) suffered any major or key personnel
changes;
(x) materially altered its conduct in its
relations with suppliers and residents; or
(xi) materially altered its marketing efforts
with respect to the Business.
6.9. Real Property.
6.9.1. Title to Properties; Absence of Liens and
Encumbrances. Seller owns and will transfer to Purchaser at Closing good and
marketable title to all of the Purchased Assets subject to Closing, including,
without limitation, the Real Property, free and clear of all Encumbrances,
other than Permitted Encumbrances. Copies of all title insurance policies and
surveys written in favor of Seller relating to the Real Property have been
delivered to Purchaser.
6.9.2. Structures and Improvements. To the best of
Seller's knowledge, Seller represents and warrants that all structures and other
improvements on the Real Property are in good order and repair and free from any
structural defects.
6.9.3. Boundaries; Location. Seller represents and
warrants that the structures and other improvements on the Real Property are
within the lot lines and do not encroach on the properties of any other Person.
The Seller further represents and warrants that the Real Property is considered
a separate parcel of land for taxing and conveyancing purposes and that no
portion of the Real Property is located in a flood plain (except that limited
portion that may be disclosed on Purchaser's survey), flood hazard area or
designated wetlands area.
6.9.4. Location and Physical Condition of Facilities.
Except as otherwise may be disclosed in the surveys and accompanying
certificates provided to Purchaser by Seller, all Facilities and other
improvements on the Real Property (i) are located within the lot lines of the
Real Property and (ii) do not encroach on the properties of any other person.
Except as otherwise expressly covenanted, represented and warranted in this
Agreement, all structures and
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improvements located upon the Real Property and all elements thereof, including
but not limited to the landscaping, fixtures, and equipment associated
therewith, shall be sold, transferred and conveyed to Purchaser hereunder, AS
IS, WHERE IS, AND SUBJECT TO ALL FAULTS. Notwithstanding the foregoing, any
routine repair and maintenance deficiencies on the Real Property that are
identified by the Department of Health and Family Services during licensure
inspections shall be corrected by Seller prior to the Closing Date at Seller's
own cost and expense, or, alternatively, accounted for at Closing as a Purchase
Price adjustment credit in favor of Purchaser. Except as otherwise expressly
covenanted, represented and warranted in this Agreement, . Seller makes no
warranties or representations, express or implied, with respect to the state of
condition and repair of the structures and improvements located upon the Real
Property including, but not limited to, the fixtures and mechanical equipment
used with respect to such structures and improvements.
6.9.5. Use and Operation. Except as otherwise may be disclosed
in the surveys and accompanying certificates provided to Purchaser by Seller,
Seller represents and warrants that the use and operation of the Real Property
conforms to all applicable building, zoning, safety and subdivision laws,
Environmental Laws and other Legal Requirements, and all restrictive covenants
and restrictions and conditions affecting title.
6.9.6. Utilities. Except as otherwise may be disclosed in the
surveys and accompanying certificates provided to Purchaser by Seller, Seller
represents and warrants that all public utilities (including water, gas,
electric, storm and sanitary sewage and telephone utilities) required to operate
the Facilities y are available to the Facilities y and such utilities enter the
boundaries of such Facilities y through adjoining public streets, permanent
easements or rights-of-way of record in favor of the Seller. Such public
utilities are all connected pursuant to valid permits, are all in good working
order and are adequate to service the operations of the Facilities y as
currently conducted and permit full compliance with all Legal Requirements.
Seller has not received any written notice of any proposed, planned or actual
curtailment of service of any utility supplied to the Facilities.
6.9.7. Assessments; Notices. Seller has not received any
written or oral notice of assessments for public improvements against the Real
Property or any written or oral notice or order by any Governmental Authority,
any insurance company that has issued a policy with respect to any of such
properties or any board of fire underwriters or other body exercising similar
functions that relates to violations of building, safety or fire ordinances or
regulations, that claims any defect or deficiency with respect to any of such
properties or requests the performance of any repairs, alterations or other work
to or in any of such properties or in the streets bounding the same.
6.9.8. Condemnation. Seller represents and warrants that there
is no pending condemnation, expropriation, eminent domain or similar proceeding
affecting all or any portion of the Real Property.
6.9.9. Access. Except as otherwise may be disclosed in the
surveys and accompanying certificates provided to Purchaser by Seller, Seller
represents and warrants that all present driveways and other access routes to
the Real Property are from public streets and no other Person has any right to
use any such driveways or other access routes.
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6.10. Proprietary Rights.
6.10.1. Logos and Tradenames. Schedule 2.1.6.98 hereto sets
forth a correct and complete list of all patents, logos, trademarks, trade
names, service marks, copyrights and applications or registrations therefor used
in and material to the Business (collectively, the "Proprietary Rights").
6.10.2. Licenses. Except as disclosed in Schedule 62.91.8: (i)
Seller owns or possesses adequate licenses or other valid rights to use (without
the making of any payment to others or the obligation to grant rights to others
in exchange) all the Proprietary Rights; (ii) the Proprietary Rights included in
the Purchased Assets constitute all the material rights necessary to conduct the
Business in accordance with past practice and are being conveyed to Purchaser
together with the other Purchased Assets; (iii) the validity of the Proprietary
Rights and the rights therein of Seller have not been questioned in any
litigation to which Seller is a party, nor, to Seller's Knowledge, is any such
litigation threatened; and (iv) to best of Seller's knowledge, the conduct of
the Business does not conflict with patent rights, licenses, trademark rights,
trade name rights, copyrights or other intellectual property rights of others.
6.10.3. Infringement. Except as disclosed in Schedule 2.1.6.98
hereto, Seller does not have Knowledge that any material use of any Proprietary
Rights owned by Seller has heretofore been, or is now being, made by any Person
other than Seller, and Seller has no Knowledge of any infringement of any
Proprietary Rights owned or licensed by Seller. No present or former director,
officer, Employee or consultant of Seller has any interest in any of the
Proprietary Rights.
6.11. Contracts and Commitments.
6.11.1. Seller. Except as listed and described in on Schedule
1.621 and Schedule 2.1.34, neither Seller nor any of the Facilities is a party
to or subject to any Contract relating to the operation of each of the
Facilities. Each Contract described in the aforementioned schedules is valid and
in full force and effect and there are no existing defaults by Seller
thereunder. No event has occurred that (whether with notice, lapse of time, or
both) would constitute an existing default by Seller under any of the Contracts.
Except as set forth in the aforementioned schedules, all of the Contracts may be
assigned to Purchaser without the consent of any other party thereto. Seller is
not with respect to the Business a party to any written or oral:
(i) Contract for the future purchase of, or payment
for, supplies or products, or for the performance of services by another party,
involving in any one case $10,000 or more;
(ii) Contract to sell or supply products or to
perform services, involving in any one case $10,000 or more (except for any
Resident's Agreement);
(iii) Contract continuing over a period of more than
six months from the date hereof or exceeding $10,000 in value (except for any
Resident's Agreement);
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<PAGE> 36
(iv) representative, sales agency, dealer or
distributor Contract;
(v) lease under which Seller is either lessor
or lessee,
(vi) note, debenture, bond, conditional sale
agreement, equipment trust agreement, letter of credit agreement, loan agreement
or other Contract or for the borrowing or lending of money (including without
limitation loans to or from Employees) or guarantee, pledge or undertaking of
the indebtedness of any other Person;
(vii) Contract for any charitable or political
contribution;
(viii) Contract limiting or restraining Seller or
any successor or assign from engaging or competing in any likeness of business
with any Person;
(ix) license, franchise, distributorship or other
agreement, including those that relate in whole or in part to any patent,
trademark, trade name, service mark or copyright or to any ideas, technical
assistance or other know-how of or used by the Business;
(x) Contract or commitment to assign, option,
sell, transfer or otherwise convey any right, title or interest of Seller in and
to all or any portion of the Business; or
(xi) any other material Contract not made in the
ordinary course of business consistent with past practice.
Each of the contracts and other instruments, documents and undertakings listed
on Schedule 1.61, Schedule 2.1.4, Schedule 1.57 and Schedule 1.58 is valid and
enforceable in accordance with its terms, the parties thereto are in compliance
with the provisions thereof, neither party is in default in the performance,
observance or fulfillment of any material obligation, covenant or condition
contained therein, and no event has occurred that with or without the giving of
notice or lapse of time, or both, would constitute a default thereunder and (ii)
except as set forth on Schedule 1.61, Schedule 2.1.4, Schedule 1.57 and Schedule
1.58, no advance payments have been received by Seller by or on behalf of any
party to any of the contracts and other instruments, documents and undertakings
listed thereon for services to be rendered or products to be delivered by such
party after the Closing Date. Any contracts that cannot be transferred or
require consent or approval for the transfer thereof are specifically identified
on Schedule 1.61, Schedule 2.1.4, Schedule 1.57 and Schedule 1.58 hereto as
nontransferable or requiring such consent or approval.
6.11.2. Permits, Licenses. Seller has all Permits that are
required to operate the Facilities as "community-base residential care
facilities" an "Adult Care Residence" facility as that term is defined by the
Department of Health and Family Social Services, Division of Aging and the
Business (including without limitation those required under any Environmental
Law) and Seller is in compliance with the terms and conditions of the Permits.
Schedule 2.1.56 hereto sets forth a correct and complete list of all Permits,
each one of which is in full force and effect. To Seller's Knowledge, no
suspension or cancellation of any of the Permits is threatened and no cause
exists for such suspension or cancellation. Any Permits that cannot be
transferred or require consent or approval for the transfer thereof are
specifically identified on
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<PAGE> 37
Schedule 2.1.56 hereto as nontransferable or requiring such consent or approval.
Except as disclosed in Schedule 6.11, to the best of Seller's Knowledge, the
Facilities Except as disclosed in Schedule 6.11 the Facilities are fully
constructed, fixtured and equipped to operate as licensed community based
residential facilities in the State of Wisconsin in full compliance with all
regulations of the Department of Health and Family Services. Except as disclosed
in Schedule 6.11, each individual facility is equipped for and operating the
number of beds for which it is licensed. Except as disclosed in Schedule 6.11,
each Facility is equipped for and operating the number of beds for which it is
licensed.
6.12. Compliance with Laws. Except as described in Schedule 6.13
hereto, Seller has at all times conducted, and is presently conducting, the
Business so as to comply in all material respects with all Legal Requirements
applicable to the conduct of operation of the Business or the ownership or use
of the Purchased Assets.
6.13. Legal Proceedings.
6.13.1. Seller. Except as described in Schedule 6.134 hereto,
there is no claim, action, suit, proceeding, investigation or inquiry pending
before any Governmental Authority or, to Seller's Knowledge, threatened against
Seller with respect to the Business or any of the Purchased Assets owned or used
by it in connection therewith, or relating to the transactions contemplated by
this Agreement, nor to Seller's Knowledge is there any basis for any such claim,
action, suit, proceeding, investigation, or inquiry. Except as set forth on
Schedule 6.134 hereto, Seller is not a party to or subject to the provisions of
any judgment, order, writ, injunction, decree or award of any court, arbitrator
or governmental, regulatory or administrative official, body or authority that
relates to the Business or the Purchased Assets owned or used by Seller in
connection therewith that might affect the transactions contemplated by this
Agreement.
6.13.2. Absence of Undisclosed Liabilities. Except as set
forth in Schedule 6.145, Seller has no liabilities or obligations (as defined in
Section 4.1) relating to the Business except (i) those liabilities and
obligations set forth on the Financial Statements of Seller previously provided
to Purchaser and not heretofore paid or discharged; (ii) those liabilities and
obligations arising in the ordinary course of business consistent with past
practice under any Contract or commitment specifically disclosed on Schedule
1.62 and Schedule 2.1.34 hereto or not required to be disclosed because of the
term or amount involved; and (iii) those liabilities and obligations incurred in
the ordinary course of business consistent with past practice since the Interim
Financial Statements dated as of July December 311, 19987 provided to Purchaser.
6.13.3. Books and Records. All books of account and other
financial records of Seller directly relating to the Business (the "Books and
Records") are materially complete and correct and have been made available to
Purchaser. All of the Books and Records have been prepared and maintained in
accordance with good business practices and, where applicable, in conformity
with GAAP (except as otherwise stated therein) and in compliance in all material
respects with all Legal Requirements.
6.13.4. Employees. Schedule 1.212 sets forth a true and
correct list of all individuals currently employed by Seller in the conduct of
the Business and their present
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<PAGE> 38
position, rate of compensation and date of hire. None of the individuals
currently employed the following for the Facility: (i) all individuals employed
by Seller in the conduct of the Business; (ii) total wage costs; (iii)
wage/salary grade structure and (iv) each Employee's (A) present position and
department, (B) job description, (C) rate of compensation anby Seller have been
given d (Dany ) service credited for service purposes of vesting and eligibility
under any each Payroll Practice/Employee Arrangement prior to their respective
dates of hire.
6.13.5. Labor Disputes. Except as described in Schedule 6.178
hereto, there are no material discrimination complaints nor any other kind of
employment or labor related disputes against Seller in connection with the
Business pending before or, to Seller's Knowledge, threatened before any
federal, state or local court or agency, and to Seller's Knowledge, no material
dispute respecting minimum wage or overtime claims or other conditions or terms
of employment exists. The Business has not experienced any material labor
disputes or any material work stoppage due to labor disagreements within the
past three years. With respect to the Business and except to the extent set
forth in Schedule 6.178: (i) there is no unfair labor practice charge or
complaint against Seller pending or, to Seller's Knowledge, threatened, before
the National Labor Relations Board; (ii) there is no labor strike, slowdown or
stoppage pending or, to Seller's Knowledge, threatened against or affecting
Seller; and (iii) no question concerning representation has been raised within
the past three years, or to Seller's Knowledge, is threatened respecting the
Employees.
6.14. Payroll Practice/Employee Arrangement.
6.14.1. Benefit Plans. Schedule 6.189 contains a complete list
of each employee benefit plan subject to ERISA, and/or holiday, vacation or
other bonus practice or any other employee pay practice, arrangement, agreement
or commitment (the "Payroll Practice/Employee Arrangement") and maintained by or
with respect to which Seller has any liability or obligation, whether actual or
contingent, with respect to the Employees or their respective beneficiaries.
6.14.2. Plan Liability. Seller has not taken any action that
may result in Purchaser being a party to, or bound by, an ERISA Plan, and
Purchaser shall have no liability under, or be subject to any liability on
account of, any ERISA Plan or Payroll Practice/Employee Arrangement following
the consummation of the transaction contemplated hereby.
6.14.3. Retirement Benefits. No ERISA Plan or other employee
arrangement has provided for the payment of retiree benefits by Purchaser.
6.14.4. No Finder. Seller has not taken any action that would
give to any Person a right to a finder's fee or any type of brokerage commission
in relation to, or in connection with, the transactions contemplated by this
Agreement.
6.15. Condition of Equipment. Except as set forth on Schedule
6.201, all equipment that is part of the Purchased Assets is in good operating
condition and repair, reasonable wear and tear excepted (subject only to routine
maintenance and repair) and usable in the conduct of the Business consistent
with past practice.
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<PAGE> 39
6.16. Affiliate Transactions. Except as set forth in Schedule 6.22
hereto, Seller and its Affiliates provide no services or products to the
Business.
6.17. Compliance With Environmental Matters. Except as disclosed in
Schedule 6.23:
6.17.1. Compliance; No Liability. Seller has operated the
Business and each parcel of Real Property in material compliance with all
applicable Environmental Laws. Seller is not subject to any liability, penalty
or expense (including legal fees), and Purchaser will not suffer or incur any
loss, liability, penalty or expense (including legal fees) by virtue of any
violation of any Environmental Law occurring prior to the Closing, any
environmental activity conducted on or with respect to any property by such
Seller at or prior to the Closing or any environmental condition existing on or
with respect to any property at or prior to the Closing, in each case whether or
not such Seller permitted or participated in such act or omission.
6.17.2. Treatment; CERCLA. Seller has not treated, stored,
recycled or disposed of any hazardous material, and to the best of Seller's
knowledge, no other Person has treated, stored, recycled or disposed of any
hazardous material on any part of the Real Property, except that all syringes
used on the Property are stored for a period of up to approximately three months
and then turned over to and disposed of by a carrier in the business of
disposing of medical waste, all in accordance with environmental law. To the
best of Seller's knowledge, there has been no release of any hazardous material
at, on or under any Real Property. Seller has not transported any hazardous
material or arranged for the transportation of any hazardous material to any
location that is listed or proposed for listing on the National Priorities List
pursuant to Superfund, on CERCLA or any other location that is the subject of
federal, state or local enforcement action or other investigation that may lead
to claims against Seller for cleanup costs, remedial action, damages to natural
resources, to other property or for personal injury including claims under
Superfund. None of the Real Property is listed or, to Seller's Knowledge,
proposed for listing on the National Priorities List pursuant to Superfund,
CERCLA or any state or local list of sites requiring investigation or cleanup.
6.17.3. Notices; Existing Claims; Certain Hazardous Materials;
Storage Tanks. Seller has not received any request for information, notice of
claim, demand or other notification that it is or may be potentially responsible
with respect to any investigation, abatement or cleanup of any threatened or
actual release of any hazardous material. Seller is not required to place any
notice or restriction relating to the presence of any hazardous material at any
Real Property or in any deed to any Real Property. Seller has provided to
Purchaser a list of all sites to which such Seller has transported any hazardous
material for recycling, treatment, disposal, other handling or otherwise. There
has been no past, and there is no pending or contemplated, claim by Seller under
any Environmental Law or Legal Requirement based on actions of others that may
have impacted on the Real Property, and Seller has not entered into any
agreement with any Person regarding any Environmental Law, remedial action or
other environmental liability or expense. All storage tanks located on the Real
Property, whether underground or aboveground, are disclosed on Schedule 6.23,
and, to Seller's Knowledge, all such tanks and associated piping are in sound
condition and are not leaking and have not leaked.
6.18. Insurance. Schedule 6.2.2.84 sets forth a complete list of all
insurance policies (including binders, declaration pages and endorsements) of
any nature whatsoever maintained by
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<PAGE> 40
Seller on the date of this Agreement and describes the annual or other premiums
payable from time to time thereunder. Except as disclosed on Schedule 2.2.8, to
the best of Seller's Knowledge, there are no outstanding requirements or
recommendations by any insurance company or by any Governmental Authority
exercising similar functions which require or recommend any changes in the
conduct of the Business, or any repairs or other work to be done on or with
respect to any of the Facilities or Purchased Assets. Except as set forth in
Schedule 6.22, Seller has received no written notice or other written
communication from any such insurance company within the two years preceding the
date hereof canceling or materially amending any insurance policies or
materially increasing the annual or other premiums payable under any of such
insurance policies and no such cancellation, amendment or material increase of
premiums is or has been threatened. maintained with respect to the Business for
the past three years and all insurance policies known by to have been maintained
by any other Person which may provide any coverage for liabilities relating in
any manner to any Environmental Law. Schedule 6.24 also sets forth a true and
correct summary of the loss experiences for the past three years under each such
policy. Except as set forth on Schedule 6.24, no insurance has ever been
canceled or denied. Following the Closing, Seller shall, to the extent that
coverage under its insurance policies extends to include the Business, (i) take
no action to eliminate or reduce such coverage, other than normal elimination or
reduction of coverage as they occur by virtue of the filing of claims in the
ordinary course under such insurance policies, (ii) pay when due any premiums
under such policies for periods, including retrospective or retroactive premium
adjustments and (iii) use its best efforts to assist in filing and processing
claims under and otherwise cooperate with Purchaser to allow Purchaser, in its
own name, or on behalf of Seller, to obtain all coverage benefits applicable to
the Business under such insurance policies, including the execution of
assignments or powers of attorney for the benefit of Purchaser. Any proceeds of
insurance paid by an insurer to Seller for claims of Purchaser made in
accordance with this Section shall be promptly paid to Purchaser.
6.19. No Significant Items Excluded. Except for Excluded Assets, there
are no assets, properties, contracts, permits or other items of Seller or any
Related Party that are of material importance to the ongoing operation of the
Business by Purchaser in substantially the same manner in which the Business has
been conducted by Seller prior to the date of this Agreement.
6.20. Surveys. Seller has provided Purchaser with copies of Seller's
federal and/or state surveys or inspections and any plans of correction for the
current year and the two immediately preceding years for the Facility. To the
best of Seller's knowledge, each such survey or inspection was prepared in
material compliance with all applicable Legal Requirements.
6.21. Occupancy Reports. Seller has provided Purchaser with copies of
Seller's occupancy or census reports for the Facilities y for the June and July
1998 time periods last year. Each such occupancy report was prepared based on
the number of operational beds (i.e., double occupancy rooms were only counted
as such when both beds were occupied).
6.22. Discounted Rates; Rate limitations; Free Care. Attached hereto is
Schedule 6.28 that sets forth a true and complete list of the following for the
Facility: (i) any services that are provided based on a discount factor from the
rates regularly charged at the Facility; (ii) any restrictions or limitations on
rates which may be charged to private pay residents for services
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<PAGE> 41
provided at the Facility; (iii) any percentage of beds or slots in any program
at the Facility that must be reserved for Medicare or Medicaid eligible
residents and (iv) any amount of welfare, free or charity care or discounted
government assisted resident care provided at the Facility.
6.23. Tax Returns. Except as disclosed on Schedule 6.24 attached
hereto:
Within the times and in the manner prescribed by law, Seller
has filed all federal, state and local tax returns (including information
returns) and all tax returns for foreign countries, provinces and other
governing bodies having jurisdiction to levy taxes upon Seller, and has paid all
taxes shown to be due to any taxing authority with respect to all periods ending
prior to or on the Closing Date;
All tax returns filed by the Seller through the Closing Date
constitute complete and accurate representations of the tax liabilities of
Seller as appropriate (and any predecessor or subsidiary entity) for such years
and accurately set forth all items (to the extent required to be included or
reflected in such returns) relevant to its future tax liabilities, including the
tax bases of its properties and assets; and
All deposits and payment of taxes required to be made have
been fully paid and deposited in a timely manner.
Seller has filed or caused to be filed, or will file or cause
to be filed, all Tax Returns that are required to be filed by it prior to or on
the Closing Date, pursuant to all Legal Requirements of each Governmental
Authority with taxing power over it. All such Tax Returns were or will be, as
the case may be, correct and complete in all material respects. Seller has paid
or will pay all Taxes that have or will become due as shown on such Tax Returns
or pursuant to any assessment received as an adjustment to such Tax Returns,
except (i) such Taxes, if any, as are being contested in good faith and
disclosed on Schedule 6.29, (ii) in the case of Seller, such Taxes that are
fully reserved against on the financial statements of Seller previously provided
to Purchaser and (iii)Taxes accruing that are not yet due. Except as set forth
on Schedule 6.29, Seller is currently not the beneficiary of any extension of
time within which to file any Tax Return. No claim has been made by any taxing
authority of a jurisdiction other than one in which each Facility is located.
Seller has paid, or will withhold and pay, all Taxes required to have been
withheld in connection with amounts paid or owing to any Employee, independent
contractor, creditor, stockholder or other third party.
6.24. NOI. Seller represents and warrants that the net operating
income of the Facility, calculated in accordance with GAAP, before amortization,
depreciation, interest, rent expense and income taxes, was between $425,000 and
$475,000 on a combined basis for the calendar year ending December 31, 1997.
6.25. Completeness and Accuracy. All information set forth on any
Schedule hereto is true, correct and complete. No representation or warranty of
Seller contained in this Agreement contains or will contain any untrue statement
of material fact, or omits or will omit to state any material fact necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. All Contracts, Permits and other documents and
instruments furnished or made available to Purchaser by Seller are or will be
true, complete and
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<PAGE> 42
accurate originals or copies of originals and include all amendments,
supplements, waivers and modifications thereto.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, Purchaser represents and
warrants to Seller, that each of the following representations and warranties is
true and correct as of the date hereof:
7.1. Organization, Good Standing, Power. Purchaser is a partnership
corporation duly organized, validly existing and in good standing under the laws
of its state of organization and has all requisite corporate power and authority
to own and lease the Purchased Assets, to carry on the Business and to execute
and deliver this Agreement and the Ancillary Agreements to which Purchaser is a
party, to consummate the transactions contemplated hereby and thereby and to
perform all the terms and conditions hereof and thereof to be performed by it.
7.2. Authorization of Agreement and Enforceability. Purchaser has taken
all necessary corporate action to authorize the execution and delivery of this
Agreement and the Ancillary Agreements to which Purchaser is a party, the
performance by it of all terms and conditions hereof and thereof to be performed
by it and the consummation of the transactions contemplated hereby and thereby.
7.3. Enforceability. This Agreement constitutes, and the Ancillary
Agreements, upon Purchaser's execution and delivery thereof, will constitute,
the legal, valid and binding obligations of Purchaser, enforceable in accordance
with their terms except to the extent that enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws presently or hereafter
in effect relating to or affecting the enforcement of creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).
7.4. No Violations; Consents. Except as set forth on Schedule 7.43, the
execution, delivery and performance by Purchaser of this Agreement and the
Ancillary Agreements to which Purchaser is a party and the consummation of the
transactions contemplated hereby and thereby will not (with or without the
giving of notice or the lapse of time, or both) (i) violate any provision of the
charter or bylaws of Purchaser, (ii) except with respect to notices and consents
required to be given by Purchaser to any Accreditation Body or Governmental
Authority in connection with the sale and change of ownership of the Purchased
Assets and the Business, violate, or require any consent, authorization or
approval of, or exemption by, or filing under any provision of any contract,
law, statute, rule or regulation to which Purchaser is subject, (iii) violate
any judgment, order, writ or decree of any court applicable to Purchaser, (vi)
conflict with, result in a breach of, constitute a default under, or accelerate
or permit the acceleration of the performance required by, or require any
consent, authorization or approval under any agreement, contract, commitment,
lease or other instrument, document or undertaking to which Purchaser is a party
or (v) result in the creation or imposition of any Encumbrance upon its assets.
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<PAGE> 43
7.5. Legal Proceedings. There is no claim, action, suit, proceeding,
investigation or inquiry pending before any Governmental Authority or, to
Purchaser's Knowledge, threatened against Purchaser or any of Purchaser's
properties, assets, operations or businesses that might prevent or delay the
consummation of the transactions contemplated hereby.
7.6. No Finder. Except for obligations separately undertaken to
_________________________. Purchaser has not taken any action which would give
to any Person a right to a finder's fee or any type of brokerage commission in
relation to, or in connection with, the transactions contemplated by this
Agreement, except a fee due and payable by Purchaser to Retirement Property
Services, Inc.
ARTICLE VIII. COVENANTS OF SELLER PRIOR TO CLOSING DATE
8.1. Required Actions. Between the date of this Agreement and the
Closing Date, Seller covenants that it will, as the case may be:
8.1.1. Access to Information. Give to Purchaser and its
counsel, accountants, consultants and other representatives, for the purpose of
audit, review and copying, reasonable access, during normal business hours, to
such of the properties, books, accounts and records of such Seller as are
relevant to the Purchased Assets and the Business, and furnish or otherwise make
available to Purchaser all such information concerning the Purchased Assets and
the Business as Purchaser may reasonably request;.
8.1.2. Surveys; Occupancy; Operations. Provide Purchaser with
the following:
(i) occupancy reports for the Facilities, as soon as
the same become available through the Closing Date, but no later than 15 days
after the last day of any given month (which reports shall be prepared based on
the number of operational beds);
(ii) federal and/or state health care surveys or
inspections and any plans of correction for the Facilities, as soon as the same
become available through the Closing Date, but no later than 15 days after
received by Seller;
(iii) rent rolls for the Facilities, as soon as the
same become available through the Closing Date, but no later then 15 days after
the last day of any given month. If applicable, Seller's cost reports for the
current year and the two immediately preceding years for the Facility, together
with the current rate schedule for the Facility; and
(iv) monthly statements of profit and loss of Seller
for the Facilities, as soon as the same become available through the Closing
Date, but no later than 15 days after the last day of each month;
8.1.3. Conduct of Business. Operate the Business in the usual,
regular and ordinary manner as such Business was conducted prior to the date
hereof and, to the extent consistent with such operation, use its best efforts
until the Closing Date to (i) preserve and keep
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<PAGE> 44
intact the Business; (ii) keep available the services of the Employees; (iii)
preserve its relationships with residents, suppliers and others having business
dealings with Seller in connection with the Business and (iv) maintain current
marketing activities;
8.1.4. Maintenance of Properties. Maintain the Purchased
Assets, whether owned or leased, in their good repair, order and condition, in
accordance with Seller's past practices, reasonable wear and tear excepted;
8.1.5. Maintenance of Books and Records. Maintain the
Books and Records in the usual, regular and ordinary manner, on a basis
consistent with past practice;
8.1.6. Compliance with Applicable Law. Comply in all
material respects with all Legal Requirements applicable to the Purchased Assets
and to the conduct of the Business;
8.1.7. Performance of Obligations. Perform all the
material obligations of Seller relating to the Purchased Assets and the Business
in accordance with the past practices;
8.1.8. Approvals, Consents. Use its best efforts to
obtain in writing as promptly as possible any approvals and consents as required
to be obtained by Seller in order to effectuate the transactions contemplated
hereby and allow the Purchaser to continue to operate the Business from and
after the Closing Date, and deliver to Purchaser copies of such approvals and
consents. Accordingly, Seller shall cooperate with Purchaser's efforts to obtain
the necessary licenses to operate the Facility from the appropriate
Accreditation Bodies, including, without limitation, the Department of Health
and Family Services, Division of Aging. Upon execution and delivery of this
Agreement, Seller shall promptly:
(i) provide Purchaser with copies of all
Permits;
(ii) notify each Accreditation Body and Third
Party Payor as required by any Legal Requirement of the pending change of
ownership of the Facilities; and
(iii) provide such other notices as required by
all Legal Requirements including, if required, (i) notices to the Facilities"
residents and (ii) notices to referral or human service agencies. Prior to
sending the notices, Seller shall provide copies to Purchaser for review and
approval, which approval shall not be unreasonably withheld;
8.1.9. Notice of Material Damage. Give to Purchaser
prompt notice in writing of any fact that, if known on the date hereof, would
have been required to be set forth or disclosed in or pursuant to this
Agreement, or which would result in the breach in any material respect by Seller
of any of its respective representations, warranties, covenants or agreements
hereunder;
8.1.10. Pay Employees to Closing Date. Pay all wages,
salaries and other sums due Employees through the close of business on the day
prior to the Closing Date;
8.1.11. Cost Reports. File, or cause to be filed, all
Medicare and Medicaid cost reports that are required to be filed after the
Closing Date, without regard to any extensions,
33
<PAGE> 45
pursuant to all applicable Legal Requirements. Any liability of Seller required
to be paid as a result of any such cost report for any period prior to the
Closing Date shall be paid by Seller. Purchaser shall cause any refund which may
be received after the Closing Date as a result of any such cost report to be
paid to Seller;
8.1.12. Transfer of Employees. Take all reasonably
necessary steps to transfer to Purchaser the employment of all Employees
electing to continue their employ with Purchaser as of the Closing Date;
8.1.13. Compliance with Agreement. Not undertake any
course of action inconsistent with satisfaction of the conditions applicable to
it set forth in this Agreement, and use all reasonable efforts to do all such
acts and take all such measures as may be reasonably necessary to comply with
the representations, agreements, conditions and other provisions of this
Agreement; and
8.1.14. Update Schedules. Promptly disclose to Purchaser
any information contained in the representations and warranties of Seller
contained in Article VI or in the Schedules to this Agreement which is no longer
complete or correct (including furnishing updated financial statements);
provided that no such disclosure shall be deemed to modify, amend or supplement
such Seller's representations and warranties.
8.1.15. Repairs and Alterations prior to Closing. Make
repairs and alterations to the Facilities prior to closing as specified on
Schedule 8.1.14 hereof.
8.2. Prohibited Actions. Between the date of this Agreement and the
Closing Date, Seller shall not, except as otherwise agreed by Purchaser in
writing:
8.2.1. Sale of Purchased Assets. Sell, transfer, assign,
lease, encumber or otherwise dispose of any of the Purchased Assets other than
in the ordinary course of business consistent with past practices;
8.2.2. Business Changes. Change in any material respect
the character of the Business;
8.2.3. Incurrence of Material Obligations. Incur any
material fixed or contingent obligation or enter into any material agreement,
commitment or other transaction or arrangement, commitment or other transaction
or arrangement that is not in the ordinary course of business consistent with
past practices and with respect to which Purchaser will be bound subsequent to
Closing;
8.2.4. Incurrence of Liens. Subject to lien, security
interest or any other Encumbrance, other than Permitted Encumbrances, any of the
Purchased Assets;
8.2.5. Change in Employee Compensation and Benefits.
Increase the rate of compensation paid, or pay any bonus, to anyone connected
with the Business, except for those increases or bonuses planned, in the
ordinary course of business consistent with past practices, or establish or
adopt any new pension or profit-sharing plan, deferred compensation agreement or
employee benefit arrangement of any kind whatsoever covering or affecting
Employees;
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8.2.6. Publicity; Advertisement. Except as required by law,
publicize, advertise or announce to any third-party, except as required pursuant
to this Agreement to obtain the consent of such third-party, the entering into
of this Agreement, the terms of this Agreement or the transactions contemplated
hereby;
8.2.7. No Release. With respect to Seller, except in the
ordinary course of business consistent with past practices, cancel, release or
relinquish any material debts of or claims against others held by Seller with
respect to the Business or waive any material rights relating to the Business;
and
8.2.8. No Termination or Modification. Terminate or materially
modify any material contract or permit (including, without limitation, those
items listed on Schedule 1.61, Schedule 2.1.4, Schedule 1.57 and Schedule 1.58)
or other authorization or agreement affecting the Purchased Assets or, with
respect to Seller, the Business or the operation thereof.
ARTICLE IX. COVENANTS OF PURCHASER PRIOR TO CLOSING DATE
9.1. Required Actions. Between the date of this Agreement and the
Closing Date, Purchaser shall, except as otherwise agreed by Seller in writing:
9.1.1. Advise of Changes. Advise Seller promptly in writing of
any fact that, if known at the Closing Date, would have been required to be set
forth or disclosed in or pursuant to this Agreement, or which would result in
the breach by Purchaser of any of its representations, warranties, covenants or
agreements hereunder;
9.1.2. Compliance with Agreement. Not undertake any course of
action inconsistent with satisfaction of the conditions applicable to it set
forth in this Agreement, and Purchaser shall use its best efforts to do all such
acts and take all such measures as may be reasonably necessary to comply with
the representations, agreements, conditions and other provisions of this
Agreement;
9.1.3. Examinations. Promptly undertake all examinations,
inspections, surveys and audits, including, without limitation, title searches
and surveys of the Real Property, environmental assessments and audits and
engineering surveys, as Purchaser deems necessary in connection with the
acquisition of the Purchased Assets or the Business; and
9.1.4. Seller's Employees. Take all reasonable steps to ensure
the transfer of employment of all of the Employees Purchaser elects to hire,
consistent with the provisions of Section 4.4 above;
9.1.5. Intentionally Omitted.
9.1.6. Seller's Employees. Take all reasonable steps to ensure
that the transfer of employment of all of the Employees electing to continue
their employ with Purchaser as are able to be accomplished prior to or on the
Closing Date.
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9.2. Investigation. Purchaser shall use reasonable efforts to
conduct an investigation of the Business of Seller in such a manner as to
prevent disruption of relations with the Employees, residents and suppliers of
Seller, which investigation shall include such due diligence as is customary for
transactions of the type contemplated herein;.
9.3. Approvals, Consents. Purchaser shall use its best efforts to
obtain in writing as promptly as possible any approvals and consents as required
to be obtained by Purchaser in order to effectuate the transactions contemplated
hereby and deliver to Seller copies of such approvals and consents. Accordingly,
Purchaser take all reasonable action to obtain the necessary licenses to operate
the Facilities y from the e Department of Health and Social Services, Division
of Aging, including:
providing notice to each Accreditation Body and Third Party
Payor as required by any Legal Requirement of the pending change of ownership of
the Facilities; and
providing such other notices as required by all Legal
Requirements including, if required, (i) notices to the Facilities' residents
and (ii) notices to referral and human service agencies. Prior to sending the
notices, Purchaser shall provide copies to Seller for review and approval, which
approval shall not be unreasonably withheld;
but not including making or paying for any repairs or
alterations to the Facilities unless agreed in writing pursuant to Section 13.5
hereof.
9.4. Publicity; Advertisement. Except as required by law, Purchaser
shall not publicize, advertise or announce to any third-party, except as
required pursuant to this Agreement to obtain the consent of such third-party,
the entering into of this Agreement, the terms of this Agreement or the
transactions contemplated hereby; provided, however, the foregoing shall not be
applicable to disclosures made by Purchaser to Purchaser's lender in response to
such lender's reasonable requests.
ARTICLE X. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligation of Seller to proceed with the Closing under this
Agreement is subject to the fulfillment prior to the specified date or at the
time of Closing of the following conditions with respect to Purchaser, any one
or more of which may be waived in whole or in part by Seller:
10.1. Accuracy of Representations and Warranties. The
representations and warranties of Purchaser contained in this Agreement shall
have been true in all material respects on the date hereof and shall be true in
all material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date.
10.2. Performance of Agreement. Purchaser shall have performed in
all material respects all obligations and agreements and complied in all
material respects with all covenants and conditions contained in this Agreement
to be performed or complied with by it at or prior to the Closing Date.
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10.3. Purchaser's Certificate. Seller shall have received a
certificate from Purchaser, dated as of the Closing Date, reasonably
satisfactory in form and substance to Seller and its counsel, certifying as to
the fulfillment of all matters specified in Section 11.1 and Section 11.2
hereof. The matters set forth in such certificate shall constitute
representations and warranties of Purchaser hereunder.
10.4. Secretary's Certificate. Seller shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Purchaser with respect to:
The resolutions of the board of directors of Purchaser and, if
necessary, the stockholders of Purchaser, authorizing the execution and delivery
of this Agreement and the Ancillary Agreements to which Purchaser is a party and
the performance by Purchaser of the transactions contemplated hereby and
thereby;
The incumbency and specimen signature of each officer or
representative of Purchaser executing this Agreement, the certificate referred
to in Section 10.3 and the Ancillary Agreements to which Purchaser is a party;
and
The effect that the governing documents of Purchaser delivered
pursuant to Section 10.6 were in effect at the date of adoption of such
resolutions, the date of execution of this Agreement and the Closing Date.
10.5. Injunction. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted,
threatened or anticipated which questions the validity or legality of the
transactions contemplated hereby.
10.6. Actions and Proceedings. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental hereto and all other related legal matters shall be
reasonably satisfactory to counsel for Seller, and such counsel shall have been
furnished with such certified copies of such corporate actions and proceedings
and such other instruments and documents as it shall have reasonably requested,
including, without limitation:
Certificates of the appropriate public officials to the effect
that Purchaser is a validly existing partnership in good standing in its state
of organization as of a date not more than 30 days prior to the Closing Date;
Incumbency and specimen signature certificates dated the
Closing Date, signed by the officers of Purchaser and certified by its
Secretary; and
True and correct copies of (A) the charter documents of
Purchaser as of a date not more than 30 days prior to the Closing Date,
certified by the Secretary of State of its state of
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organization and (B) the bylaws or operating agreement of Purchaser as of the
Closing Date, certified by the Secretary of Purchaser.
10.7. Opinion of Counsel. Seller shall have received the favorable
opinion of counsel for Purchaser, reasonably satisfactory to Seller and its
counsel as to the matters set forth in Sections 7.1, 7.2, 7.3 and 7.3 hereof.
ARTICLE XI. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligation of Purchaser to proceed with Closing under this
Agreement is subject to the fulfillment prior to the specified date or at the
time of Closing of the following conditions with respect to Seller, any one or
more of which may be waived in whole or in part by Purchaser:
11.1. Accuracy of Representations and Warranties. The representations
and warranties of Seller contained in this Agreement and the Ancillary Agreement
to which Seller is a party shall have been true in all material respects on the
date hereof and shall be true in all material respects on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date.
11.2. Performance of Agreement. Seller shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement and the
Ancillary Agreements to which such Seller is a party to be performed or complied
with by it at or prior to the Closing Date.
11.3. Seller's Certificate. Purchaser shall have received a certificate
from Seller, dated as of the Closing Date, reasonably satisfactory in form and
substance to Purchaser and its counsel, certifying as to the matters specified
in Section 110.1 and Section 110.2 hereof. The matters set forth in such
certificate shall constitute representations and warranties of Seller hereunder.
11.4. Secretary's Certificate. Purchaser shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Seller with respect to:
(i) the resolutions of the board of directors of Seller and,
if necessary, the stockholders of Seller, authorizing the execution and delivery
of this Agreement and the Ancillary Agreements to which Seller is a party and
the performance by Seller of the transactions contemplated hereby and thereby;
(ii) the incumbency and specimen signature of each officer or
representative of Seller executing this Agreement, the certificate referred to
in Section 110.3 and the Ancillary Agreements to which Seller is a party; and
(iii) the effect that the governing documents of Seller
delivered pursuant to Section 110.6 were in effect at the date of adoption of
such resolutions, the date of execution of this Agreement and the Closing Date.
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11.5. Injunction. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted or
threatened which questions the validity or legality of the transactions
contemplated hereby or which if successfully asserted might otherwise have a
material adverse effect on the conduct of the Business or impose any additional
material financial obligation on, or require the surrender of any material right
by, Purchaser.
11.6. Actions and Proceedings. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental hereto and all other related legal matters shall be
reasonably satisfactory to counsel for Purchaser, and such counsel shall have
been furnished with such certified copies of such corporate actions and
proceedings and such other instruments and documents as it shall have reasonably
requested, including, without limitation:
(i) Certificates of the appropriate public officials to the
effect that Seller is a validly existing corporation in good standing in its
state of incorporation as of a date not more than 310 days prior to the Closing
Date;
(ii) Incumbency and specimen signature certificates dated
the Closing Date, signed by the officers of Seller and certified by its
Secretary; and
(iii) True and correct copies of (A) the charter documents of
Seller as of a date not more than 310 days prior to the Closing Date, certified
by the Secretary of State of its state of incorporation and (B) the bylaws of
Seller as of the Closing Date, certified by the Secretary of Seller.
11.7. Consents. Any third-party consents, approvals, authorizations or
Permits (including, without limitation, those required by any Governmental
Authorities) necessary for the conveyance of the Purchased Assets or valid
consummation of the transactions contemplated hereby and operation of the
Business by Purchaser from and after the Closing Date, shall have been obtained.
11.8. Arrangements with Employees. Substantially all of Seller's
Employees shall have accepted employment with Purchaser effective as of the
Closing Date and Purchaser shall have entered into arrangements with key
Employees of Seller satisfactory to Purchaser in its sole discretion.
11.9. Business Investigation. On or before The Closing Date, at its
own cost and expense, Purchaser shall have completed its investigation as
contemplated in Section 9.2, the results of which shall be satisfactory to
Purchaser in its reasonable sole discretion.
11.10. Physical Inspection. On or before April 23, 1998, at its own
cost and expense, Purchaser shall have inspected and approved the physical
condition of the Real Property including the improvements and the HVAC,
electrical, plumbing and other systems, and shall
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receive the written report in form and substance satisfactory to Purchaser from
a qualified engineering firm approved by Purchaser or any engineer employed by
Purchaser to the effect that the improvements on the Real Property have been
constructed in compliance with, and currently are in compliance with, all
governmental requirements, including without limitation the Americans With
Disabilities Act, and with all restrictions of record applicable thereto which
materially affect the Purchaser's intended use of the Real Property.
11.11. Environmental Report. On or before the Closing Date, at its own
cost and expense, Purchaser shall have obtained a written report from a
qualified geotechnical or engineering firm, in a form and substance ,
satisfactory to Purchaser, concerning the presence, handling, treatment and
disposal of Regulated Substances on, in or under the Real Property and
disclosing (i) the results of a review of prior uses of the Real Property
disclosed by local public records, including the chain of title; (ii) contacts
with local officials to determine whether any records exist with respect to the
disposal of Regulated Substances on the Real Property; and (iii) if recommended
to or required by Purchaser, soil samples and groundwater samples consistent
with good engineering practice.
11.12. Title Insurance. On or before October 30, 1998, at its own cost
and expense, Purchaser shall have obtained for all Real Property final marked
commitments to issue to Purchaser ALTA (19920-Form B with appropriate state
endorsements) owner's or leasehold policies of title insurance in coverage
amounts equal to the fair market values of such Real Property, insuring good and
marketable title to such Real Property with mechanic's liens coverage and such
endorsements as Purchaser may reasonably request, subject only to the and with
exceptions only for ALTA standard printed exceptions (other than mechanic's and
materialmen's liens and rights of possession) and Permitted Encumbrances.
11.13. [Intentionally Omitted.]
11.14. Closing Documents. Purchaser shall have received the other
documents referred to in Section 5.2 which shall be in form and substance
satisfactory to Purchaser in its reasonable discretion.
11.15. Other Deliveries. At its own cost and expense, Purchaser shall
have received with respect to the Real Property:
11.15.1. Surveys. Surveys of such property which conform to
the standards set forth in the ALTA/American Congress on Surveying and Mapping
Minimum Standard Detail Requirements for Land Title Surveys and which disclose
no state of facts inconsistent with the representations and warranties of Seller
set forth in Section 6.9 hereof and are otherwise acceptable to Purchaser;
11.15.2. Affidavits. ALTA extended coverage
statements/affidavits in form and substance satisfactory to Purchaser's title
insurer regarding title, mechanic's liens and such other customary matters as
may be reasonably requested by Purchaser or Purchaser's title insurer; and
11.15.3. FIRPTA Certificates. A certificate, duly executed and
acknowledged by Seller under penalties of perjury, in the form prescribed by
Treasury Regulation
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Section 1.1445-2(b)(2)(iii), stating Seller's name, address and Federal tax
identification number, and that Seller is not a "foreign person" within the
meaning of Section 1445 of the Code.
11.16. Intentionally Omitted.
11.17. Opinion of Counsel. Purchaser shall have received the favorable
opinion of counsel for Seller, addressed to Purchaser and Purchaser's lender,
reasonably satisfactory to Purchaser and its counsel as to the matters set forth
in Sections 6.1, 6.2 and 6.3 hereof.
11.18. Authorization. On or before the Closing Date, at its own cost
and expense On or before April 23, 1998, Purchaser shall have obtained approval
of the transactions contemplated herein by its board of directors and
shareholders (if necessary).
11.19. Opinion of Counsel. Purchaser shall have received the favorable
opinion of counsel for Seller, addressed to Purchaser and, if necessary,
Purchaser's lender, reasonably satisfactory to Purchaser and its counsel as to
the matters set forth in Sections 6.1, 6.2, 6.3, and 6.4 hereof.
ARTICLE XII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligation of Seller to proceed with the Closing under this
Agreement is subject to the fulfillment prior to the specified date or at the
time of Closing of the following conditions with respect to Purchaser, any one
or more of which may be waived in whole or in part by Seller:
12.1. Accuracy of Representations and Warranties. The representations
and warranties of Purchaser contained in this Agreement shall have been true in
all material respects on the date hereof and shall be true in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
12.2. Performance of Agreement. Purchaser shall have performed in all
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions contained in this Agreement to be
performed or complied with by it at or prior to the Closing Date.
12.3. Purchaser's Certificate. Seller shall have received a
certificate from Purchaser, dated as of the Closing Date, reasonably
satisfactory in form and substance to Seller and its counsel, certifying as to
the fulfillment of all matters specified in Section 11.1 and Section 11.2
hereof. The matters set forth in such certificate shall constitute
representations and warranties of Purchaser hereunder.
12.4. Secretary's Certificate. Seller shall have received a
certificate, dated as of the Closing Date, of the Secretary or any Assistant
Secretary of Purchaser with respect to:
(i) the resolutions of the board of directors of Purchaser
and, if necessary, the stockholders of Purchaser, authorizing the execution and
delivery of this Agreement and the Ancillary Agreements to which Purchaser is a
party and the performance by Purchaser of the transactions contemplated hereby
and thereby;
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(ii) the incumbency and specimen signature of each officer
or representative of Purchaser executing this Agreement, the certificate
referred to in Section 11.3 and the Ancillary Agreements to which Purchaser is a
party; and
(iii) the effect that the governing documents of Purchaser
delivered pursuant to Section 11.6 were in effect at the date of adoption of
such resolutions, the date of execution of this Agreement and the Closing Date.
12.5. Injunction. On the Closing Date, there shall be no injunction,
writ, preliminary restraining order or any order of any nature in effect issued
by a court of competent jurisdiction directing that the transactions provided
for herein, or any of them, not be consummated as herein provided and no suit,
action, investigation, inquiry or other legal or administrative proceeding by
any Governmental Authority or other Person shall have been instituted,
threatened or anticipated which questions the validity or legality of the
transactions contemplated hereby.
12.6. Actions and Proceedings. All corporate actions, proceedings,
instruments and documents required to carry out the transactions contemplated by
this Agreement or incidental hereto and all other related legal matters shall be
reasonably satisfactory to counsel for Seller, and such counsel shall have been
furnished with such certified copies of such corporate actions and proceedings
and such other instruments and documents as it shall have reasonably requested,
including, without limitation:
(i) certificates of the appropriate public officials to the
effect that Purchaser is a validly existing corporation in good standing in its
state of incorporation as of a date not more than 10 days prior to the Closing
Date;
(ii) incumbency and specimen signature certificates dated
the Closing Date, signed by the officers of Purchaser and certified by its
Secretary; and
(iii) true and correct copies of (A) the charter documents of
Purchaser as of a date not more than 10 days prior to the Closing Date,
certified by the Secretary of State of its state of incorporation and (B) the
bylaws of Purchaser as of the Closing Date, certified by the Secretary of
Purchaser.
ARTICLE XIII. OBLIGATIONS AFTER THE CLOSING DATE
13.1. Covenant Not to Interfere. Seller covenants and agrees that for
a period of two years after the Closing Date, Seller will not solicit for
employment by such Seller or any Affiliates any Person who is an Employee of the
Business as of the Closing Date.
13.2. Noncompetition. For a period of two years following the Closing
Date, Seller agrees that neither it nor any of its affiliates will and CC Adams,
PhD. and/or his spouse, will not, directly or indirectly own, manage, operate,
join, control or participate in the ownership, management, operation or control
of any independent living or assisted living facilities within a 15-mile radius
of any of the Facilities as a shareholder, officer, director, partner, owner,
joint
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venture or affiliate of any corporation, partnership, joint venture or
other entity, unless acting in accordance with Purchaser's written consent, own,
manage, operate, finance or participate in the ownership, management, operation
or financing of or permit its name to be used by or in connection with any
business or enterprise engaged in the Business acquired by Purchaser hereunder
and located within a 25-mile radius of the Facility. Seller acknowledges that
the provisions of this Section are reasonable and necessary to protect the
interests of Purchaser, that any violation of this Section will result in an
irreparable injury to Purchaser and that damages at law would not be reasonable
or adequate compensation to Purchaser for violation of this Section and that, in
addition to any other available remedies, Purchaser shall be entitled to have
the provisions of this Section specifically enforced by preliminary and
permanent injunctive relief without the necessity of proving actual damages or
posting a bond or other security to an equitable accounting of all earnings,
profits and other benefits arising out of any violation of this Section. In the
event that the provision of this Section shall ever be deemed to exceed the
time, geographic scope or other limitations permitted by applicable law, then
the provisions shall be deemed reformed to the maximum extent permitted by
applicable law.
13.3. Transition of Employees. From and after the Closing Date,
Purchaser and Seller shall cooperate to ensure an orderly transition of the
Employees who accept employment with Purchaser.
13.4. Certain Transitional Matters.
13.4.1. Transfer of Assets. Seller agrees that Purchaser, from
and after the Closing Date, shall have the right and authority to collect for
Purchaser's own account all items which shall be transferred to Purchaser as
provided herein;.
13.4.2. Endorsement of Checks. From and after the Closing
Date, Purchaser shall have the right and authority to retain and endorse without
recourse the name of Seller on any check or any other evidence of indebtedness
received by Purchaser on account of any of the Purchased Assets and, with
respect to Seller, the Business transferred to Purchaser hereunder;.
13.4.3. Seller's Remittance of Funds. After the Closing Date,
Seller shall promptly transfer and deliver to Purchaser any cash or other
property, if any, that Seller may receive related to the Purchased Assets other
than the Excluded Assets and the Business;.
13.4.4. Purchaser's Remittance of Funds. After the Closing
Date, Purchaser shall promptly transfer and deliver to Seller any cash or other
property, if any, that Purchaser may receive related to the Excluded Assets or
to the operation of the Business prior to the Closing Date; and, provided that
funds received from Beulah Sanderson, a resident at the Facility, or from her
estate on her behalf, shall be first applied to outstanding indebtedness to
Purchaser, if any, until Purchaser has been paid in full, and the remainder, if
any, shall be paid to Seller for amounts applicable to periods prior to Closing.
If a decision is made by Purchaser to evict or discharge Beulah Sanderson from
the facility, Purchaser shall give Seller ten (10) days advance written notice.
13.4.5.Assumed Liabilities Controlled by Purchaser. From and
after the Closing, Purchaser shall have complete control over the payment,
settlement or other disposition of, or
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any dispute involving any Assumed Liability, and Purchaser shall have the right
to conduct and control all negotiations and proceedings with respect thereto.
Seller shall notify Purchaser promptly of any claim made with respect to any
Assumed Liability and shall not, except with the prior written consent of
Purchaser, voluntarily make any payment of, or settle or offer to settle, or
consent to any compromise with respect to, any such Assumed Liability. Seller
shall cooperate with Purchaser in connection with any negotiations or
proceedings involving any Assumed Liability.
13.5. Audits. To the extent reasonably requested by Purchaser,
following the Closing Date, at Purchaser's cost and expense, Seller shall
cooperate and request Seller's accountants to cooperate, with Purchaser and its
auditors in the preparation of audited financial statements of the Facility for
the years ended December 31, 1997, 1996 and 1995 prepared in accordance with
GAAP or, to the extent required, in connection with any registration statement
or other form filed by Purchaser with the Securities and Exchange Commission
under the Securities Act of 1933 and the Securities Act of 1934.
13.6. Preservation of Records. After the Closing, Purchaser shall keep
and preserve all medical records and other records of each of the Facilities
existing as of the closing and which are required to be kept and preserved (i)
by any applicable federal or state law or regulations or (ii) in connection with
any claim or controversy still pending involving Seller. After the Closing, upon
reasonable written notice by Seller to Purchaser, Seller, at its own cost and
expense, shall be entitled, during regular business hours, to have access to and
make copies of all records pertaining to the operation of each of the Facilities
(other than medical records which shall be governed by the provisions of Section
12.5 below) prior to the Closing for any lawful corporate purpose.
13.7. Seller's Access to Resident Records. To the extent permitted by
law, Seller, at its own cost and expense, shall be entitled, after the Closing,
during the regular business hours of each of the Facilities, to have access to
and make copies of the resident records, including the medical records and
medical charts of any resident admitted to each of the Facilities on or before
the Closing. In addition, subject to the prior consent of Purchaser, Seller
shall be entitled to copy and remove any such record or chart, but only for the
purpose of pending litigation.
13.8. Further Assurances of Seller. From and after the Closing Date,
Seller shall, at the request of Purchaser, execute, acknowledge and deliver to
Purchaser, without further consideration, all such further assignments,
conveyances, endorsements, deeds, special powers of attorney, consents and other
documents, and take such other action, as Purchaser may reasonably request (i)
to transfer to and vest in Purchaser, and protect its rights, title and interest
in, all the Purchased Assets and (ii) otherwise to consummate the transactions
contemplated by this Agreement. In addition, from and after the Closing Date,
Seller shall afford Purchaser and its attorneys, accountants and other
representatives access, during normal business hours, to any Books and Records
relating to the Business that Seller may retain as may reasonably be required in
connection with the preparation of financial information or tax returns of
Purchaser, provided that Purchaser reimburses Seller for its reasonable
out-of-pocket expenses in connection therewith.
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13.9. Further Assurances of Purchaser. From and after the Closing Date,
Purchaser shall afford to Seller and its attorneys, accountants and other
representatives access, during normal business hours, to such Books and Records
relating to the Business as may reasonably be required in connection with the
preparation of financial information or Tax Returns for periods concluding on or
prior to the Closing Date. Purchaser shall cooperate in all reasonable respects
with Seller with respect to its former interest in the Business and in
connection with financial account closing and reporting and claims and
litigation asserted by or against third parties, including, but not limited to,
making Purchaser's employees available at reasonable times to assist with, or
provide information in connection with financial account closing and reporting
and claims and litigation, provided that Seller reimburses Purchaser for its
reasonable out-of-pocket expenses (including costs of employees so assisting) in
connection therewith.
ARTICLE XIV. TERMINATION
14.1. Termination of Agreement. This Agreement may be terminated:
(i) by the mutual consent in writing of Seller and
Purchaser;
(ii) by Purchaser upon notice to Seller if any of the
conditions set forth in Article XI hereof have not been satisfied or become
impossible to satisfy by the specified date or the Closing Date, as the case may
be (other than by reason of the material failure of Purchaser to fulfill its
obligations under this Agreement);
(iii) by Seller upon notice to Purchaser if any of the
conditions set forth in Article X I hereof have not been satisfied or become
impossible to satisfy by the Closing Date (other than by reason of the material
failure of such Seller to fulfill its obligations under this Agreement);
(iv) by Seller if Purchaser materially breaches any of its
representations or warranties contained herein or materially breaches or fails
to fulfill its obligations under this Agreement, which failure continues and
remains uncured for 130 consecutive calendar days after such Seller gives
written notice of such failure to Purchaser; and
(v) by Purchaser if Seller materially breaches any of its
representations or warranties contained herein or materially breaches or fails
to fulfill its obligations under this Agreement, which failure continues and
remains uncured for 130 consecutive calendar days after Purchaser gives written
notice of such failure to such Seller; and.
(vi) by Purchaser in the event of a material damage to any
of the Facilities or in the event of a material condemnation, as provided in
Section 13.46 below.
14.2. Return of Documents. If this Agreement is terminated for any
reason pursuant to this Article XIII, each Party shall return to the other Party
all documents and copies thereof which shall have been furnished to it by such
other Party or, with the agreement of the other Party, shall destroy all such
documents and copies thereof.
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14.3. Remedies. If this Agreement is terminated by Purchaser or
Seller as permitted under Section 13.1 and not as a result of a breach of a
representation or warranty or the failure of any Party to perform its
obligations hereunder, such termination shall be without liability of any Party.
If a Party terminates this Agreement as a result of a breach of a representation
or warranty by the other Party or the failure of the other Party to perform its
obligations hereunder, the nonbreaching Party, in addition to any other
available rights or legal remedies now or hereafter existing at law or in equity
that may be available, shall be entitled to reimbursement from the breaching
Party for all expenses (including reasonable legal fees) incurred by the
nonbreaching Party in connection with this Agreement and the transactions
contemplated hereby.
14.4. Earnest Money. In the event this Agreement is terminated for
reasons other than Purchaser's default hereunder, all Earnest Money shall be
promptly refunded to Purchaser. In the event this Agreement is terminated due to
Purchaser's default, Seller shall be entitled to retain the Earnest Money as
liquidated damages for Purchaser's breach. The parties agree to cooperate in
providing the Escrow Agent with appropriate disbursement instructions in
accordance with this Agreement.
14.5. Licensure Requirements. The parties recognize that the
Department of Health and Family Services will inspect each of the Facilities to
determine regulatory compliance as a condition to the transfer of the Licenses,
or issuance of Licenses, necessary to operate the Facilities as community based
residential facilities under the provisions of Wisconsin law, and may require as
conditions to such transfer or issuance, that certain repairs, alterations or
installations be made to one or more of the Facilities. Since as of the time of
execution of this Agreement, the nature, extent and cost of such repairs,
alterations and installations are unknown, the parties have made no agreement
herein as to the responsibility for completing and paying therefor (except to
the extent covered by Schedule 8.1.14). If the parties do not subsequently reach
agreement as to these matters and as a result the Department of Health and
Family Services does not approve the transfer or issuance of Licenses to
Purchaser, neither party shall be deemed in default hereunder, but the condition
precedent set forth in Section 11.7 shall be deemed not satisfied.
14.6. Damage or Condemnation. If, prior to the Closing Date, a
Facility shall be materially damaged or shall be taken in material part under
the power of eminent domain, this Purchase Agreement shall become null and void
at Purchaser's option. If Purchaser elects to proceed with this transaction
despite such taking, Seller shall be entitled to retain all of the condemnation
award, and the Purchase Price shall be reduced by the amount of such award. If
Purchaser elects to proceed with this transaction despite such damage, Seller
shall assign to Purchaser all of Seller's right, title and interest in and to
any insurance proceeds paid or payable as a result of such damage, as the case
may be.
ARTICLE XV. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
15.1. Survival of Representations and Warranties. All
representations and warranties of the Seller and Purchaser contained herein
("Parties" or "Party" as the case may be) shall survive for two years after the
Closing Date (the "Survival Date"). Notwithstanding the
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foregoing, there shall be no termination of any such representation or warranty
as to which a claim has been asserted prior to the termination of such survival
period. Any Party's right to the indemnification or other remedies based upon
the representations and warranties, covenants, agreements and undertakings of
the other Party will not be affected by any investigation, knowledge or waiver
of any condition by such Party. Any investigation by such Party shall be for its
own protection only and shall not affect or impair any right or remedy
hereunder.
15.2. Indemnification by Seller. Except for Assumed Liabilities of
Purchaser, Seller shall indemnify, defend, save and hold Purchaser, any assignee
of Purchaser and their respective officers, directors, employees, agents and
Affiliates (collectively, "Purchaser Indemnitees") harmless from and against all
demands, claims, allegations, assertions, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing and
whether or not any such demands, claims, allegations, etc., of third parties are
meritorious; collectively, "Purchaser Damages") asserted against, imposed upon,
resulting to, required to be paid by, or incurred by any Purchaser Indemnitees,
directly or indirectly, in connection with, arising out of, which could result
in, or which would not have occurred but for, a breach of any representation or
warranty made by Seller in this Agreement, in any certificate or document
furnished at Closing pursuant hereto by Seller or any Ancillary Agreement to
which Seller is or is to become a party, a breach or nonfulfillment of any
covenant or agreement made by Seller in or pursuant to this Agreement or any
Ancillary Agreement to which Seller is or is to become a party by the terms of
this Agreement.
15.3. Indemnification by Purchaser. Except for Retained Liabilities of
Seller, Purchaser shall indemnify, defend, save and hold Seller and its
officers, directors, Employees, Affiliates and agents (collectively, "Seller
Indemnitees") harmless from and against any and all demands, claims, actions or
causes of action, assessments, losses, damages, deficiencies, liabilities, costs
and expenses (including reasonable legal fees, interest, penalties, and all
reasonable amounts paid in investigation, defense or settlement of any of the
foregoing and whether or not any such demands, claims, allegations, etc., of
third parties are meritorious; collectively, "Seller Damages") asserted against,
imposed upon, resulting to, required to be paid by, or incurred by any Seller
Indemnitees, directly or indirectly, in connection with, arising out of, which
could result in, or which would not have occurred but for, a breach of any
representation or warranty made by Purchaser in or pursuant to this Agreement or
in any certificate or document furnished pursuant hereto by Purchaser or any
Ancillary Agreement to which Purchaser is a party, a breach or nonfulfillment of
any covenant or agreement made by Purchaser in this Agreement or in any
Ancillary Agreement to which Purchaser is or is to become a party under the
terms of this Agreement. The foregoing indemnity shall also include any Seller
damages incurred resulting from losses, liabilities or other damages relating to
(i) the conduct of the Business by Purchaser after the Closing Date and (ii) the
Assumed Liabilities.
15.4. Notice of Claims. If any Purchaser Indemnitee or Seller
Indemnitee (an "Indemnified Party") believes that it has suffered or incurred or
will suffer or incur any Purchaser Damages or Seller Damages, as the case may be
("Damages"), for which it is entitled to indemnification under this Section 14,
such Indemnified Party shall so notify the Party from whom indemnification is
being claimed (the "Indemnifying Party") with reasonable promptness
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and reasonable particularity in light of the circumstances then existing. If any
action at law or suit in equity is instituted by or against a third party with
respect to which any Indemnified Party intends to claim any Damages, such
Indemnified Party shall promptly notify the Indemnifying Party of such action or
suit. The failure of an Indemnified Party to give any notice required by this
Section shall not affect any of such party's rights under this Section 14 or
otherwise except and to the extent that such failure is actually prejudicial to
the rights or obligations of the Indemnified Party. Notwithstanding the
foregoing, any Purchaser Indemnitee shall be required to notify Seller's Agent
of any claim for Purchaser Damages as required herein even though the same may
be included in the $25,000 threshold set forth in Section 14.6 below, and Seller
shall have the right to dispute any such claim.
15.5. Third Party Claims. The Indemnified Party shall have the right to
conduct and control, through counsel of its choosing, the defense of any third
party claim, action or suit, and the Indemnified Party may compromise or settle
the same, provided that the Indemnified Party shall give the Indemnifying Party
advance notice of any proposed compromise or settlement. The Indemnified Party
shall permit the Indemnifying Party to participate in the defense of any such
action or suit through counsel chosen by the Indemnifying Party, provided that
the fees and expenses of such counsel shall be borne by the Indemnifying Party.
If the Indemnified Party permits the Indemnifying Party to undertake, conduct
and control the conduct and settlement of such action or suit, the Indemnifying
Party shall not thereby permit to exist any Encumbrance upon any asset of the
Indemnified Party; the Indemnifying Party shall not consent to any settlement
that does not include as an unconditional term thereof the giving of a complete
release from liability with respect to such action or suit to the Indemnified
Party; the Indemnifying Party shall permit the Indemnified Party to participate
in such conduct or settlement through counsel chosen by the Indemnified Party;
and the Indemnifying Party shall agree promptly to reimburse the Indemnified
Party for the full amount of any Damages including fees and expenses of counsel
for the Indemnified Party incurred after giving the foregoing notice to the
Indemnifying Party and prior to the assumption of the conduct and control of
such action or suit by the Indemnifying Party.
15.6. Limitation of Liability. Notwithstanding the foregoing, Seller's
liabilities and obligations to indemnify Purchaser Indemnitees against any
Purchaser Damages shall be subject to all of the following limitations:
15.6.1. Threshold. No indemnification shall be made under
Section 14.2 until the aggregate amount of Purchaser Damages thereunder exceeds
$25,000, but if the aggregate amount of Purchaser Damages thereunder exceeds
$25,000 in the aggregate, then indemnification shall be made by Seller
thereunder to the full extent of the Purchaser Damages; provided, however, the
parties agree that the maximum indemnification liability of Seller shall not
exceed $1,000,000.
15.6.2. Time Period. Seller shall be obligated to indemnify
Purchaser Indemnitees by virtue of Section 14.2 only for those Purchaser Damages
as to which Purchaser has given Seller's Agent written notice thereof on or
before the Survival Date; and
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15.6.3. Fraud; Intentional Misrepresentation. The limitations
set forth in Sections 14.6.1 and 14.6.2 shall not apply to Purchaser Damages
arising out of fraud or the intentional breach of any representation or warranty
contained herein.
15.7. Survival of Representations and Warranties. All representations
and warranties of the Parties shall survive for two (2) years after the Closing
Date except for representations and warranties contained in Sections 6.9 and
6.23 which shall survive for six (6) months after the Closing Date; provided
that there shall be no termination of any such representation or warranty as to
which a claim has been asserted prior to the termination of such survival
period. Except as otherwise expressly provided in this Agreement, all covenants,
agreements, undertakings and indemnities set forth in this Agreement shall
survive indefinitely. Any Party's right to the indemnification or other remedies
based upon the representations and warranties, covenants, agreements and
undertakings of any other Party will not be affected by any investigation,
knowledge or waiver of any condition by such Party. Any investigation by such
Party shall be for its own protection only and shall not affect or impair any
right or remedy hereunder.
15.8. Indemnification by Seller. Seller shall respectively indemnify,
defend, save and hold Purchaser and its officers, directors, employees, agents
and Affiliates (collectively, "Purchaser Indemnitees") harmless from and against
all demands, claims, allegations, assertions, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing and
whether or not any such demands, claims, allegations, etc., of third parties are
meritorious; collectively, "Purchaser Damages") asserted against, imposed upon,
resulting to, required to be paid by, or incurred by any Purchaser Indemnitees,
directly or indirectly, in connection with, arising out of, which could result
in, or which would not have occurred but for, a breach of any representation or
warranty made by such Seller in this Agreement, in any certificate or document
furnished pursuant hereto by such Seller or any Ancillary Agreement to which
such Seller is or is to become a party, a breach or nonfulfillment of any
covenant or agreement made by such Seller in or pursuant to this Agreement and
in any Ancillary Agreement to which such Seller is or is to become a party, and
any Retained Liability.
15.9. Indemnification by Purchaser. Purchaser shall indemnify, defend,
save and hold Seller and its officers, directors, Employees, Affiliates and
agents, as the case may be (collectively, "Seller Indemnitees") harmless from
and against any and all demands, claims, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing and
whether or not any such demands, claims, allegations, etc., of third parties are
meritorious; collectively, "Seller Damages") asserted against, imposed upon,
resulting to, required to be paid by, or incurred by any Seller Indemnitees,
directly or indirectly, in connection with, arising out of, which could result
in, or which would not have occurred but for, a breach of any representation or
warranty made by Purchaser in this Agreement or in any certificate or document
furnished pursuant hereto by Purchaser or any Ancillary Agreement to which
Purchaser is a party, a breach or nonfulfillment of any covenant or agreement
made by Purchaser in or pursuant to this Agreement and in any Ancillary
Agreement to which Purchaser is a party, and, with respect to Seller, any
Assumed Liability.
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15.10. Notice of Claims. If any Purchaser Indemnitee or Seller
Indemnitee (an "Indemnified Party") believes that it has suffered or incurred or
will suffer or incur any Purchaser Damages or Seller Damages, as the case may be
("Damages") for which it is entitled to indemnification under this Article XIV,
such Indemnified Party shall so notify the party or parties from whom
indemnification is being claimed (the "Indemnifying Party") with reasonable
promptness and reasonable particularity in light of the circumstances then
existing. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Party intends to claim any
Damages, such Indemnified Party shall promptly notify the Indemnifying Party of
such action or suit. The failure of an Indemnified Party to give any notice
required by this Section shall not affect any of such party's rights under this
Article XIV or otherwise except and to the extent that such failure is actually
prejudicial to the rights or obligations of the Indemnifying Party.
15.11. Third Party Claims. The Indemnified Party shall have the right
to conduct and control, through counsel of its choosing, the defense of any
third party claim, action or suit, and the Indemnified Party may compromise or
settle the same, provided that the Indemnified Party shall give the Indemnifying
Party advance notice of any proposed compromise or settlement. The Indemnified
Party shall permit the Indemnifying Party to participate in the defense of any
such action or suit through counsel chosen by the Indemnifying Party, provided
that the fees and expenses of such counsel shall be borne by the Indemnifying
Party. If the Indemnified Party permits the Indemnifying Party to undertake,
conduct and control the conduct and settlement of such action or suit, the
Indemnifying Party shall not thereby permit to exist any Encumbrance upon any
asset of the Indemnified Party; the Indemnifying Party shall not consent to any
settlement that does not include as an unconditional term thereof the giving of
a complete release from liability with respect to such action or suit to the
Indemnified Party; the Indemnifying Party shall permit the Indemnified Party to
participate in such conduct or settlement through counsel chosen by the
Indemnified Party (at its own cost and expense); and the Indemnifying Party
shall agree promptly to reimburse the Indemnified Party for the full amount of
any Damages including fees and expenses of counsel for the Indemnified Party
incurred after giving the foregoing notice to the Indemnifying Party and prior
to the assumption of the conduct and control of such action or suit by the
Indemnifying Party.
15.12. Other Remedies. The indemnification rights of any Indemnified
Party under this Article XIV are independent of and in addition to such rights
and remedies as such Indemnified Party may have at law, in equity or otherwise
for any misrepresentation, breach of warranty or failure to fulfill any covenant
or agreement under or in connection with this Agreement on the part of any
Party, none of which rights or remedies shall be affected or diminished hereby.
ARTICLE XVI. GENERAL
16.1. Expenses. Except as otherwise provided in this Agreement, and
whether or not the transactions herein contemplated shall be consummated,
Purchaser and Seller shall pay their own fees, expenses and disbursements,
including the fees and expenses of their respective counsel, accountants and
other experts in connection with the subject matter of this Agreement and all
other costs and expenses incurred in performing and complying with all
conditions to be performed under this Agreement.
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16.2. Publicity. All notices to third-parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and among Purchaser and Seller. Except as may be
required by law, no Party shall act unilaterally in this regard without prior
written approval of each very other Party, and such approval shall not be
unreasonably withheld by each Party.
16.3. Confidentiality. In order to facilitate the transaction
contemplated hereunder, each party may deem it necessary to disclose to the
other party certain of its proprietary and/or confidential information. As used
herein, the term "proprietary and/or confidential information. As used herein,
the term "proprietary and/or confidential information" shall mean all
information of, or relating to, such party that is not generally available or
disclosed to the public, including, but not limited to, financial information,
proprietary systems and methods for the delivery of services. Each party
acknowledges that all such information constitutes confidential and/or
proprietary information of such other party and agrees it shall (i) keep such
information confidential in accordance with the terms of this Agreement and to
the extent permitted by law, (ii) use such information solely for the purpose of
performing its obligations hereunder (including in the case of Purchaser, for
the purpose of obtaining financing to consummate this transaction), (iii)
disclose such information only to those employees and agents who require such
information to perform their obligations hereunder or in connection herewith
(iv) not use such information in the trading of securities of either Party or
communicate such information to others who so trade in such securities and (iv)
not otherwise disclose or make use of such information except in accordance with
the terms of this Agreement and to the extent required by law. In the event this
Agreement is terminated prior to Closing, each Party shall return to the other
all documents and copies in its possession or in the possession of its advisors
or agents, comprising or reflecting proprietary and/or confidential information.
Notwithstanding any other provision to this Agreement, the provisions of this
paragraph shall survive the expiration or sooner termination of this Agreement
indefinitely.
16.4. Waivers. The waiver by any Party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
16.5. Binding Effect; Benefits. This Agreement shall inure to the
benefit of the Parties hereto, and shall be binding upon the Parties hereto and
their respective successors, assigns, heirs, executors, administrators and legal
representatives. Nothing in this Agreement, express or implied, is intended to
confer on any Person other than the Parties hereto, or their respective
successors, assigns, heirs, executors, administrators and legal representatives
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
16.6. Notices. All notices, requests, demands, elections and other
communications which any Party to this Agreement may be required to give
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, by a reputable courier service which requires a signature
upon delivery, by mailing the same by registered or certified first class mail,
postage prepaid, return receipt requested, or by telecopying with receipt
confirmation (followed by a first class mailing of the same) to the Party to
whom the same is so given or made. Such notice, request, demand, waiver,
election or other communication will be deemed to have been given as of the date
so delivered or electronically transmitted or two days after mailing thereof.
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16.6.1. Notice to Seller.
If to Seller, to:
Urquhart Companies Potomac Point Health Center, Inc.
Attn: Glen G. Urquhart c/o C.C. Adams, Ph.D.
5100 Eden Avenue South 331 Snow Hill Dr
Suite 2017 Edina, MN 55436
Spotsylvania, VA 22553
With a required copy to:
James E. Nelson, Esquire C. Thomas Green III
Briggs and Morgan, P.A. 7501 Boulders View Dr.
2400 IDS Center Suite 640
80 South 8th Street Richmond, VA 23225
Minneapolis, MN 55402
Telephone: (612804) 3340-8457706
Fax: (612804) 3340-86507857
16.6.2. Notice to Purchaser.
If to Purchaser, to:
Balanced Care Corporation
Attn: Robin L. Barber, Esquire
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Telephone: (717) 796-6100
Fax: (717) 796-6150
Attn: Director, Legal Services
With a required copy to:
Kirkpatrick & Lockhart LLP
Attn: Steven J. Adelkoff, Esquire
1500 Oliver Building
Pittsburgh, PA 15222
Telephone: (412) 355-6500
Fax: (412) 355-6501
Attn: John C. Rodney, Esquire
Or to such other addresses as such Party shall have specified by notice to every
other Party hereto.
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16.7. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the Ancillary Agreements and documents delivered at
Closing pursuant hereto and thereto constitute the entire agreement and
understanding between the Parties hereto as to the matters set forth herein and
therein and supersede and revoke all prior agreements and understandings, oral
and written, between the Parties hereto or thereto or otherwise with respect to
the subject matter hereof or thereof. No change, amendment, termination or
attempted waiver of any of the provisions hereof or thereof shall be binding
upon any Party unless set forth in an instrument in writing signed by the Party
to be bound or their respective successors in interest.
16.8. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
16.9. Headings. The article, section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement.
16.10. Construction. Within this Agreement, the singular shall include
the plural and the plural shall include the singular, and any gender shall
include all other genders, all as the meaning and the context of this Agreement
shall require.
16.11. Governing Law and Choice of Forum. The validity and
interpretation of this Agreement shall be construed in accordance with, and
governed by the internal laws of the State Commonwealth of Virginia but without
regard to its rules governing conflict of laws. All claims, disputes or causes
of action relating to or arising out of this Agreement shall be brought, heard
and resolved solely and exclusively by and in federal or state court situated in
Stafford County, Virginia. The Parties hereto agree to submit to the
jurisdiction of such courts and agree that such jurisdiction shall be proper for
all purposes of this Agreement.
16.12. Cooperation. The Parties hereto shall cooperate fully at their
own expense, except as otherwise provided in this Agreement, with each other and
their respective counsel and accountants in connection with all steps to be
taken as part of their obligations under this Agreement.
16.13. Severability. If any term, covenant, condition or provision of
this Agreement or the application thereof to any circumstance shall be invalid
or unenforceable to any extent, the remaining terms, covenants, conditions and
provisions of this Agreement shall not be affected thereby and each remaining
term, covenant, condition and provision of this Agreement shall be valid and
shall be enforceable to the fullest extent permitted by law. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
16.14. Attorneys' Fees. If a dispute arises among the Parties as a
result of which an action is commenced to interpret or enforce any of the terms
of this Agreement, the non-prevailing Parties shall pay the prevailing Party's
reasonable out-of-pocket attorneys' fees, costs and expenses incurred in
connection with the prosecution or defense of such action.
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16.15. Successors and Assigns. The covenants, agreements, and
conditions contained herein or granted hereby shall be binding upon and shall
inure to the benefit of Purchaser and Seller, and each of their respective
permitted successors, assigns, heirs, executors, administrators and legal
representatives. Neither Seller or Purchaser shall not assign, or otherwise
transfer any interest in this Agreement to any other Person without the prior
written consent of the other Purchaser, which consent shall not unreasonably be
withheld. Purchaser may assign and transfer its interest in this Agreement
without Seller's consent to any of Purchaser's Affiliates or to any lender
providing financing for the transactions contemplated hereby. In addition,
Purchaser anticipates financing the transactions contemplated hereby through
sale-leaseback(s). Purchaser shall have the right to assign this Agreement, in
whole or in part, in such manner as Purchaser may desire in order to facilitate
such sale-leasebacks. Purchaser will promptly provide Seller with a copy of any
such assignment, and Seller agrees to execute and deliver any consents
reasonably required by Purchaser's lender in connection therewith, provided such
assignment does not expand either of Seller's respective obligations and
liabilities hereunder. Notwithstanding any permitted assignment of this
Agreement by Purchaser, the assigning party shall remain liable to Seller for
all obligations and liabilities to be performed by or on its behalf. behalf of
Purchaser hereunder with respect to such Seller.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, intending to be legally bound hereby, the Parties have
caused this Agreement to be signed in their respective names by an officer
thereof duly authorized as of the date first above written.
SELLER:
BCC OF WISCONSIN, INC.
By: /s/ ROBIN L. BARBER
-----------------------------------------
Name: Robin L. Barber
Title: Secretary
SELLER:
BALANCED CARE CORPORATION
By: /s/ ROBIN L. BARBER
-----------------------------------------
Name: Robin L. Barber
Title: Assistant Secretary
PURCHASER:
URQUHART COMPANIES
By: /s/ GLEN G. URQUHART
-----------------------------------------
Name: Glen G. Urquhart
Title: Managing Partner
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<PAGE> 1
EXHIBIT 10.1
FORM OF LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made as of the 31st day of
December, 1998, by and between Smith/Packett Med-Com, Inc., a Virginia
corporation (together with its successors and assigns, the "Licensee") and BCC
Investments Corp., Inc., a Delaware corporation ("BIC") and wholly-owned
subsidiary of Balanced Care Corporation (together with BIC's successors and
assigns, the "Licensor").
RECITALS
WHEREAS, the Licensor is the author and owner of those certain manuals,
drawings, plans, and specifications listed on Schedule A attached hereto and
incorporated herein (collectively, the "Plans") for the design and construction
of a _ prototype, _____ story, ___-unit, ___-bed adult care residence (the
"Facility") to be constructed and completed by Licensee in ______________,
_______________ (the "Project"); and
WHEREAS, the Licensee is desirous of obtaining certain rights with
respect to Licensor's Plans and Licensor is willing to license such rights
according to the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants herein contained, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I - LICENSE
1.1 LICENSE. Licensor hereby grants to Licensee only, the
non-exclusive, nonassignable, nontransferable license to use, adapt and
reproduce the Plans but only in connection with the Project (the "License"),
such License being subject to the terms and conditions of this Agreement. Except
as may be specifically set forth herein, Licensee shall not use, adapt or
reproduce the Plans separately or in connection with any activity other than the
Project unless Licensee has obtained the prior written consent of Licensor
(which consent may be withheld in Licensor's sole and absolute discretion).
1.2 PLAN ADAPTATIONS. Under the License granted hereby, Licensee may
adapt the Plans in order to cause the Project to be in compliance with all
applicable federal, state and local laws, regulations, codes, ordinances,
statutes and other rules including, without limitation, all building codes and
any regulations promulgated by the [Health Care Agency] regarding adult care
residences (collectively, the "Governing Regulations") of all governing
authorities having jurisdiction over the Project (collectively, the "Governing
Authorities"). All rights in adaptations to the Plans shall be owned by Licensor
and Licensee shall reasonably
<PAGE> 2
cooperate with Licensor, at Licensor's sole cost and expense, in the preparation
and prosecution of any patent or copyright applications or other documents to
protect such rights in Licensor's name.
1.3 COPIES; SUBMISSION OR DISTRIBUTION OF PLANS. Under the License
granted hereby, Licensee may:
1.3.1 Retain copies of the Plans for information and reference
purposes in connection with the construction, completion, maintenance, repair,
non-structural alteration, use, operation and occupancy of the Facility; and
1.3.2 Provide contractors, subcontractors and material or
equipment suppliers who agree to be bound by the terms hereof with applicable
portions and/or copies of the Plans in connection with such party's work on the
Project; and
1.3.3 Provide portions and/or copies of the Plans to Governing
Authorities in order to ensure that the Plans meet the requirements of the
Governing Regulations.
1.4 ADDITIONS AND STRUCTURAL ALTERATIONS. Notwithstanding the License
granted hereby, Licensee shall not use the Plans for future additions or
structural alterations to the Project, for any other party or for any other
purpose, without the prior written consent of Licensor (which consent may be
withheld in Licensor's sole and absolute discretion).
1.5 PROMOTIONAL MATERIALS. Notwithstanding the License granted hereby,
Licensee shall not include any representations regarding the Plans that involve
any reference to Licensor or the Plans, including, without limitation,
adaptations, photographs, drawings, sketches or other renderings in any
promotional or professional materials without Licensor's prior written consent
(which consent may be withheld in Licensor's sole and absolute discretion).
1.6 TERM OF LICENSE. Unless sooner terminated pursuant to Article V of
this Agreement, the License granted hereby shall automatically terminate upon
Substantial Completion of the Facility. As used herein, the term "Substantial
Completion" shall mean the issuance by the appropriate Governing Authorities of
a certificate of occupancy (or its equivalent).
1.7 ASSIGNMENT OF LICENSE. Licensee shall not assign, delegate,
sublicense, pledge or otherwise transfer the License or any other rights granted
hereby or obligations undertaken hereunder to any other party without the prior
written consent of Licensor (which consent may be withheld in Licensor's sole
and absolute discretion).
1.8 RETENTION OF RIGHTS. Notwithstanding the License granted hereby,
Licensee acknowledges and agrees that Licensor (i) is the author and owner of
the Plans and (ii) retains all common law, statutory and other reserved rights
to the Plans, including, without limitation, copyrights and the right to use and
license others to use the Plans (together with any modifications, adaptations or
derivations thereof) separately or in connection with any activity of Licensor
during the term of this Agreement and indefinitely thereafter.
2
<PAGE> 3
ARTICLE II - COMPENSATION
2.1 COMPENSATION. As compensation for the License granted hereby,
Licensee agrees to pay Licensor a fee in the amount of $ [Total Compensation],
which fee shall be paid as follows: (i) $100,000 due and payable upon closing of
construction financing for the Project (the "Closing"); (ii) $ [Total Monthly
Compensation] due and payable in twelve equal installments of $ [Monthly
Installments] commencing on the first business day of the month immediately
following the Closing and on the first business day of each successive calendar
month for the next twelve months; and (iii) $ [Certificate of Occupancy
Compensation] due and payable upon the issuance of a certificate of occupancy or
its equivalent for the Project (the "Certificate of Occupancy").
ARTICLE III - PLANS
3.1 DELIVERY OF PLANS. Upon execution and delivery of this Agreement by
the parties hereto, Licensor will provide Licensee with a complete set of Plans
on CAD disks to be used by Licensee in connection with the Project in accordance
with the terms and conditions of this Agreement.
3.2 RETURN OF PLANS. Except as set forth in Section 1.3, the Plans
(including any adaptations made by Licensee) and any copies or computer
diskettes of the foregoing, will, at Licensor's option, either be returned to
Licensor or destroyed upon the earlier to occur of (i) Substantial Completion of
the Facility or (ii) termination of the License pursuant to Article V.
3.3. LICENSOR'S REPRESENTATIONS AND WARRANTIES. Licensor represents and
warrants to Licensee as follows:
3.3.1 The Plans (in their original form when provided to
Licensee under Section 3.2), in all material respects:
3.3.1.1 Provide for the construction of all buildings
and related improvements necessary for the proper and efficient construction of
the Facility; and
3.3.1.2 Illustrate and describe the design of the
Facility and establish the scope, relationships, forms, size and appearance of
the Facility by means of appropriate plans, sections and elevations; and
3.3.1.3 Fix and describe the size and character of
the Facility as to architectural, structural, mechanical and electrical systems
and equipment layout; and
3.3.1.4 Describe the requirements for construction of
the Facility and detail the quality levels of the materials and systems required
for the Facility.
3.3.2 The Facility, if constructed in accordance with the
Plans (in their original form when provided to Licensee under Section 3.2), will
be structurally and architecturally sound in all material respects.
3
<PAGE> 4
3.3.3 Notwithstanding the foregoing, Licensor makes no
representations or warranties, express or implied, with respect to:
3.3.3.1 The Plans or the Facility following any
adaptations to the Plans made by Licensee (including, without limitation, the
architectural or structural soundness of the Facility); or
3.3.3.2 The compliance of the Plans with any
Governing Regulations; or
3.3.3.3 The adaptability of the Plans to conform with
any Governing Regulations.
3.4 NO OTHER RESPONSIBILITIES.
3.4.1 Licensor is not responsible for any of the following:
3.4.1.1 Adherence to or adaptation of the Plans by
Licensee; or
3.4.1.2 Approval of the Plans by any Governing
Authorities; or
3.4.1.3 Compliance of the Plans with any Governing
Regulations; or
3.4.1.4 Construction or completion of the Project; or
3.4.1.5 The quality of construction or workmanship of
the Project; or
3.4.1.6 Payment for furnishing of labor, materials or
any other work or services in connection with the Project; or
3.4.1.7 Establishing or maintaining any of Licensee's
relationships or contracts with any contractors, subcontractors, materialmen or
laborers performing work, supplying materials or providing services in
connection with the Project.
3.4.2 NO JOINT VENTURE OR PARTNERSHIP. Neither anything
contained in this Agreement nor the acts of the parties hereto shall create, or
be construed to create, a partnership or joint venture between Licensor and
Licensee. Licensee is not the agent or representative of Licensor and nothing
contained herein shall make, or be construed to make, Licensor liable to any
person for materials or labor supplied to Licensee, services performed at the
direction of Licensee or for debts or claims accruing against Licensee.
ARTICLE IV - LETTER OF CREDIT
4.1 LETTER OF CREDIT. As security for Licensor's representations and
warranties under Article III, Licensor shall provide Licensee with a letter of
credit in the form attached hereto and
4
<PAGE> 5
incorporated herein as Exhibit A (the "Letter of Credit") in an amount equal to
10% of the project costs for the Project. The Letter of Credit will be provided
to Licensee on or before Closing. Licensor shall maintain the Letter of Credit
in favor of Licensee until the earlier to occur of (i) 24 months following the
issuance of the Certificate of Occupancy or (ii) Stabilized Occupancy of the
Facility. As used herein, the term "Stabilized Occupancy" shall mean that point
in time when 85% or more of the Facility's licensed beds are sold for a
consecutive two month period. The Letter of Credit shall be for an initial term
of one year and shall be automatically renewed for successive terms of at least
one year until the Letter of Credit is no longer required to be maintained as
set forth herein.
4.2 DRAWS. Licensee may draw under the Letter of Credit in accordance
with its terms upon the occurrence of a breach by Licensor of any of the
representations and warranties contained in Article III.
4.3 SUBSTITUTE LETTER OF CREDIT. Licensor may, from time to time,
deliver a substitute Letter of Credit meeting the requirements of this Article
whereupon the original Letter of Credit will be released.
4.4 COST OF THE LETTER OF CREDIT. The Letter of Credit shall be
obtained at the sole cost and expense of Licensor.
ARTICLE V - TERMINATION AND REMEDIES
5.1 TERMINATION BY LICENSOR. Licensor may terminate the License granted
hereby if (i) Licensee breaches its obligations under this Agreement, which
breach continues and remains uncured for 30 consecutive calendar days after
Licensor gives written notice of such breach to Licensee or (ii) Licensee 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 against Licensee seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or 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 or a receiver, trustee, or other
similar official for it or for any substantial part of its property and such
proceeding shall remain undismissed for a period of sixty (60) days; or Licensee
shall institute such a proceeding; or Licensee shall take any corporate action
to authorize any of the actions set forth above in this Section 5.1(ii).
5.2 TERMINATION BY LICENSEE. Licensee may terminate the License granted
hereby if Licensor breaches any of its representations or warranties under
Article III of this Agreement, which breach continues and remains uncured for 30
consecutive calendar days after Licensee gives written notice of such breach to
Licensor.
5.3 LICENSOR'S REMEDIES. Upon a breach by Licensee of any of its
obligations under this Agreement or termination by Licensor pursuant to Section
5.1(ii), Licensor may seek relief in an action for specific performance or other
equitable relief and/or maintain an action at law for damages, including,
without limitation, consequential damages.
5
<PAGE> 6
5.4 LICENSEE'S REMEDIES. Upon a breach by Licensor of any of the
representations or warranties contained in Article III of this Agreement,
Licensee's sole and exclusive remedy shall be to (i) draw down under the Letter
of Credit in accordance with the provisions of Article IV and (ii)
notwithstanding the provisions of Section 3.2, retain the Plans until
Substantial Completion. Licensee shall have no other rights or remedies with
respect to any such breach, at law, in equity or otherwise and in no event shall
Licensor be liable to Licensee for any consequential damages.
ARTICLE VI - INDEMNIFICATION
6.1 INDEMNIFICATION BY LICENSEE. Licensee shall indemnify, defend, save
and hold Licensor, its officers, directors, employees, agents and affiliates
harmless from and against any and all demands, claims, actions, losses, damages,
liabilities, costs and expenses (including reasonable legal fees) (collectively,
the "Damages") incurred by Licensor in connection with a breach by Licensee of
any of its obligations under this Agreement. Notwithstanding the foregoing,
Licensee shall not be obligated to indemnify Licensor for any Damages incurred
solely as a result of (i) a breach by Licensor of any of its representations or
warranties contained in Article III or (ii) the willful misconduct or gross
negligence of Licensor. This indemnification obligation shall survive expiration
or earlier termination of the License and/or this Agreement.
ARTICLE VII - MISCELLANEOUS
7.1 NOTICE. Any notice required hereunder shall be hand delivered or
sent by nationally recognized overnight courier, or certified United States
mail, postage prepaid, to the parties, and shall be deemed to have been given
upon depositing with the United States Post Office or delivered by overnight
courier:
If to Licensee:
Smith/Packett Med-Com, Inc.
4415 Pheasant Ridge Road, SW, Suite 301
Roanoke, VA 24014
Phone: (417) 731-8373
Fax: (417) 731-7215
If to Licensor:
BCC Investments Corp, Inc.
c/o Balanced Care Corporation
5021 Louise Drive, Suite 200
Mechanicsburg, PA 17055
Att.: Legal Department
Phone: (717) 796-6100
Fax: (717) 796-6150
6
<PAGE> 7
7.2 AMENDMENTS. This Agreement shall not be waived, amended or modified
except by the written agreement of all of the parties hereto.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, including its
statutes of limitation but without regard to its rules concerning conflicts of
law.
7.4 SEVERABILITY. Any invalidity, in whole or in part, of any provision
of this Agreement shall not affect the validity or enforceability of any other
of its provisions.
7.5 BINDING AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding on and shall inure to the benefit of the parties hereto, their
successors and assigns.
7.6 HEADINGS. The headings contained in this Agreement are for
convenience of reference only and shall not control the interpretation of any
term or condition hereof.
7.7 ASSIGNMENT. Licensee may not assign its rights or obligations under
this Agreement without the prior written consent of Licensor (which consent may
be withheld in Licensor's sole and absolute discretion).
7.8 COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts. Each full counterpart shall be deemed an original, but all such
counterparts together shall constitute one and the same instrument.
7.9 NO THIRD PARTY BENEFICIARIES. 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.
7.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties hereto as to the matters set forth herein.
There are no other agreements or understandings, oral and written, between the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have executed this Agreement on and as of the day and year first above
written.
BCC INVESTMENTS CORP., INC.
Delaware corporation
By:
----------------------------
Name, Title
SMITH/PACKETT MED-COM, INC., a
Virginia corporation
By:
----------------------------
Name, Title
7
<PAGE> 1
EXHIBIT 10.2
SCHEDULE TO FORM OF LICENSE AGREEMENT
FILED PURSUANT TO INSTRUCTION 2 TO ITEM 601(a) OF REGULATION S-K
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER CERTIFICATE OF
PROTO- OF OF OF HEALTH CARE TOTAL TOTAL MONTHLY MONTHLY OCCUPANCY
TYPE STORIES UNITS BEDS PROJECT AGENCY COMPENSATION COMPENSATION INSTALLMENTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C 1 78 84 BLACKSBURG, Virginia $400,000 $150,000 $12,500 $150,000
VIRGINIA Department of
Social Services
A 1 104 113 CHARLESTON, West Virginia $450,000 $175,000 $14,583.33 $175,000
WEST VIRGINIA Department of
Health and
Human Services
C 1 78 84 CHESAPEAKE, Virginia $400,000 $150,000 $12,500 $150,000
VIRGINIA Department of
Social Services
A-2 2 103 106 JACKSONVILLE, Florida Agency $450,000 $175,000 $14,583.33 $175,000
FLORIDA for Health Care
Administration
B 1 75 77 MANASSAS, Virginia $450,000 $175,000 $14,583.33 $175,000
VIRGINIA Department of
Social Services
C 1 78 84 SUFFOLK, Virginia $400,000 $150,000 $12,500 $150,000
VIRGINIA Department of
Social Services
A 1 81 85 WILLIAMSBURG, Virginia $400,000 $150,000 $12,500 $150,000
VIRGINIA Department of
Social Services
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,921
<SECURITIES> 0
<RECEIVABLES> 20,178
<ALLOWANCES> 1,291
<INVENTORY> 0
<CURRENT-ASSETS> 31,881
<PP&E> 28,912
<DEPRECIATION> 3,100
<TOTAL-ASSETS> 80,994
<CURRENT-LIABILITIES> 13,294
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 58,747
<TOTAL-LIABILITY-AND-EQUITY> 80,994
<SALES> 18,682
<TOTAL-REVENUES> 18,682
<CGS> 0
<TOTAL-COSTS> 24,932
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (6,388)
<INCOME-TAX> (1,225)
<INCOME-CONTINUING> (5,163)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,163)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
