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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10SB
General Form for Registration of Securities
of Small Business Issuers
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
IN-HOUSE REHAB CORPORATION
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(Name of Small Business Issuer in its Charter)
COLORADO 84-0987697
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
325 WEST MAIN STREET, SUITE 1400B, LOUISVILLE, KENTUCKY 40202
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(Address of Principal Executive Offices, Including Zip Code)
(502) 568-8963
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(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
In-House Rehab Corporation (the "Company") was formed under the laws of
the State of Colorado in May 1985 under the name of "Perennial Development
Corporation" for the purpose of engaging in real estate activities. In April
1987, the Company completed an initial public offering of its securities, and
became listed on Nasdaq.
The Company engaged in commercial land development operations. However,
due principally to escalating adverse economic conditions in the real estate
markets in which the Company was engaged, management eventually abandoned the
development of all of its projects. A combination of high leverage and severe
liquidity problems forced management to dispose of the properties during the
period from June 1989 to May 1994. A land development project in Somerton,
Arizona resulted in the filing of a bankruptcy petition on behalf of a
subsidiary which was settled during the year ended May 31, 1995.
On September 29, 1995, the Company acquired all of the outstanding stock
of In-House Rehab, Inc. ("IHR"), a Kentucky corporation, in exchange for
10,460,000 shares of the Company's authorized but unissued Common Stock. Such
shares were issued to the former shareholders of IHR and represent 85% of the
Company's Common Stock outstanding. As a result of this transaction, there
was a change in control of the Company. All of the Company's officers and
directors resigned, and new officers and directors selected by IHR were
elected.
IHR was formed in September 1994, and is engaged in providing, on a
contract basis, physical, speech and occupational therapy personnel to long-
term care providers.
In November 1995, IHR formed a wholly-owned subsidiary named In House
Staffing, Inc. ("IHS"), a Kentucky corporation, established for the purpose of
providing services in recruiting rehabilitation therapists for the Company and
its customers as well as other health care providers. IHS was merged into IHR
on June 1, 1996.
Effective March 1, 1996, the Company acquired certain assets and
liabilities of Total Rehab South, Inc. ("TRS"), a Tampa, Florida based
provider of rehabilitation, speech and occupational therapists to nursing
homes and long-term care facilities in Florida and Georgia. Included in the
assets acquired by the Company are the rights of TRS under contracts it held
to provide therapists to 28 facilities. TRS was merged into IHR on June 1,
1996.
All references to the "Company" herein refers to the Company and its
subsidiaries, unless the context otherwise requires.
Effective September 1, 1996, the Company acquired all of the stock of
Regal Health Care, Inc. ("RHC"), a Clearwater, Florida based provider of
psych/social services to nursing homes and long-term care facilities in North
Carolina.
In November 1996, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to change the name of the Company to
"In-House Rehab Corporation," and this became effective on December 9, 1996.
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Effective December 1, 1996, the Company acquired all of the stock of RT
Group Inc. ("RTG"), an Indianapolis, Indiana based provider of respiratory
therapy services to nursing home and long-term care facilities in Indiana. On
that same date, the Company also acquired all of the stock of Daily
Rehabilitation Institute, Inc. ("DRI"), a Jacksonville, Florida based
outpatient rehabilitation agency.
CONTRACT THERAPY SERVICES
The Company primarily provides rehabilitation therapists to nursing
facilities on a contract basis. These include physical therapists,
occupational therapists, speech-language pathologists, respiratory therapists
and psych/social services counseling, working together to improve the ability
of patients to perform the activities of daily living. Physical therapy
effects muscular and neural responses in an effort to improve patients'
physical strength and range of motion. Occupational therapy is the evaluation
and treatment of physical, cognitive and psychosocial performance deficits in
activities of daily living. Speech-language pathology is the diagnosis and
treatment of speech, language, voice and swallowing disorders. Respiratory
therapy is the evaluation and treatment of breathing disorders. Psych/social
services is the evaluation and psychological counseling of patients suffering
from severe depression.
The long-term care industry has typically contracted for therapy
services for the following reasons:
INSUFFICIENT CASELOAD. The average nursing facility of
approximately 100 beds has insufficient and/or irregular caseloads, which
makes it uneconomical to operate its own therapy program with the full-time
employment of therapists and the associated costs of administration.
SUPPLY OF THERAPISTS. There is an inadequate supply of therapists
and the work force is characterized by high turnover. Consistent staffing
levels are difficult to maintain, which jeopardizes service levels and
quality.
EXPERTISE. Therapy revenues represent a relatively small
percentage of a nursing facility's total revenues and operating activities.
Reimbursement and regulatory complexities concerning appropriate utilization,
documentation, denials management and quality oversight, if inadequately
administered, can seriously erode the profitability of therapy programs
staffed by and managed by employees of the nursing facility. As a result,
nursing facilities frequently choose to contract for specialized expertise.
In the current unsettled environment, the Company believes that it is
well-positioned to compete effectively with other contractors due to: (i) a
multi-disciplinary team approach to therapy that is designed to deliver a high
level of quality, (ii) reimbursement and regulatory expertise to assist
nursing facility operators in their dealings with third-party payors,
principally Medicare, and (iii) sophisticated management information systems
to assist operators in analyzing clinical outcomes, therapy utilization, claim
denials, staffing and marketing and educational activities.
The supply of therapists is growing at a rate of less than 5% per year,
yet the demand for therapists is growing at 8% to 10% per year. The Bureau of
Labor Statistics estimates that the shortage of therapists will continue into
the first decade of the next century. The principal limitations on the supply
of therapists are the lack of funding to increase the number and size of
educational programs and increasingly stringent accreditation requirements.
To address these issues, the Company has developed the following programs:
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1. UNIVERSITY RECRUITMENT PROGRAM. Utilizing a director of university
and client relations, the Company has developed a comprehensive program to
establish relationships with the pool of therapists coming into the
marketplace. The strategy includes four levels of involvement depending upon
the target university:
LEVEL ONE - The Company is in contact with over 100 schools around
the country where students are provided with Company and industry specific
promotional materials.
LEVEL TWO - The Company coordinates on-site visits to 30 to 50
schools per year and conducts job fairs, receptions and other activities to
establish a presence and build relationships.
LEVEL THREE - In addition to the above, a closer working
relationship is established with the faculty and student population by
sponsoring awards and assisting with the students' clinical training.
LEVEL FOUR - As an extension of level three involvement, the
Company will also provide clinical internships which provide students with
hands-on training at one or more of its facilities.
2. DIVERSIFIED CAREER PATHS. Access to long-term care, acute care
hospitals, free-standing clinics, and other work settings, provides the
Company with the ability to offer a therapist exposure and experience in
various clinical settings.
3. ON-SITE MANAGEMENT SUPPORT. The Company is committed to on-site
management in every facility, clinic or other work setting regardless of size.
Management believes this feature differentiates the Company from the
competition in its ability to attract new business and retain therapists.
The deficiency in the ratio of therapists supply and demand will
continue to require the utmost attention from the Company's management.
Employee turnover in the rehabilitation industry is high relative to
other industries because of the supply/demand imbalance. Also affecting
turnover is the aggressive recruiting that occurs within the industry and the
demographics of the largely young, female and mobile therapist population.
Furthermore, therapist turnover rates in nursing facilities are traditionally
higher than in other therapy settings due to the increased difficulties in
treating geriatric patients.
SERVICE AGREEMENTS
The Company enters into Contracts for Therapy Program Services with
operators of long-term care facilities which provide that the Company will
provide rehabilitation services to the facilities' patients based upon medical
necessity, professional recruiting, rehabilitation management, and support to
the facilities for obtaining reimbursement from third-party payors. The
Company's services include:
(1) Recruiting physical therapists, speech therapists, occupational
therapists, rehabilitation case managers, and other personnel as agreed upon,
to provide services at the nursing home to be employed either by the Company,
or, in some instances, by the nursing home;
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(2) Providing a program enhancement specialist in long-term care and
rehabilitation to support, council, advise and assist in directing the
development of the rehabilitation activity within the facility;
(3) Providing a reimbursement specialist to assist with
recommendations on financial matters to the facility's administration;
(4) Procuring equipment as needed for the facility to assure that
rehabilitation activities function at a level commensurate with patient
requirements;
(5) Reviewing compliance with all state and federal guidelines
relative to therapist credentials; and
(6) Providing manuals and other educational materials to enhance the
overall capabilities of the rehabilitation departments of the facility.
In exchange for the services provided, the Company receives a fixed
monthly fee, which may be adjusted if the quantity of equipment, therapists or
other services subsequently change; a one-time set up fee; and a monthly fee
based on the number of treatment units of service provided by employees of the
Company.
The Contract terms for Therapy Program Services vary from one to five
years. However, the contracts may be terminated upon either thirty or sixty
days notice, depending upon the specific contract in question.
The Company presently has Contracts for Therapy Program Services with 59
nursing homes in the southeastern United States; 30 of these facilities are
either owned, operated or managed by Retirement Care Associates, Inc., a
principal shareholder of the Company. The Company intends to increase the
number of contracts it has with long-term care facilities operated by entities
other than Retirement Care Associates, Inc. However, the Company is currently
highly dependent on its contracts with Retirement Care Associates, Inc. If,
for any reason, Retirement Care Associates, Inc. were to cancel some or all of
these contracts (which could occur on as little as 60-days' notice), the
Company's operations could be materially and adversely affected.
ACQUISITION OF ASSETS OF TOTAL REHAB SOUTH
Effective March 1, 1996, the Company acquired certain assets and
liabilities of Total Rehab South, Inc. ("TRS"), a Tampa, Florida based
provider of rehabilitation, speech and occupational therapists to nursing
homes and long-term care facilities in Florida and Georgia. Included in the
assets that the Company purchased were $900,000 in accounts receivable and the
rights of TRS under contracts it held to provide therapists to 28 facilities.
The Company also assumed up to $75,000 of liabilities of TRS. The total
price paid by the Company under the asset purchase agreement and a related
non-competition agreement was $1,010,601 and $185,601, respectively.
In connection with this acquisition, the therapists employed by TRS
became employees of the Company.
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The Company believes that contracts acquired from TRS represent annual
revenues of over $4,000,000. Based on accounting records obtained from TRS,
during the year ended December 31, 1995, TRS had approximately $2,251,000 in
revenue from operations, and the direct expenses related to such revenue was
approximately $1,860,000. The gross profit of approximately $391,000 is
before selling, general and administrative, income tax, and other expenses.
Under the Company's management, this segment of the business generated
revenues of $2,487,950 and a gross profit of $924,832 during the six months
ended November 30, 1996.
ACQUISITION OF STOCK OF REGAL HEALTH CARE
The Company acquired all of the stock of Regal Health Care, Inc. ("RHC")
on September 1, 1996, for $1.00. RHC is a Clearwater, Florida based provider
of psyche/social services to nursing homes and long-term care facilities in
North Carolina. Upon acquisition, RHC had assets totaling approximately
$30,000 and liabilities totaling approximately $70,000 with annualized
revenues of $96,000 and pre-tax earnings of $17,000. The Company has now
added psych/social services to the rehabilitation services it currently
offers.
ACQUISITION OF STOCK OF RT GROUP
The Company acquired all of the stock of RT Group, Inc. ("RTG") on
December 1, 1996, in exchange for $150,000 in cash. RTG is a Indianapolis,
Indiana based provider of respiratory care to nursing homes and long-term care
facilities in Indiana. Upon acquisition, RTG had assets totaling
approximately $75,000 and liabilities totaling approximately $49,000 with
annualized revenues of $200,000. An accurate assessment of RTG's profit
potential cannot be made due to certain administrative functions performed by
a related company that were not charged to RTG. The Company will now offer
respiratory therapy services along with rehabilitation and psych/social
services in facilities under contract.
ACQUISITION OF STOCK OF DAILY REHAB
The Company acquired all of the stock of Daily Rehabilitation Institute,
Inc. ("DRI") on December 1, 1996, in exchange for $1.00 and an option to
purchase 30,000 shares of the Company's Common Stock at $2.25 per share. DRI
is a Jacksonville, Florida based provider of outpatient rehab services in a
clinic setting. Upon acquisition, DRI had assets totaling approximately
$116,000 and liabilities totaling approximately $124,000 with annualized
revenue of $60,000 and a pre-tax loss of $10,000. The clinic is a Medicare
certified facility that the Company intends to market in the Florida based
assisted living community.
MARKETING
The Company's IHR subsidiary employs a Vice President of Marketing who,
together with the Company's President, actively solicits contracts from long-
term care providers. The Company anticipates that these efforts will result
in obtaining more contracts from non-affiliated companies.
COMPETITION
The health care industry in general, and rehabilitation in particular,
is highly competitive and subject to continual changes in methods of service
delivery and provider selection. Rehabilitation is largely a local market
business and competition varies considerably among markets. The primary
competitive factors in such local markets are quality of patient care
services, charges for services and responsiveness to meeting the needs of
patients, customer health care facilities, referral sources and payors.
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Key competitive factors in the contract therapy services business
include the ability to provide therapy staff to meet the therapy needs at
customer facilities and the ability to provide management and clinical support
to such staff. The Company will compete in local markets with other national
and regional and local contract therapy providers. The demographics of
potential customers are expected to change as some larger nursing home chains
attempt to take their services in-house. This may increase the competition
for remaining customers. Although the Company intends to expand its customer
contracts in the nursing home industry, the successful development of such
in-house programs by a large number of customers could adversely affect the
Company's ability to do so.
The Company believes that its ability to compete is enhanced by the
relationships management has established within the long-term care industry.
The Company's services are also unique in that the facility administrator has
the option to have the Company manage the rehabilitation department totally,
or to utilize the Company as a traditional provider in selected disciplines.
The flexibility of service approach is different from the larger competitors
which typically offer only contract therapy. The Company also provides a
rehabilitation director to oversee treatment in each facility. This feature
should appeal to smaller nursing home chains. The Company is also involved in
the development of sub-acute care units. This particular aspect of service
appeals to mid-size chains that cannot afford to hire management personnel
with this highly specialized expertise.
REIMBURSEMENT/GOVERNMENT PROGRAMS
Reimbursement for medical rehabilitation services is available through
Medicare, Medicaid, commercial insurance, managed care programs, veterans
benefits, workers' compensation and other government programs. Medicare is a
federally funded health program which provides health insurance coverage for
certain disabled persons and persons age 65 or older. Medicaid is a health
insurance program, jointly funded by the federal and state governments, which
provides health insurance coverage for certain financially or medically needy
persons regardless of age. Medicaid benefits supplement Medicare benefits for
financially needy persons age 65 or older. Congress has provided, through the
Medicare program, for coverage of contract therapy services. A substantial
portion of the Company's business, in effect, is reimbursed by Medicare, and a
small portion by Medicaid. As a result, regulations regarding Medicare and
Medicaid eligibility, certification and reimbursement are important to the
Company's activities and changes in these programs or regulations could
adversely affect the Company's business.
The Congress is considering health care reform and balanced budget
proposals. Consideration is expected on measures which will control health
care costs. Legislative changes to slow the annual rate of growth of Medicare
and Medicaid are expected. Such changes may impact reimbursement for
rehabilitation.
Medicare reimburses the nursing facility for contract therapy services
on a cost basis, and reimbursement levels are determined based on a
reasonable-cost standard. Specific guidelines exist for evaluating the
reasonable cost of physical therapy. General guidelines exist for evaluating
the reasonable cost of occupational therapy, speech-language pathology
services, respiratory therapy and psych/social services. When a nursing
facility contracts with a third party, such as the Company, for physical
therapy services, a standard rate system
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applies. This system is called salary-equivalency. The physical therapy
salary-equivalency rates have been adjusted annually based on a 1983 standard
but do not adequately reflect salary inflation since 1983. As a result,
physical therapy contract services are essentially a break-even business for
many contractors.
The Health Care Financing Administration ("HCFA"), the federal agency
responsible for the rules governing Medicare and Medicaid, has indicated it
intends to issue specific reimbursement guidelines for occupational therapy
and speech-language pathology services and to recalculate and update the
existing guidelines for physical therapy services. Proposed rules governing
such guidelines are expected for public comment in the second quarter of
calendar year 1997. Final rules are expected to be promulgated in the last
quarter of calendar year 1997.
Management believes that, when occupational therapy and speech-language
pathology services guidelines are established, HCFA will recalculate and
update the physical therapy salary-equivalency guidelines in consideration of
the substantial increases in salary and services standards since these
guidelines were last revised. Because the nature and magnitude of these
changes are not certain at this time, there are no assurances with respect to
the impact such changes may have on the Company. There can be no assurance
that future (i) legislation, either health care or budgetary, (ii) regulatory
changes or (iii) interpretations of regulations, will not have a material
adverse effect on the future operations of the Company.
Until such time as salary-equivalency guidelines are formally
promulgated, contract occupational therapy and speech-language pathology
services are evaluated based upon the reasonableness of costs incurred by the
provider under a "prudent buyer" standard. During the past two years, HCFA
has issued several directives to its fiscal intermediaries instructing them on
how to ensure therapy costs are reasonable. One such advisory issued in April
1995 was controversial as it included a series of data tables with incomplete
instructions. Responding to concerns raised by the nursing home and
rehabilitation sectors, HCFA clarified its guidance in a June 1995 directive
reiterating that fiscal intermediaries must apply the "prudent buyer"
principle when evaluating whether a facility's costs are substantially
out-of-line. Intermediaries are instructed to consider relevant facts and
circumstances concerning a facility's contracting costs. The attention being
given by HCFA to these instructions has increased scrutiny of contracting
practices.
GOVERNMENT REGULATION
The health care industry, including rehabilitation services, is subject
to extensive federal, state and local regulation. The various layers of
regulation affect the Company's business by requiring licensure or
certification of its employees and controlling reimbursements for services
provided. Government and other third-party payors' health care policies and
programs have been subject to changes in payment and methodologies for a
number of years. Efforts to reform the nation's health care system could
induce additional changes. See "REIMBURSEMENT/GOVERNMENT PROGRAMS,"
previously discussed.
Various state and federal laws and regulations govern relationships
between providers of health care services and physicians, including employment
or service contracts and investment relationships. These laws and regulations
include the fraud and abuse provisions of the Medicare and Medicaid statutes,
which prohibit the payment, receipt or offering of any direct or indirect
remuneration for the
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referral of or to induce a referral of Medicare or Medicaid patients or for
the ordering or providing of Medicare or Medicaid covered services, items or
equipment and the self-referral provisions of federal and state law which
generally prohibit referrals by a physician to persons with whom the physician
has certain types of financial relationships. Violations of these provisions
may result in civil or criminal penalties for individuals or entities and/or
exclusion from participation in the Medicare and Medicaid programs.
Management believes it is in compliance with these laws and regulations and
has established a broad-based compliance program to ensure conformity to these
rules as well as to other laws and regulations.
INSURANCE
Companies which provide rehabilitation therapy services are subject to
personal injury and other liability claims which are normally covered by
insurance. The Company maintains liability insurance coverage in amounts
deemed appropriate based on the nature and risks of the business. There can
be no assurance that a future claim will not exceed insurance coverage or that
such coverage will continue to be available. In addition, continued
substantial increases in the cost of such insurance could have an adverse
effect on the Company's business.
EMPLOYEES
As of November 30, 1996, the Company had approximately 284 employees of
which 167 are full-time. The Company's employees are not represented by any
labor union. Management believes that its relationship with its employees are
favorable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
RESULTS OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED NOVEMBER 30,
1995
During the six months ended November 30, 1996, the Company had $7,030,551
in revenue as compared to $2,246,643 during the same period in the prior year.
The increase is almost entiretly due to an increase in the number of service
contracts held by the Company and an improvement in productivity. There were
only minor adjustments to service rates in select areas. As of November 30,
1996, the Company had contracts to provide rehabilitation services to 59 long-
term care facilities as compared to contracts with 19 facilities as of
November 30, 1995.
Operating costs as a percentage of revenues were approximately 70.6%
during the six months ended November 30, 1996, as compared to approximately
72.1% during the same period last year. The improvement resulted from less
dependence upon contract therapists and a higher utilization of in-house
staffing. The increase in the dollar amounts of these expenses is a result of
the increased level of rehabilitation services provided.
Selling, general and administrative expenses decreased as a percentage of
revenues to 14.5% as compared to approximately 15.6% during the same period
last year. The dollar amount of these expenses were up by approximately
$672,000 primarily due to the addition of administrative personnel and some
increase in salaries of officers.
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As a result of the factors discussed above, the Company had net income of
$605,580 during the six months ended November 30, 1996, as compared to
$153,472 during the same period last year.
FISCAL YEAR ENDED MAY 31, 1996 COMPARED TO PERIOD FROM SEPTEMBER 21, 1994
(INCEPTION) TO MAY 31, 1995
During the fiscal year ended May 31, 1996, the Company had revenues of
$6,623,410 as compared to $335,404 during the period ended May 31, 1995. The
substantial increase reflects the fact that prior to May 31, 1995, the Company
was in a start-up phase and had only limited operations.
Operating expenses as a percentage of revenues during the year ended May
31, 1996 were approximately 71.6% as compared to approximately 95.8% during
the prior period. The reduction in the percentage reflects the fact that the
Company was in a start-up phase in the prior period and was not able to
achieve normal operations until the year ended May 31, 1996.
Selling, general and administrative expenses as a percentage of revenues
during the year ended May 31, 1996, were approximately 17.8% as compared to
approximately 30.4% during the prior period. The reduced percentage reflects
the Company's start-up of operations in the prior period.
Interest expense during the year ended May 31, 1996 was $65,533. The
Company had no interest expense in the prior period. The interest expense is
a result of borrowings under a line of credit which the Company obtained in
June 1995.
As a result of the factors described above, the Company had a net income
of $394,263 during the year ended May 31, 1996, as compared to a loss of
$(91,784) during the prior period.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1996, the Company had working capital of approximately
$2,519,401 as compared to working capital of approximately $1,712,000 at May
31, 1996. The increase was primarily due to an increase in trade receivables
at November 30, 1996. The increase resulted from an increase in the number of
contracts being serviced.
Net cash used in operating activities totaled $1,088,533 for the six
months ended November 30, 1996, as compared to $522,924 during the same period
of the prior year. The increased use of cash was primarily due to an increase
in accounts receivable resulting from increased service revenue.
The Company used $36,122 in investing activities during the period
compared to $16,382 during the same period of the prior year. The change was
due to the purchase of equipment. Other than the potential acquisition of new
companies, the Company does not anticipate any significant investing
activities.
Net cash provided by financing activities for the six months ended
November 30, 1996, was $1,124,645 compared with $450,000 for the same period
of the prior year. The increase was primarily from short-term borrowings
under the Company's credit line.
At May 31, 1996 the Company had working capital of approximately
$1,712,000 as compared to approximately $239,000 at May 31, 1995. The
increase was a result of the sale of common stock during the year ended May
31, 1996 as well as the net income for the year.
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Net cash used in operating activities totaled approximately $1,295,000
for the year ended May 31, 1996 as compared to approximately $222,000 used in
operation activities during the period from September 21, 1994 (inception) to
May 31, 1995. The increased use of cash was primarily due to an increase in
accounts receivable as a result of increased operations.
The Company used approximately $573,000 in investing activities during
the year ended May 31, 1996 as compared to approximately $15,000 used in
investing activities during the prior period. The increase was a result of
the purchase of equipment and the purchase of Total Rehab South, Inc.
During the year ended May 31, 1996, the Company had cash flows from
financing activities of approximately $1,765,000 as compared to $340,000
provided from financing activities during the prior period. The increase was
primarily due to a private offering of common stock which provided net
proceeds of approximately $1,292,000.
As of November 30, 1996, the Company had a $2.5 million line of credit
under which $1,525,000 had been borrowed. This line of credit together with
cash flows from operations are expected to be sufficient to meet the Company's
cash requirements for the remainder of the current fiscal year. An
acquisition or a major contract for new business could require additional
funding.
NEW ACCOUNTING STANDARD
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which encourages, but does not require, companies to
measure the compensation cost of stock-based compensation plans at the grant
date based on the fair value of the stock-based award. Companies may continue
accounting for stock-based compensation under APB Opinion 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, provided the Company discloses the pro forma
effects on net income and earnings per share had the new accounting
requirements been applied. This statement is effective for the Company's
fiscal year ending May 31, 1997 annual financial statements. The Company
intends to continue accounting for stock-based compensation awards under the
provisions of APB 25.
ITEM 3. DESCRIPTION OF PROPERTY.
Effective February 1, 1997, the Company entered into a new five year
lease for approximately 7,400 square feet of office space at Waterfront Plaza,
325 West Main Street, Louisville, Kentucky 40202. The base rent is $7,067.71
per month and is fixed for the five year period.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of January 31, 1997, each person
known by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, all Directors and Executive Officers individually and
all Directors and Executive Officers of the Company as a group. Except as
noted, each person has sole voting and investment power with respect to the
shares shown.
<TABLE>
<CAPTION>
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AMOUNT OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP OF CLASS
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<S> <C> <C>
David V. Hall 4,665,150<FN1> 35.0%
9505 Williamsburg Plaza
Louisville, Kentucky 40222
Robert J. Babine 1,038,000<FN2> 7.8%
9505 Williamsburg Plaza
Louisville, Kentucky 40222
Chris Brogdon 50,000<FN3> 0.4%
c/o Retirement Care Associates,
Inc.
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
Rebecca H. Krueger 104,000<FN4> 0.8%
9505 Williamsburg Plaza
Louisville, KY 40222
Retirement Care Associates, Inc. 3,661,000<FN5> 27.4%
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
All Executive Officers and 5,858,150 43.6%
Directors as a Group
(4 Persons)
_________________
<FN>
<FN1>
Includes 4,655,150 shares held directly by Mr. Hall and 10,000 shares held by
his wife as custodian for two minor children.
<FN2>
Includes 1,022,000 shares held directly by Mr. Babine and 16,000 shares held
by two of his children who share his home.
<FN3>
Includes 5,000 shares held directly by Mr. Brogdon, 25,000 shares held by his
wife, and 20,000 shares held by a daughter. Does not include the shares held
by Retirement Care Associates, Inc., of which Mr. Brogdon is President,
Director and a principal shareholder.
<FN4>
Includes 4,000 shares held directly by Mrs. Krueger and 100,000 shares
underlying a stock option held by her.
<FN5>
Retirement Care Associates, Inc. ("Retirement Care") is a publicly-held
corporation of which Chris Brogdon is President, Director and a principal
shareholder; Edward E. Lane is Secretary, Director and a principal
shareholder; Darrell C. Tucker is a Director and a President of a subsidiary;
and Michael P. Traba and Julian S. Daley are Directors. In addition, Connie
Brogdon, the wife of Chris Brogdon, is a principal shareholder of Retirement
Care. The following sets forth the approximate percentage ownership
beneficially held by such persons in Retirement Care:
-12-
<PAGE>
Chris Brogdon 20.7%
Edward E. Lane 19.5%
Darrell C. Tucker 4.1%
Julian S. Daley 0.3%
Harlan Mathews 0.1%
Connie Brogdon 20.7%
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The Directors and Officers of the Company are as follows:
NAME AGE POSITIONS AND OFFICES HELD
---- --- --------------------------
David V. Hall 54 President and a Director
Robert J. Babine 52 Chief Financial Officer, Secretary,
Treasurer and a Director
Chris Brogdon 47 Director
Rebecca H. Krueger 41 Chief Operations Officer
There is no family relationship between any Director or Executive
Officer of the Company.
The Company has no nominating, compensation or audit committees.
Set forth below are the names of all Directors and Executive Officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
DAVID V. HALL - PRESIDENT AND DIRECTOR. Mr. Hall has been President and
Director of the Company since September 1995, and has held these same
positions with In-House Rehab, Inc. ("IHR"), the Company's wholly-owned
subsidiary, since September 1994. From 1986 to 1993, he was President of The
Cardinal Group, a nursing home operator which he founded, which grew to 26
nursing homes. Mr. Hall sold this company in 1993, and he was actively
involved in winding up this sale until the Summer of 1994. During this period
of time and until September 1994, he also worked on plans for starting
In-House
Rehab, Inc. Since 1994, Mr. Hall has also served as Chairman of the
Board of Hallmark Communications, a company engaged in selling long distance
telephone service, primarily to businesses. From 1980 to 1985, he was
President, founder and sole owner of Cardinal Medical Corporation which
operated six full service nursing homes in Kentucky, which were sold to
Hillhaven Corp. in 1985 due to a change in Kentucky's Medicaid reimbursement
regulations. From 1977 to 1980, he was President, founder and sole owner of
Clinical Management Associates, a contract respiratory and cardiopulmonary
company which provided professionals and equipment to acute care hospitals.
At the time that Mr. Hall sold this company, it provided services to 22
hospitals in five states, had annual revenues of $6 million and had
approximately 220 employees. He received a B.A. Degree from the University of
Louisville in 1964.
-13-
<PAGE>
ROBERT J. BABINE - CHIEF FINANCIAL OFFICER, SECRETARY, TREASURER AND
DIRECTOR. Mr. Babine has been Chief Financial Officer, Secretary, Treasurer
and a Director of the Company since September 1995, and has held these same
positions with IHR, the Company's wholly-owned subsidiary, since September
1994. From 1993 to 1994, he was Vice President of Management Alternatives,
Inc., a financial consulting firm specializing in mergers and acquisitions.
Since 1990, Mr. Babine has also been owner of RJB Holdings, Inc., which has
investments in real estate and service related businesses. From 1989 to 1990,
Mr. Babine was Vice President and CFO for Burris Foods, Inc., a wholesale food
distributor. From 1984 to 1989, he was controller for KFC International which
handled international operations for the Kentucky Fried Chicken restaurant
chain. Prior to that time he was Director of Accounting for KFC International
from 1982 to 1984. Mr. Babine also has experience as an auditor with Arthur
Young International accounting firm from 1974 to 1978. He received a B.S.
Degree in 1972 and a MSBA Degree in Finance/Accounting in 1974 from the
University of Massachusetts. Mr. Babine became a CPA in Connecticut in 1976.
CHRIS BROGDON - DIRECTOR. Mr. Brogdon has been a Director of the
Company since September 1995. He has served as President and a Director of
Retirement Care Associates, Inc. ("Retirement Care"), a New York Stock
Exchange listed company, since October 1991. He also served as Treasurer of
Retirement Care from October 1991 to November 1993. He served as Secretary of
Capitol Care from July 1990 until it was merged into Retirement Care in
November 1992, and now serves in these same capacities with Capitol Care. Mr.
Brogdon has been involved in financing and operating nursing homes and
retirement communities since 1982. From 1969 until 1982, Mr. Brogdon was
employed in the securities business as a retail salesman. Mr. Brogdon
attended Georgia State University in Atlanta, Georgia. Since March 1987, Mr.
Brogdon has been Secretary/Treasurer of Winter Haven Homes, Inc. ("WHH") and
since August 1990, he has been Secretary/Treasurer of National Assistance
Bureau, Inc. ("NAB"). Both WHH and NAB are engaged in the business of owning
and operating nursing homes and retirement communities. Mr. Brogdon also
serves as Chairman of the Board of Contour Medical, Inc., a publicly-held
company, which is a manufacturer and distributor of orthopedic care and
rehabilitation products and disposable medical products.
REBECCA H. KRUEGER - CHIEF OPERATIONS OFFICER. Mrs. Krueger became
employed by the Company in June 1996, and became Chief Operations Officer in
September 1996. From September 1990 to December 1995, she was employed by
Transitional Health Services ("THS") which was acquired by WelCare
International Management Corporation, Atlanta, Georgia ("WelCare") in December
1995, and continued to be employed by WelCare until June 1996. THS and
WelCare operate and manage a large number of nursing home facilities.
Initially, Mrs. Krueger was Director of Nursing of a facility owned by THS
where she supervised a nursing staff of approximately 160 persons, and
directed a rehabilitation program. Beginning in May 1992, she became a
Regional Nurse Consultant/Quality Assurance Specialist for THS, and was
responsible for eight facilities in evaluating staff performance and
compliance with federal and state regulations. In January 1994, Mrs. Krueger
became a Regional Director of Operations for THS where she was responsible for
the total operations of three to six long-term care facilities in Indiana,
Kentucky and Arkansas. Finally, from March 1996 to June 1996, she was
National Director of Subacute Services for WelCare, where she was responsible
for the development of all subacute and postacute programs for up to 78
facilities. Mrs. Krueger graduated from the University of the State of New
York in 1989 with an Associate Science and Nursing Degree.
-14-
<PAGE>
The Company's executive officers hold office until the next annual
meeting of directors of the Company. There are no known arrangements or
understandings between any director or executive officer and any other person
pursuant to which any of the above-named executive officers or directors was
selected as an officer or director of the Company.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President for the fiscal year ended May 31,
1996, and the period of September 21, 1994 through May 31, 1995. No other
executive officer's total salary exceeded $100,000 during such periods.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
- ---------------------------
AWARDS
PAYOUTS
------------------
- -------
SECURI-
ANNUAL COMPENSATION TIES
-------------------------------- UNDERLY-
OTHER RE- ING
ALL
ANNUAL STRICTED OPTIONS/
OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs
LTIP
COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER)
PAYOUTS SATION
- ------------------ ---- ------- -------- ------- -------- --------
- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
David V. Hall, 1996 $69,200 $100,522 $14,654 -0- -0-
- -0- 3,881
President <FN1>
<FN2>
1995 $ -0- $ -0- $ 1,946
<FN3>
- ---------------
<FN>
<FN1>
Represents $4,974 paid for medical insurance benefits above those provided to
other full-time employees of the Company, and $9,680 paid for expenses of an
automobile provided for Mr. Hall's use.
<FN2>
Represents the premium paid for a term life insurance policy provided for Mr.
Hall's benefit.
<FN3>
Represents $1,181 paid for medical insurance benefits above those provided to
other full-time employees of the Company, and $765 paid for expenses of an
automobile provided for Mr.Hall's use.
</FN>
</TABLE>
Effective February 1, 1996, the Company entered into three year
employment agreements with David V. Hall, President of the Company, and Robert
J. Babine, Chief Financial Officer, Secretary and Treasurer of the Company.
The Employment Agreements provide that each will devote a substantial portion
of their time to the Company, and that Mr. Hall will receive a base salary of
$200,000 per year and Mr. Babine will receive a base salary of $100,000 per
year. Mr. Hall and Mr. Babine will also receive bonuses at the discretion of
the Board of Directors and the use of an automobile at a maximum cost of
$10,000 per year for Mr. Hall and $6,000 per year for Mr. Babine. In
addition, the employment agreements provide that the Company will pay for term
life insurance policies in the amount of $2,000,000 for Mr. Hall and $500,000
for Mr. Babine. The proceeds of these policies will be payable to the
respective estates of Mr. Hall and Mr. Babine.
-15-
<PAGE>
In the event that the Company terminates either of these employment
agreements without cause, or as a result of a change in control, the Company
will be required to pay the base salary for the remaining initial term of the
agreement, or twelve (12) months, whichever is greater. In addition, the
Company may be required to repurchase up to 50% of the stock held by the
Officers and provide for family medical insurance until the age of 65.
Rebecca Krueger, Chief Operations Officer, will receive an annual salary
of $90,000 and a bonus to be determined by the Board of Directors. She is
also entitled to a car allowance of $400 per month and the Company's standard
benefit package. She also received 100,000 stock options exercisable at a
price of $2.00 per share over a three year period.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees for their services in
such capacity. However, each Director is reimbursed for all reasonable and
necessary costs and expenses incurred as a result of being a Director of the
Company.
STOCK OPTION PLAN
In October 1996, the Company's Board of Directors adopted the Company's
1993 Stock Option Plan (the "1996 Plan"). The 1996 Plan allows the Board to
grant stock options from time to time to employees, officers and directors of
the Company and consultants to the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. However, Incentive Stock Options will only be granted to persons who
are key employees of the Company. Vesting provisions are determined by the
Board at the time options are granted. As originally adopted, the total number
of shares of Common Stock sub- ject to options under the 1996 Plan was not to
exceed 1,000,000, subject to adjustment in the event of certain recapitali-
zations, reorganizations and similar transactions. The option price cannot be
less than the fair market value of a share on the date the option is granted
and it must be satisfied by the payment of cash.
The Board of Directors may amend the 1996 Plan at any time, provided
that the Board may not amend the 1996 Plan to materially increase the number
of shares available under the 1996 Plan, materially increase the benefits
accruing to Participants under the 1996 Plan, or materially change the
eligible class of employees without shareholder approval.
OUTSTANDING OPTIONS UNDER THE PLAN
On December 26, 1996, the Company's Board of Directors granted options
to
purchase an aggregate of 112,000 shares of Common Stock at $2.00 per share
under the 1996 Plan. The options are fully vested and expire three years after
the date of grant. Included in these options are non-qualified options to
purchase 100,000 shares granted to Rebecca Krueger, Chief Operations Officer
of the Company.
OTHER OUTSTANDING OPTIONS NOT UNDER THE PLAN
On June 1, 1996, the Company granted a non-plan option to an employee to
purchase 50,000 shares of Common Stock at $1.25 per share which was equal to
the fair market value on the date of grant. The option is exercisable for
three years from the date of grant.
-16-
<PAGE>
On June 21, 1996, the Company granted non-plan options to two stock
brokers to purchase 20,000 shares of Common Stock at $1.25 per share which was
equal to the fair market value on the date of grant. The options are
exercisable for three years from the date of grant.
On August 1, 1996, the Company granted non-plan options to ten employees
to purchase an aggregate of 95,000 shares of Common Stock at $1.75 per share
which was equal to the fair market value on the date of grant. These options
are exercisable for three years from the date of grant.
On October 24, 1996, the Company granted non-plan options to two
employees to purchase an aggregate of 40,000 shares of Common Stock at $2.25
per share which was equal to the fair market value on the date of grant.
These options are exercisable for three years from the date of grant.
On December 1, 1996, the Company issued non-plan options to two
shareholders of Daily Rehabilitation Institute, Inc. in connection with the
acquisition of that company. The options are to purchase an aggregate of
30,000 shares of Common Stock at $2.25 per share which was equal to the fair
market value on the date of grant. The options expire on November 15, 1999.
On December 26, 1996, the Company issued non-plan options to purchase
200,000 shares of Common Stock to David V. Hall at $2.00 per share which was
equal to the fair market value on the date of grant. Mr. Hall then
transferred these options to his two adult children who are also employees of
the Company. The options are exercisable for three years from the date of
grant.
401(k) PLAN
The Company maintains a 401(k) employee retirement and savings program
(the "401(k) Plan") for its employees. Under the 401(k) Plan, an employee may
con- tribute up to 15% of his or her gross annual earnings, subject to a
statutory maximum, for investment in one or more funds identified under the
Plan. The Com- pany may in the future, with the approval of the Board of
Directors, make matching contributions to participants in the 401(k) Plan.
During the year ended May 31, 1996, the Company made no matching contributions
to the 401(k) Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with the acquisition of In-House Rehab, Inc. in September
1995, certain persons who were then Officers and Directors of the Company
agreed to the cancellation of indebtedness owed to them by the Company as
follows:
NAME AMOUNT OF DEBT CANCELED
---------------- -----------------------
Albert L. Blum $226,655
Theodore Jackson 176,915
Fred B. Blum 18,367
Mark Jackson 177,315
--------
Total $599,252
The indebtedness to these persons was a result of advances made for working
capital and for debt service payments made for which the person was a personal
guarantor, including interest accrued thereon.
-17-
<PAGE>
The Company presently has contracts to provide physical, speech and
occupational therapists to approximately 59 nursing homes of which 30 are
either owned, operated or managed by Retirement Care Associates, Inc., a
principal shareholder of the Company. During the year ended May 31, 1996, the
Company billed approximately $5,129,000 in fees under agreements with
Retirement Care Associates, Inc. During the six months ended November 30,
1996, the Company billed approximately $4,024,031 in fees under these
agreements. As of November 30, 1996, there were approximately $2,228,765 in
accounts receivable relating to such services outstanding.
As of November 30, 1996, Retirement Care Associates, Inc. owed the
Company approximately $56,000 in connection with its original purchase during
the fiscal year ended May 31, 1995, of shares of stock of In-House Rehab, Inc.
which shares were subsequently exchanged for shares of the Company's Common
Stock.
David V. Hall and Robert J. Babine, Officers, Directors and principal
shareholders of the Company personally guaranteed a $1,207,000 line of credit
to the Company. As of May 31, 1996, $600,000 had been borrowed under this
line of credit. Subsequently, the bank released these persons from their
guarantees.
As of May 31, 1996, David V. Hall, an Officer, Director and principal
shareholder of the Company, owed the Company $43,000 for advances made to
him. As of January 27, 1997, Mr. Hall had retired all but $16,221 of his
obligations to the Company. In addition, as of May 31, 1996, Hallmark
Communications, a company of which Mr. Hall is the majority owner, owed the
Company $51,000 for advances made to it by the Company. As of January 27,
1997, Hallmark Communications owed the Company approximately $24,600.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
20,000,000 shares of Common Stock, no par value. Each record holder of Common
Stock is entitled to one vote for each share held on all matters promptly
submitted to the stockholders for their vote. Cumulative voting for the
election of directors is not permitted by the Articles of Incorporation.
Holders of outstanding shares of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors
out of legally available funds; and, in the event of liquidation, disso-
lution or winding up of the affairs of the Company, holders are entitled to
receive, ratably, the net assets of the Company available to stockholders
after distribution is made to the preferred stockholders, if any, who are
given
preferred rights upon liquidation.Holders of outstanding shares of Common
Stock are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and nonassessable. To the extent
that additional shares of the Company's Common Stock are issued, the
relative interests of the existing stockholders may be diluted.
WARRANTS
During 1996, the Company issued Warrants to purchase an aggregate of
520,000 shares of Common Stock to certain investors in a private offering.
The Warrants are exercisable at $2.50 per share and will expire on March 11,
1999.
OPTIONS
The Company has issued a number of options to employees and others which
are described herein in ITEM 6 - EXECUTIVE COMPENSATION.
-18-
<PAGE>
PREFERRED STOCK AND SUBORDINATED CONVERTIBLE COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
10,000,000 shares of Preferred Stock, $10.00 par value. The Board of
Directors of the Company is authorized to issue the Preferred Stock from time
to time in series and is further authorized to establish such series, to fix
and determine the variations in the relative rights and preferences as between
series, to fix voting rights, if any, for each series, and to allow for the
conversion of Preferred Stock into Common Stock. At present, no Preferred
Stock is issued or outstanding or contemplated to be issued.
The Company's Articles of Incorporation also authorize the issuance of
1,200,000 shares of Subordinated Convertible Common Stock, no par value. No
such shares are presently outstanding, and the Company has no intentions of
issuing any such shares.
DIVIDENDS
No dividends have been paid by the Company on any of its securities in
the past and such dividends are not contemplated in the foreseeable future.
Dividends will be dependent directly on earnings of the Company, financial
needs, and other similar unpredictable factors and will be declared solely at
the discretion of the Board of Directors.
REPORTS TO INVESTORS
The Company intends to provide holders of its securities with annual
reports containing financial statements. The Company also will issue
quarterly or other interim reports to its stockholders as it deems
appropriate.
TRANSFER AGENT
American Securities Transfer, Inc., 938 Quail Street, No. 101, Lakewood,
Colorado 80215, serves as the transfer agent for the Common Stock of the
Company.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The principal market for trading the Company's Common Stock has been the
over-the-counter market. Since December 1995, prices for the Company's Common
Stock have been quoted on the OTC Bulletin Board. The trading symbol is
currently "IHRB."
The range of high and low bid quotations for the Company's Common Stock
provided below were obtained from the OTC Bulletin Board and the National
Quotation Bureau. The stock is principally owned or controlled by officers
and directors, and the bid prices reported may not be indicative of the value
of the Common Stock. The volume of trading in the Company's Common Stock has
been very limited. The existence of an active trading market may not exist at
any given time and shareholders may have difficulty selling their shares.
These over-the-counter market quotations reflect inter-dealer prices without
retail markup, markdown or commissions and may not necessarily represent
actual transactions.
-19-
<PAGE>
BID
---------------
PERIOD HIGH LOW
------ ---- -----
Quarter ended February 28, 1996 $1.25 $0.50
Quarter ended May 31, 1996 $1.75 $1.00
Quarter ended August 31, 1996 $2.25 $1.75
Quarter ended November 30, 1996 $2.25 $2.25
As of January 17, 1997, there were approximately 312 record holders of
the Company's Common Stock. Based on securities position listings, the
Company believes that there are approximately a total of 500 beneficial owners
of the Company's Common Stock.
The Company has paid no cash dividends on its Common Stock and has no
present intention of paying cash dividends in the foreseeable future. It is
the present policy of the Board of Directors to retain all earnings to provide
for the growth of the Company. Payment of cash dividends in the future will
depend, among other things, upon the Company's future earnings, requirements
for capital improvements and financial condition.
ITEM 2. LEGAL PROCEEDINGS.
The Company and its subsidiaries are not currently parties to any
litigation that management believes would have a material adverse effect on
the financial condition or results of operations of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has had no disagreements with accountants on accounting and
financial disclosure. The Company changed accountants from Cordovano &
Company, P.C. to Coopers & Lybrand L.L.P. in 1995.
In September 1995, the Company engaged Coopers & Lybrand L.L.P. as its
independent accountants for the Company's fiscal year ended May 31, 1996.
Also in September 1995, Cordovano & Company, P.C. were dismissed as the
Company's independent accountants. Cordovano & Company, P.C.'s report on the
financial statements for the fiscal years ended May 31, 1995 and 1994,
contained no adverse opinion or disclaimer of opinion, nor was it qualified as
to audit scope or accounting principles. However, Cordovano & Company, P.C.'s
report dated July 31, 1995, included a paragraph raising concerns as to the
Company's ability to continue as a going concern. At that time the Company
had not yet acquired In-House Rehab, Inc., and had no significant opeations.
The Company's Board of Directors made the decision to engage Coopers & Lybrand
L.L.P. The Company has no audit or similar committee.
In connection with the prior audit for the fiscal years ended May 31,
1995 and 1994, and during the interim period from May 31, 1995 to September
1995, there were no disagreements with Cordovano & Company, P.C. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
The Company did not consult with Cordovano & Company, P.C. with regard
to any matter concerning the application of accounting principles to any
specific transactions, either completed or proposed, or the type of audit
opinion that might be rendered with respect to the Company's financial
statements.
-20-
<PAGE>
The Company has requested that Cordovano & Company, P.C. review this
disclosure and that firm has been given an opportunity to furnish the Company
with a letter addressed to the Commission containing any new information,
clarification of the Company's expression of its views, or the respect in
which it does not agree with the statements made by the Company herein. Such
letter is filed as an exhibit hereto.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three fiscal years, the Company issued securities which
were not registered under the Securities Act of 1933, as amended (the "Act"),
as follows:
On September 29, 1995, the Registrant issued a total of 10,460,000
shares of its common stock to the following four shareholders of In-House
Rehab, Inc., a Kentucky corporation ("IHR") in exchange for their shares of
IHR, on a pro rata basis, in connection with the Company's acquisition of IHR:
SHARES OF COMMON
NAME STOCK ISSUED
---- ----------------
David V. Hall 4,968,500
Robert J. Babine 1,046,000
Terry K. Minton 784,500
Retirement Care Associates, Inc. 3,661,000
----------
Total 10,460,000
David V. Hall and Robert J. Babine are presently Officers and Directors
of the Company, and Terry K. Minton served as an Officer of the Company after
this transaction. Retirement Care Associates, Inc. is a publicly-held
corporation of which Chris Brogdon, a Director of the Company, is President,
Director and a principal shareholder. In connection with this offering, the
Company relied on Section 4(2) of the Securities Act of 1933, as amended. The
shares were offered for investment only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by the
Registrant.
During the period from March 1996 through August 1996, the Company sold
units consisting of shares of its Common Stock to 34 accredited investors in
a private offering. A total of 1,300,000 shares of Common Stock were sold in
this offering for an aggregate of $1,625,000 in cash. In addition, the
Company issued warrants to purchase an aggregate of 520,000 shares of Common
Stock at $2.50 per share to three investors who invested at least $200,000 in
the offering. The Company paid the following commissions for its services as
a sales agent in this offering:
Marion Bass Securities Corp. $ 20,000
Stockbridge Associates, Inc. 16,000
Lawson Financial Corporation 8,000
La Jolla Securities Corp. 65,000
--------
$108,000
In addition, the Company issued options to purchase shares of the
Company's Common Stock at $1.25 per share to Terry Lewis (to purchase 14,000
shares) and to La Jolla Securities, Inc. (to purchase 6,000 shares) as
compensation for their services in connection with this private offering.
-21-
<PAGE>
With respect to these sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder. Each investor was given a copy of a Private Placement Memorandum
containing complete information concerning the Company, a Form D was filed
with the SEC and the Company complied with the other applicable requirements
of Rule 506. Each investor signed a subscription agreement in which he
represented that he was purchasing the shares for investment only and not for
the purpose of resale or distribution. The appropriate restrictive legends
were placed on the certificates and stop transfer instructions were issued to
the transfer agent.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Colorado law, the Company's Articles of Incorporation
provide that the Company will indemnify its directors and officers against
expenses and liabilities they incur to defend, settle, or satisfy any civil or
criminal action brought against them on account of their being or having been
Company directors or officers unless, in any such action, they are adjudged to
have acted with gross negligence or willful misconduct. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
Pursuant to the provisions of the Colorado Business Corporation Act, the
Company's Articles of Incorporation exclude personal liability for its
directors for monetary damages based upon any violation of their fiduciary
duties as directors, except as to liability for any breach of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, acts in violation of Section
7-108-403 of the Colorado Business Corporation Act, or any transactions from
which a director receives an improper personal benefit.
-22-
<PAGE>
PART F/S
FINANCIAL STATEMENTS. The following financial statements are filed as
part of this Registration Statement:
PAGE(S)
-------
IN-HOUSE REHAB CORPORATION
Unaudited Consolidated Balance Sheet as of November 30, 1996... F-1
Unaudited Consolidated Statement of Income for the six months
ended November 30, 1996 and 1995............................... F-2
Unaudited Consolidated Statement of Cash Flows for the six
months ended November 30, 1996 and 1995........................ F-3
Notes to Unaudited Consolidated Financial Statements........... F-5
Report of Independent Accountants.............................. F-7
Consolidated Balance Sheets as of May 31, 1996 and 1995........ F-8
Consolidated Statement of Operations for the year ended
May 31, 1996, and the period from September 21, 1994
(inception) through May 31, 1995............................... F-9
Consolidated Statements of Stockholders' Equity for the
year ended May 31, 1996, and the period from September 21,
1994 (inception) through May 31, 1995.......................... F-10
Consolidated Statement of Cash Flows for the year ended
May 31, 1996, and the period from September 21, 1994
(inception) through May 31, 1995............................... F-11
Notes to Consolidated Financial Statements..................... F-13
TOTAL REHAB SOUTH, INC.
Interim Balance Sheet at February 29, 1996..................... F-19
Interim Statements of Operations for the two-month periods
ended February 28, 1995 and February 29, 1996.................. F-20
Interim Statements of Cash Flows for the two-month periods
ended February 28, 1995 and February 29, 1996.................. F-21
Notes to Interim Financial Statements.......................... F-22
Report of Independent Certified Public Accountants............. F-23
Balance Sheet at December 31, 1995............................. F-24
Statement of Operations for the year ended December 31, 1995... F-25
Statement of Stockholders' Deficit for the year ended
December 31, 1995.............................................. F-26
-23-
<PAGE>
Statement of Cash Flows for the year ended December 31, 1995... F-27
Notes to Financial Statements.................................. F-28
PRO FORMA FINANCIAL INFORMATION
Pro Forma Financial Data....................................... F-30
Pro Forma Condensed Consolidated Statement of Operations
for the year ended May 31, 1996 (Unaudited).................... F-31
-24-
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS AND ITEM 2. DESCRIPTION OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3.1 Articles of Incorporation, Filed herewith electronically
as amended
3.2 Bylaws Filed herewith electronically
10.1 1996 Stock Option Plan Filed herewith electronically
10.2 Employment Agreement with Filed herewith electronically
David V. Hall
10.3 Employment Agreement with Filed herewith electronically
Robert J. Babine
10.4 Lease Agreement on Office Filed herewith electronically
Space
10.5 Contracts for Therapy Filed herewith electronically
Program Services with
Affiliates
10.6 Loan Agreement with Great Filed herewith electronically
Financial Bank and related
Security Agreement and
Promissory Note
16 Letter from Cordovano & Filed herewith electronically
Company, P.C.
21 Subsidiaries of the Small Filed herewith electronically
Business Issuer
27.1 Financial Data Schedule - Filed herewith electronically
August 31, 1996
27.2 Financial Data Schedule - Filed herewith electronically
May 31, 1996
-25-
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
November 30, 1996
(Unaudited)
ASSETS
Current assets:
Cash and equivalents -
Accounts receivable, less allowance for
doubtful accounts of $50,000 $4,891,238
Other current assets 56,464
----------
Total current assets 4,947,702
----------
Equipment, at cost 113,511
Less accumulated depreciation (22,467)
----------
91,044
Covenant not to compete, net of accumulated
amortization of $139,199 46,402
Deferred tax asset 31,986
Other assets 49,400
----------
$5,166,534
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $1,525,000
Bank overdraft 138,646
Accounts payable 250,615
Accrued expenses 420,508
Income taxes 84,234
Deferred tax liability 9,298
----------
Total current liabilities 2,428,301
Stockholders' equity:
Common stock 1,886,584
Common stock subscriptions receivable (56,410)
Retained earnings 908,059
----------
2,738,233
----------
$5,166,534
The accompanying notes are an integral part of this statement.
F-1
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
for the six months ended November 30, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
Revenues $ 7,030,551 $ 2,246,643
----------- -----------
Operating costs:
Salaries, wages and benefits 3,518,631 912,305
Contract therapists 1,290,610 663,886
Rental expense 54,049 34,314
Depreciation 8,600 2,225
Amortization 93,253 5,970
----------- -----------
4,965,143 1,618,700
----------- -----------
Gross profit 2,065,408 627,943
Selling, general and administrative
expenses 1,022,833 351,323
----------- -----------
Income from operations 1,042,575 276,620
Interest expense 42,995 29,148
----------- -----------
Income before income taxes 999,580 247,472
Provision for income taxes 394,000 94,000
----------- -----------
Net income $ 605,580 $ 153,472
Net income per common and common
equivalent share $ .04 $ .01
Weighted average number of common
and common equivalent shares
outstanding 13,677,283 11,098,901
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended November 30, 1996 and 1995
(Unaudited)
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 605,580 $ 153,472
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation 8,600 2,224
Amortization 93,253 5,970
Increase (decrease) in cash, net
of effect of acquisition, resulting
from changes in:
Accounts receivable (1,577,184) (924,046)
Interest receivable (1,625) (1,625)
Other current assets (36,397) (2,635)
Other assets (48,533) (1,653)
Accounts payable (271,531) 132,848
Accrued expenses 144,179 40,754
Income taxes (4,865) 71,764
----------- -----------
Net cash used in operating activities (1,088,523) (522,927)
Cash flows from investing activities:
Purchase of equipment (36,122) (16,382)
----------- -----------
Net cash used in investing activities (36,122) (16,382)
Cash flows from financing activities:
Issuance of common stock 185,999 -
Issuance of short-term borrowings 3,104,542 550,000
Repayments of short-term borrowings (2,304,542) (100,000)
Bank overdraft 138,646 -
----------- -----------
Net cash provided by financing
activities 1,124,645 450,000
----------- -----------
(Decrease) increase in cash
and equivalents - (89,306)
Beginning cash balance - 103,687
----------- -----------
Ending cash balance - $ 14,384
F-3
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended November 30, 1996 and 1995
(Unaudited)
(Continued)
1996 1995
----------- -----------
Supplemental disclosure:
Cash paid for interest $ 34,943 $ 17,994
Cash paid for income taxes $ 441,952 $ 26,000
Supplemental schedule of noncash
financing activities:
Issuance of short-term borrowings
in connection with the purchase
of Total Rehab South, Inc. - $ 500,000
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
Effective December 9, 1996 Perennial Development Corporation changed its name
to In-House Rehab Corporation (the Company).
The accompanying interim financial statements are presented in accordance with
the requirements of Form 10-SB and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the Company's annual financial statements. Accordingly,
the reader of these interim financial statements should refer to the Company's
annual financial statements for the year ended May 31, 1996, included
elsewhere herein, for additional information.
The accompanying financial statements have been prepared in accordance with
the Company's customary accounting practices and have not been audited. All
sub- sidiaries are included. In management's opinion, all adjustments (which
are of a normal recurring nature) necessary for a fair presentation of the
results of op- rations for the six-month periods ended November 30, 1996 and
1995 have been made.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Net income per common and common equivalent share is based upon the actual
weighted average number of common shares outstanding during each period plus
the assumed exercise of dilutive stock options as follows:
Six Months Ended November 30,
1996 1995
Actual weighted average number of common
shares outstanding during the period 13,589,411 11,098,901
Common stock equivalents:
Dilutive effect of stock options
using the "Treasury Stock Method" 62,949 -
Dilutive effect of stock warrants
using the "Treasury Stock Method" 24,923 -
----------- -----------
Totals 13,677,283 11,098,901
3. SHORT TERM BORROWINGS:
On October 29, 1996, the Company terminated its existing $1,500,000 revolving
line of credit agreement and established a new revolving line of credit
agreement with another banking institution. The new revolving line of credit
agreement pro- vides for advances up to $2,500,000, subject to a borrowing
base formula. Borrowings bear interest at the prime rate plus .25% payable
monthly, based upon the Company's leverage ratio. The revolving line of credit
is collateralized by 75% of eligible receivables. All borrowings are due on
demand. Borrowings as of November 30, 1996 are $1,525,000.
4. STOCKHOLDERS' EQUITY:
The changes in stockholders' equity for the six months ended November 30, 1996
follows: F-5
<PAGE> Common Stock
Common Subscriptions Retained
Stock Receivable Earnings Total
Balances at May 31, 1996 $1,700,585 $(54,785) $302,479 $1,948,279
Issuance of stock in conjunction
with the private placement 185,999 185,999
Accrued interest (1,625) (1,625)
Net income 605,580 605,580
---------- ------------- -------- ----------
Balances at November 30, 1996 $1,886,584 $(56,410) $908,059 $2,738,233
5. STOCK OPTIONS:
In October 1996, the Company's Board of Directors adopted the Company's 1996
Stock Option Plan (the "1996 Plan"). The 1996 Plan allows the Board to grant
stock options from time to time to employees, officers and directors of the
Com- pany and consultants to the Company. The Board has the power to determine
at the time the option is granted whether the option will be an Incentive
Stock Option (an option which qualifies under Section 422 of the Internal
Revenue Code of 1986) or an option which is not an Incentive Stock Option.
However, Incentive Stock Options will only be granted to persons who are key
employees of the Com- pany. Vesting provisions are determined by the Board at
the time options are granted. The total number of shares of Common Stock
subject to options under the 1996 Plan is not to exceed 1,000,000. At November
30, 1996, there were no options outstanding under the 1996 Plan.
During the six-month period ended November 30, 1996, the Company granted
209,000 non-1996 Plan options as follows:
70,000 at 1.25
99,000 at 1.75
40,000 at 2.25
-------
209,000
These options are exercisable for a period of three to four years from the
date of grant. The option price equalled the market price of a share at the
date the options were granted. As of November 30, 1996, no options have been
exercised.
6. SUBSEQUENT EVENTS:
On December 26, 1996, the Company's Board of Directors granted options to
purchase an aggregate of 112,000 shares of Common Stock at $2.00 per share
under the 1996 Plan. The options are fully vested and expire three years after
the date of grant. Included in these options are non-qualified options to
purchase 100,000 shares granted to Rebecca Krueger, Chief Operations Officer
of the Company.
On December 1, 1996, the Company issued non-plan options to two shareholders
of Daily Rehabilitation Institute, Inc. in connection with the acquisition of
that company. The options are to purchase an aggregate of 30,000 shares of
Common Stock at $2.25 per share which was equal to the fair market value on
the date of grant. The options expire on November 15, 1999.
On December 26, 1996, the Company issued non-plan options to purchase 200,000
shares of Common Stock to David V. Hall at $2.00 per share which was equal to
the fair market value on the date of grant. Mr. Hall then transferred these
options to his two adult children who are also employees of the Company. The
options are exercisable for three years from the date of grant.
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
In-House Rehab Corporation
(formerly Perennial Development Corporation)
We have audited the accompanying consolidated balance sheet of In-House Rehab
Corporation (formerly Perennial Development Corporation) (see fourth paragraph
below) and Subsidiaries as of May 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year ended May 31, 1996 and the period from September 21, 1994
(inception) through May 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of In-House
Rehab Corporation (formerly Perennial Development Corporation) and
Subsidiaries as of May 31, 1996 and 1995 and the results of their operations
and their cash flows for the year ended May 31, 1996 and the period from
September 21, 1994 (inception) through May 31, 1995 in conformity with
generally accepted accounting principles.
As more fully discussed in Note 1 to the consolidated financial statements, on
September 29, 1995, In-House Rehab Corporation (formerly Perennial Development
Corporation) acquired all the outstanding stock of In-House Rehab, Inc. The
stock exchange was accounted for as a capital transaction similar to a reverse
acquisition except that no goodwill was recorded and In-House Rehab, Inc. was
deemed to be the acquirer for accounting purposes. Accordingly, the
consolidated financial statements presented herein reflect the activities of
In-House Rehab, Inc., using In-House Rehab, Inc's. historical cost basis.
/s/ Coopers & Lybrand LLP
COOPERS & LYBRAND LLP
Louisville, Kentucky
September 12, 1996, except as to the name change and pro forma
information presented in Notes 1 and 2, respectively, for which
the date is January 9, 1997
F-7
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
(formerly PERENNIAL DEVELOPMENT CORPORATION)
CONSOLIDATED BALANCE SHEETS
May 31, 1996 and 1995
ASSETS
1996 1995
Current assets:
Cash and equivalents - $ 103,687
Accounts receivable, less allowance for
doubtful accounts of $50,000 in 1996 $ 3,314,055 318,174
Other current assets 20,067 14,873
----------- ---------
Total current assets 3,334,122 436,734
----------- ---------
Equipment, at cost 77,389 14,644
Less accumulated depreciation 13,867 3,937
----------- ---------
63,522 10,707
Covenant not to compete, net of accumulated
amortization of $46,400 in 1996 139,201 -
Deferred tax asset 31,986 -
Other assets 1,321 1,687
----------- ---------
$ 3,570,152 $ 449,128
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 725,000 -
Accounts payable 522,146 $ 97,181
Accrued expenses 276,329 96,491
Income taxes 89,100 2,500
Deferred tax liability 9,298 1,300
----------- ---------
Total current liabilities 1,621,873 197,472
Stockholders' equity:
Preferred stock, $10 par value; 10,000,000
shares authorized; no shares issued and
outstanding - -
Common stock, no par value; 20,000,000
shares authorized; 13,405,715 and
10,460,000 shares issued and outstanding
at May 31, 1996 and 1995, respectively 1,700,585 408,875
Subordinated convertible common stock, no
par value; 1,200,000 shares authorized;
no shares issued and outstanding - -
Common stock subscriptions receivable (54,785) (59,035)
Deferred compensation costs - (6,400)
Retained earnings (deficit) 302,479 (91,784)
----------- ---------
1,948,279 251,656
----------- ---------
$ 3,570,152 $ 449,128
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
(formerly PERENNIAL DEVELOPMENT CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the year ended May 31, 1996 and the period from
September 21, 1994 (inception) through May 31, 1995
Period
September 21, 1994
Year Ended (Inception)
May 31, 1996 To May 31, 1995
------------ ------------------
Revenues $6,623,410 $ 335,404
---------- ---------
Operating costs:
Salaries, wages and benefits 3,312,682 204,999
Contract therapists 1,229,340 92,429
Rental expense 86,544 15,030
Provision for doubtful accounts 50,000 -
Depreciation 9,930 3,937
Amortization 52,800 4,975
---------- ---------
4,741,296 321,370
---------- ---------
Gross profit 1,882,114 14,034
Selling, general and administrative
expenses 1,179,206 102,018
---------- ---------
Income (loss) from operations 702,908 (87,984)
Interest expense 65,533 -
---------- ---------
Income (loss) before income taxes 637,375 (87,984)
Provision for income taxes 243,112 3,800
---------- ---------
Net income (loss) $ 394,263 $ (91,784)
Net income (loss) per common share $ .04 $ (.01)
Weighted average number of common,
and common equivalent shares
outstanding 11,196,429 10,460,000
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
(formerly PERENNIAL DEVELOPMENT CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the year ended May 31, 1996 and the period
from September 21, 1994 (inception) through
May 31, 1995
<TABLE>
<CAPTION>
Common
Stock Sub- Deferred Retained
Common Stock scriptions Compensa- Earnings
Shares Amount Receivable tion Costs (Deficit)
Total
---------- ---------- ---------- ---------- ---------
- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock (Note 1) 10,460,000 $ 408,875 $(157,500) $(11,375) $
240,000
Deferred compensa-
tion amortization 4,975
4,975
Receipt of stock
subscription
payments 100,000
100,000
Accrued interest (1,535)
(1,535)
Net loss $(91,784)
(91,784)
---------- ---------- --------- -------- ---------
- ----------
Balances at
May 31, 1995 10,460,000 408,875 (59,035) (6,400) (91,784)
251,656
Acquisition of
the Company (re-
verse acquisition
as explained in
Note 1) 1,845,715 (29,364)
(29,364)
Issuance of stock
in conjunction
with the Private
Placement 1,100,000 1,321,074
1,321,074
Deferred compensa-
tion amortization 6,400
6,400
Receipt of stock
subscription
payments 7,500
7,500
Accrued interest (3,250)
(3,250)
Net income 394,263
394,263
---------- ---------- --------- -------- ---------
- ----------
Balances at
May 31, 1996 13,405,715 $1,700,585 $ (54,785) - $302,479
$1,948,279
</TABLE>
F-10
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
(FORMERLY PERENNIAL DEVELOPMENT CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended May 31, 1996 and the period from
September 21, 1994 (inception) through May 31, 1995
Period
September 21,
Year Ended 1994 (Inception)
May 31, 1996 to May 31, 1995
------------ ---------------
Cash flows from operating activities:
Net income (loss) $ 394,263 $ (91,784)
Adjustments to reconcile net income
(loss) to net cash used in operat-
ing activities:
Depreciation 9,930 3,937
Amortization 52,800 4,975
Allowance for doubtful accounts 50,000 -
Deferred income taxes (23,988) 1,300
Increase (decrease) in cash, net
of effect of acquisition, resulting
from changes in:
Accounts receivable (2,145,881) (318,227)
Interest receivable (3,250) (1,535)
Other current assets (5,194) (14,820)
Other assets 366 (1,687)
Accounts payable 109,355 97,181
Accrued expenses 179,838 96,491
Income taxes 86,600 2,500
----------- ---------
Net cash used in operating
activities (1,295,161) (221,669)
Cash flows from investing activities:
Purchase of equipment (62,745) (14,644)
Purchase of Total Rehab South, Inc. (510,601) -
----------- ---------
Net cash used in investing
activities (573,346) (14,644)
Cash flows from financing activities:
Issuance of common stock 1,291,710 340,000
Proceeds from stock subscriptions
receivable 7,500 -
Issuance of short-term borrowings 1,625,000 -
Repayments of short-term borrowings (1,400,000) -
Bank overdraft 240,610 -
----------- ---------
Net cash provided by financing
activities 1,764,820 340,000
----------- ---------
(Decrease) increase in cash and
equivalents (103,687) 103,687
Beginning cash balance 103,687 -
----------- ---------
Ending cash balance - $ 103,687
(Continued)
F-11
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
(FORMERLY PERENNIAL DEVELOPMENT CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended May 31, 1996 and the period from
September 21, 1994 (inception) through May 31, 1995
(Continued)
Period
September 21,
Year Ended 1994 (Inception)
May 31, 1996 to May 31, 1995
------------ ---------------
Supplemental disclosure:
Cash paid for interest $ 65,414 -
Cash paid for income taxes $ 180,500 -
Supplemental schedule of noncash
investing and financing activities:
Issuance of short-term borrowings
in connection with the purchase
of Total Rehab South, Inc. $ 500,000 -
Issuance of common stock $ 225,000 -
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE>
IN-HOUSE REHAB CORPORATION AND SUBSIDIARIES
(FORMERLY PERENNIAL DEVELOPMENT CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS:
Perennial Development Corporation (the Company) was formed under the laws of
the State of Colorado in May 1985 for the purpose of engaging in real estate
activities. In April 1987, the Company completed an initial public offering
of its securities, and became listed on NASDAQ. The Company engaged in
commercial land development operations. However, due principally to
escalating adverse economic conditions in the real estate markets in which the
Company was engaged, management eventually abandoned the development of all
its projects. A combination of high leverage and severe liquidity problems
forced management to dispose of the properties during the period from June
1989 to May 1994. Additionally, during the period from June 1989 through May
1995, the Company legally divested itself of all of its subsidiaries:
Blum-Jackson Company, Blum-Jackson Realty and Perennial Properties, Inc. On
September 12, 1989, the Company filed a Form 15 and ceased being a reporting
entity. As of September 29, 1995, the Company had no assets or operations and
approximately $12,000 in total liabilities.
Effective December 9, 1996, the Company changed its name to In-House Rehab
Corporation. All references to the Company herein refer to the Company and
its subsidiaries.
On September 29, 1995, the Company acquired all of the outstanding stock of
In-House Rehab, Inc. (IHR), a Kentucky corporation, in exchange for 10,460,000
shares of the Company's authorized, but unissued, common stock which
represents 85% of the Company's common stock outstanding. Such shares were
issued to the former stockholders of IHR. The stock exchange between IHR and
the Company was accounted for as a capital transaction similar to a reverse
acquisition except that no goodwill was recorded. As a result, IHR is deemed
to be the acquirer for accounting purposes and is the accounting survivor and
reporting successor. Also, there was a change in control of the Company,
whereby all of the Company's officers and directors resigned, and new officers
and directors selected by IHR were elected. The historical results of
operations presented for the period May 31, 1995 through September 29, 1995
and for the period from September 21, 1994 (inception) through May 31, 1995
reflect the activities of IHR, using IHR's historical cost basis. The capital
structure of IHR has been retroactively restated in the accompanying
consolidated financial statements and notes thereto to reflect the number of
shares received from the Company. Pro forma information is not presented since
the transaction is not a business combination.
IHR was incorporated on September 21, 1994, and is engaged in providing, on a
contract basis, physical, speech and occupational therapy personnel to
long-term care providers.
In November 1995, IHR formed a wholly-owned subsidiary, In-House Staffing,
Inc. (IHS), a Kentucky corporation, established for the purpose of providing
services in recruiting rehabilitation therapists for the Company and its
customers as well as other health care providers.
2. ACQUISITIONS:
On September 29, 1995, the Company entered the health care industry through
the acquisition of IHR. See Note 1 for further details.
F-13
<PAGE>
On March 1, 1996, IHR acquired substantially all of the assets and liabilities
of Total Rehab South, Inc. (TRS), a Georgia corporation, in a transaction
accounted for as a purchase. TRS is based in Tampa, Florida and engaged in a
business similar to IHR. IHR purchased TRS's net assets of $1,237,442
including
a noncompete agreement in the amount of $412,442 for $1,010,601 (including
acquisition costs of $10,601). The purchase price comprised $510,610 in cash
and a note payable in the amount of $500,000 due in four monthly installments
of $125,000.
The excess of the fair value of the net assets acquired over the purchase
price referred to as "negative goodwill," aggregated $237,442. In accordance
with the provisions of APB 16, the negative goodwill has been offset against
the noncompete agreement. The following is a summary of the allocation of the
purchase price:
Accounts receivable $ 900,000
Noncompete agreement 185,601
Less liabilities assumed (75,000)
----------
Purchase price $1,010,601
The results of operations of TRS have been included in the consolidated
results of operations of the Company from the date of acquisition.
The following table presents unaudited pro forma results of operations data as
if the acquisition of TRS described above had occurred on September 21, 1994.
Period from
September 21,
1994
(Inception)
Year Ended Through
May 31, 1996 May 31, 1995
Unaudited
Revenue $9,325,553 $ 694,782
Net income (loss) 220,622 (147,783)
Net income (loss) per share .02 (.01)
The pro forma information includes adjustments for amortization of the non-
compete agreement and interest expense that would have been incurred to
finance the purchase with related income tax effects. The pro forma financial
information is not necessarily indicative of the results of operations as they
would have been had the transactions been effected on the assumed dates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation: The consolidated 1996 financial statements
include the accounts of the Company, its wholly-owned subsidiary, IHR, and
IHR's wholly-owned subsidiaries, IHS and TRS. All significant intercompany
transactions have been eliminated.
Cash and Equivalents: Cash and equivalents includes highly liquid investments
with an original maturity of three months or less. The cash management system
provides for daily investment of available balances and the funding of
outstanding checks when presented for payment. Outstanding but unpresented
checks totaling $240,610 at May 31, 1996 have been included in accounts
payable. Upon presentation for payment, they will be funded through available
cash balances or the revolving credit/demand loan agreement.
F-14
<PAGE>
Depreciation: Depreciation is computed using the straight-line method over
the estimated useful lives of the assets.
Amortization of Noncompete Agreement: The noncompete agreement is amortized
over one year beginning March 1996 on a straight-line basis.
Net Income (Loss) per Common Share: Net income (loss) per common share is
based on the weighted average number of shares of common stock outstanding
during the year. Stock warrants were not considered in the computation as
their effect would be anti-dilutive.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications have been made to the May 31,
1995 financial statements of the Company. These reclassifications had no
effect on previously reported net loss.
4. MAJOR CUSTOMER:
Approximately $5,129,800 or 77% of all revenue for the year ended May 31, 1996
and $1,528,000 or 49% of the balance of accounts receivable at May 31, 1996
relate to one customer who is a stockholder and related party of the Company.
At May 31, 1995 the balance of accounts receivable and all revenue for the
period from September 21, 1994 (inception) through May 31, 1995 relate to the
same customer.
5. ACCOUNTS RECEIVABLE:
Accounts receivable on May 31 consist of the following:
1996 1995
---------- --------
Trade accounts receivable $1,509,333 -
Accounts receivable - related party 1,629,722 $318,174
Due from Private Placement Trustee
(all received in June 1996) 225,000 -
---------- --------
3,364,055 318,174
Allowance for doubtful accounts 50,000 -
---------- --------
Net accounts receivable $3,314,055 $318,174
6. SHORT-TERM BORROWINGS:
On June 23, 1995, IHR entered into a revolving line of credit agreement with a
bank which provided for advances up to $500,000, subject to a borrowing base
formula. On February 20, 1996 and March 15, 1996, the agreement was amended to
increase the line by $500,000 for a total line of credit of $1,500,000. As of
May 31, 1996, advances up to $900,000 are available. Borrowings bear interest
at the prime rate plus 0.50% to 2.50% payable monthly, based upon the
Company's leverage ratio. The revolving line of credit is collateralized by
substantially all of IHR's assets. At May 31, 1996, approximately $1,207,000
of the revolving credit line was guaranteed by certain of the stockholders.
All borrowings are due on
F-15
<PAGE>
demand. Borrowings as of May 31, 1996 are $600,000. Additionally, the final
installment of $125,000 on the note payable to TRS (see Note 2) was
outstanding as of May 31, 1996.
7. ACCRUED EXPENSES:
Accrued expenses at May 31 consist of the following:
1996 1995
-------- --------
Compensation and benefits $187,094 $ 42,100
Taxes (other than taxes on income) 24,155 32,510
Other 65,080 21,881
-------- --------
$276,329 $ 96,491
8. INCOME TAXES:
Through March 31, 1995, the Company's stockholders elected to report the
operations of the Company on their individual federal and state income tax
returns (Subchapter S election). The loss for that period was reported on such
income tax returns. The accompanying consolidated financial statements contain
no provision or benefit related to federal or state income taxes for that
period. Effective April 1, 1995, the Company terminated its Subchapter S
election.
The provision for income taxes consists of the following:
1996 1995
--------- --------
Current payable:
Federal $ 231,296 $ 1,875
State 35,804 625
--------- --------
Total currently payable 267,100 2,500
Deferred:
Federal (20,754) 975
State (3,234) 325
--------- --------
Total deferred (23,988) 1,300
--------- --------
Total provision $ 243,112 $ 3,800
Deferred taxes are recognized for the future tax consequences of temporary
differences between the amounts reported in the Company's financial statements
and the tax basis of its assets and liabilities. Primary differences giving
rise to the Company's deferred tax assets and liabilities are as follows:
1996 1995
Assets Liabilities Assets Liabilities
Noncompete agreement $16,889
Accrued vacation 15,097
Depreciation $9,298
Reinstatement of deferred
taxes upon termination of
Subchapter S election $1,700
Other $400
------- ------ ---- ------
Total deferred taxes $31,986 $9,298 $400 $1,700
F-16
<PAGE>
Based on the Company's prior earnings and the sufficiency of income to be
utilized in the carryback years, it is more likely than not that the net
deferred tax assets for 1996 will be realized. Therefore, no valuation
allowance has been established to reduce deferred tax assets for 1996.
Reconciliation of the federal statutory rate and the effective income tax rate
at May 31, 1996 follows:
1996 1995
---- ----
Federal statutory rate 34.0% (34.0)%
State income taxes, net of federal
income tax benefit 3.3 (3.3)
Effect of losses relating to S
Corporation status - 41.0
Other .9 .6
---- ----
Effective income tax rate 38.2% 4.3%
9. LEASE OBLIGATIONS:
The Company rents office space, certain office equipment and vehicles under
operating leases expiring at various dates through April 1998. These leases
generally include one or more renewal options. Approximate future minimum
rentals on all noncancelable operating leases in effect at May 31, 1996 are as
follows:
1997 $55,000
1998 42,000
1999 6,800
2000 700
Lease expense was approximately $37,000 and $15,000 for the year ended May 31,
1996 and the period from September 21, 1994 (inception) to May 31, 1995,
respectively.
10. COMMON STOCK AND STOCK WARRANTS:
On March 12, 1996, the Company offered 2,000,000 shares of no par value common
stock in a private placement at $1.25 per share.
As of May 31, 1996, the Company had issued 1,100,000 shares of the no par
value common stock for net proceeds of approximately $1,321,000, which will be
utilized for future acquisitions. The net proceeds include a stock receivable
from the Private Placement Trustee at May 31, 1996 of $225,000.
Investors who purchased at least eight units (each unit consists of 20,000
shares) also received warrants to purchase 20,000 shares of common stock for
each unit purchased. The warrants are exercisable at $2.50 per share and will
expire three years from the date of the Private Placement, March 12, 1999.
As of May 31, 1996, 360,000 warrants had been issued in conjunction with the
Private Placement.
11. STOCK SUBSCRIPTIONS RECEIVABLE:
The Company had stock subscriptions receivable of $54,785 and $59,036 at May
31, 1996 and 1995, respectively. Such subscriptions receivable bear interest
at 6.5-8.5% per annum and are payable on or before September 30, 1996.
F-17
<PAGE>
12. STOCK COMPENSATION:
During the period from September 21, 1994 (inception) through May 31, 1995,
1,830,500 shares (175 shares prior to the recapitalization) of common stock
were issued in conjunction with certain officers' employment contracts. The
awards were recorded at the estimated market value of the shares at the time
the shares were awarded. The total market value of the shares, $11,375, was
treated as unearned compensation and is being charged to expense over the
one-year period of the related employment contract. This unearned compensation
was fully amortized at May 31, 1996.
13. MULTI-EMPLOYER 401(k) PLAN:
IHR is one of four companies that participate in a multi-employer 401(k) plan
which was created in 1996. All employees are eligible to participate on the
first day of the month following their date of hire. The Company made no
contributions to the plan during 1996.
14. RELATED PARTY TRANSACTIONS:
The Company provides services to a major customer who is a stockholder and a
related party. See Note 4 for further discussion.
Two stockholders, who are also employees of the Company, owe approximately
$58,000 in total to the Company for advances as of May 31, 1996.
Additionally, a company owned by a stockholder of the Company owed
approximately $51,000 and $2,000 for advances as of May 31, 1996 and 1995,
respectively.
15. NEW ACCOUNTING STANDARDS:
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which encourages, but does not require, companies to measure the
compensation cost of stock-based compensation plans at the grant date based on
the fair value of the stock-based award. Companies may continue accounting
for stock-based compensation under APB Opinion 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, provided the company discloses the pro forma effects on net
income and earnings per share had the new accounting requirements been
applied. This statement is effective for the Company's fiscal year ending May
31, 1997 annual financial statements. The Company intends to continue
accounting for stock-based compensation awards under the provisions of APB 25.
F-18
<PAGE>
TOTAL REHAB SOUTH, INC.
INTERIM BALANCE SHEET, February 29, 1996
(Unaudited)
__________________________
ASSETS
Current assets:
Accounts reeivable $ 1,023,305
Deferred income taxes 46,000
Other current assets 7,200
___________
$ 1,076,505
___________
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Checks drawn in excess of cash on deposit $ 33,917
Accounts payable 114,265
Accrued wages and salaries 131,402
Advances from related parties 346,580
Advance toward purchase 500,000
Payroll taxes 24,942
Other current liabilities 7,350
___________
Total current liabilities 1,158,456
Stockholders' deficit:
Common stock 500
Accumulated deficit (82,451)
___________
(81,951)
___________
$ 1,076,505
___________
See notes to interim financial statements.
F-19
<PAGE>
TOTAL REHAB SOUTH, INC.
INTERIM STATEMENTS OF OPERATIONS
FOR THE TWO-MONTH PERIODS ENDED FEBRUARY 28, 1995
AND FEBRUARY 29, 1996
(Unaudited)
_________________________
1995 1996
________ _________
Revenues $ 74,065 $ 810,607
________ _________
Operating costs:
Salaries, wages, benefits and payroll taxes 32,620 521,900
Contract therapists 540 64,051
Other 25 22,137
________ _________
33,185 608,088
________ _________
Gross profit 40,880 202,519
Selling, general and administrative expenses 28,235 136,778
________ _________
Income from operations 12,645 65,741
Interest expense - 3,471
________ _________
Income before income tax provision 12,645 62,270
Income tax provision 2,500 13,000
________ _________
Net income $ 10,145 $ 49,270
________ _________
Net income per common share $ 20.29 $ 98.54
________ _________
See notes to interim financial statements
F-20
<PAGE>
TOTAL REHAB SOUTH, INC.
INTERIM STATEMENTS OF CASH FLOWS
FOR THE TWO-MONTH PERIODS ENDED FEBRUARY 28, 1995
AND FEBRUARY 29, 1996
(Unaudited)
__________________
1995 1996
_________ _________
Cash flows from operating activities:
Net income $ 10,145 $ 49,270
Adjustments to reconcile net income to net
cash used in operating activities:
Deferred income taxes - 13,000
Increase (decrease) in cash resulting
from changes in:
Accounts receivable (65,583) (211,773)
Accounts payable 10,620 20,055
Accrued wages and salaries 26,558 940
Payroll taxes 1,302 (328,640)
Other current liabilities 2,500 (1,770)
________ _________
Net cash used in operating activities (14,458) (458,918)
________ _________
Cash flows from financing activities:
Issuance of common stock 500 -
Checks drawn in excess of cash on deposit - 33,917
Advances from related parties 27,100 (87,558)
Advance towards purchase - 500,000
________ __________
Net cash provided by financing activities 27,600 446,359
________ __________
Increase (decrease) in cash 13,142 (12,559)
Cash, beginning of period - 12,559
________ __________
Cash, end of period $ 13,142 $ -
________ __________
Supplemental disclosure:
Cash paid for interest $ - $ 3,471
________ __________
See notes to interim financial statements.
F-21
<PAGE>
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
_________________
1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying interim financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of financial condition and results of
operations. These notes should be read in conjunction with the notes to the
financial statements for the year ended December 31, 1995, included herein.
2. ADVANCES FROM RELATED PARTIES:
Advances from related parties consists of the following:
Note payable to stockholder $ 150,000
Advance from related entity 196,580
_________
$ 346,580
_________
3. ADVANCES TOWARD PURCHASE:
Advance towards purchase represents an advance of the $500,000 cash
payment required under the Sales Agreement to be effective March 1, 1996. In
addition, $500,000 in short-term notes were issued to consummate the
acquisition of Total Rehab South, Inc. by In-House Rehab, Inc.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
In-House Rehab, Inc.
We have audited the accompanying balance sheet of Total Rehab South, Inc. as
of December 31, 1995, and the related statements of operations, stockholders'
deficit, and cash flows for the year then ended (initial period). These
financial statements are the responsibility of the Company s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Total Rehab South, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
/s/ Ecken & Smith, P.S.C.
ECKEN & SMITH, P.S.C.
Louisville, Kentucky
January 9, 1997
F-23
<PAGE>
TOTAL REHAB SOUTH, INC.
BALANCE SHEET, December 31, 1995
________________________
ASSETS
Current assets:
Cash $ 12,559
Accounts reeivable 811,532
Deferred income taxes 59,000
Other current assets 7,200
___________
$ 890,291
___________
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 94,210
Accrued wages and salaries 130,462
Advances from related parties 434,138
Payroll taxes 353,582
Other current liabilities 9,120
___________
Total current liabilities 1,021,512
Stockholders' deficit:
Common stock 500
Accumulated deficit (131,721)
___________
(131,221)
___________
$ 890,291
___________
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
TOTAL REHAB SOUTH, INC.
STATEMENT OF OPERATIONS
for the year ended December 31, 1995 (initial period)
_________________________
Revenues $ 2,250,914
___________
Operating costs:
Salaries, wages, benefits and payroll taxes 1,614,369
Contract therapists 168,410
Other 77,321
___________
1,860,100
___________
Gross profit 390,814
Selling, general and administrative expenses 577,829
___________
Loss from operations (187,015)
Interest expense 3,706
___________
Loss before income tax benefit (190,721)
Income tax benefit 59,000
___________
Net loss $ (131,721)
___________
Net loss per common share $ (263.44)
___________
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
TOTAL REHAB SOUTH, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
for the year ended December 31, 1995 (initial period)
_________________________
Common Stock
($1 par value,
1,000 shares
authorized)
_______________
Accumulated
Shares Amount Deficit Total
______ ______ ___________ _________
Issuance of common stock 500 $ 500 $ 500
Net loss (131,721) (131,721)
______________ _________ _________
Balances, December 31, 1995 500 $ 500 $(131,721) $(131,221)
___ ______ _________ _________
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
TOTAL REHAB SOUTH, INC.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1995 (initial period)
______________________
Cash flows from operating activities:
Net loss $ (131,721)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred income taxes (59,000)
Increase (decrease) in cash resulting
from changes in:
Accounts receivable (811,532)
Other current assets (7,200)
Accounts payable 94,210
Accrued wages and salaries 130,462
Payroll taxes 353,582
Other current liabilities 9,120
_________
Net cash used in operating activities (422,079)
_________
Cash flows from financing activities:
Issuance of common stock 500
Advances from related parties 434,638
_________
Net cash provided by financing activities 434,638
_________
Increase in cash 12,559
Cash, beginning of year -
_________
Cash, end of period $ 12,559
_________
Supplemental disclosure:
Cash paid for interest $ 3,907
_________
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
TOTAL REHAB SOUTH, INC.
NOTES TO FINANCIAL STATEMENTS
_________________________
1. ORGANIZATION AND OPERATIONS:
Total Rehab South, Inc. (the Company, TRS) was incorporated in December
1994 and commenced operations in January 1995. The Company is engaged in
providing, on a contract basis, physical, speech and occupational therapy
personnel to long-term healthcare providers, principally in the Southeastern
United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) NET LOSS PER COMMON SHARE:
Net loss per common share is based on the weighted average number
of shares of common stock outstanding during the year.
(c) INCOME TAXES:
Income taxes (benefits) are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due (refundable) plus deferred taxes. Deferred taxes are recognized
for operating losses that are available to offset future taxable income.
3. ADVANCES FROM RELATED PARTIES:
Advances from related parties consists of the folowing:
Note payable to stockholder $ 150,000
Advance from related entity 284,138
---------
$ 434,138
The note payable to stockholder is payable on demand and bears interest at
twelve percent (12%). Interest expense for the year ended December 31, 1995
amounted to $3,706. The advance from related entity is payable on demand to a
company with similiar stock ownership as that of TRS. The advances are
noninterest bearing.
4. INCOME TAXES:
Income tax benefit in the accompanying statement of operations
represents deferred income taxes relating to utilization of the Company s net
operating loss carryforward, as follows:
Federal $ 49,000
State 10,000
$ 59,000
F-28
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
_________________________
No valuation allowance is provided against the related deferred tax asset in
that realization of the asset is more likely than not.
5. SUBSEQUENT SALE OF COMPANY:
On March 1, 1996, TRS sold substantially all its assets for a price of
$1 million. Under the Sales Agreement, the purchaser acquired accounts
receivable in the amount of $900,000 and assumed accounts payable of $75,000.
The purchase price consisted of $500,000 in cash and four monthly installments
of $125,000. In connection with the sale, the Company and its stockholders
entered into a Noncompetition Agreement for a period of one year.
F-29
<PAGE>
IN-HOUSE REHAB CORPORATION
PRO FORMA FINANCIAL DATA
On March 1, 1996, the Company acquired substantially all of the assets and
liabilities of TRS. The acquisition was accounted for using the purchase
method of accounting. The following table sets forth the unaudited pro forma
results of operating data for the year ended May 31, 1996, as if the
acquisition of TRS had occurred on June 1, 1995. The historical operating
data for the Company for the year ended May 31, 1996 have been derived from
the audited financial statements of the Company. The historical operating data
for TRS for the period June 1, 1995 through February 29, 1996 have been
derived from the historical unaudited financial statements of TRS. The pro
forma statement of operations does not purport to represent what the Company's
results of operations would actually have been had the acquisition, in fact,
occurred on such date, or to project the Company's results of operations at
any future date or for any future period. This summary data is qualified by
and should be read in conjunction with the financial statements and the
related notes thereto and the other financial information contained in the
Form 10-SB.
F-30
<PAGE>
IN-HOUSE REHAB CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended May 31, 1996
(unaudited)
Historical
Total Rehab
In-House South For
Rehab the Period
Corporation June 1, 1996
for the Year Through
Ended May 31, February 28, Pro Forma
1996 1996 Adjustments Pro Forma
------------ ----------- ----------- -----------
Revenues $ 6,623,410 $ 2,702,143 - $ 9,325,553
Operating costs 4,741,296 2,239,020 $ 139,201(a) 7,119,517
----------- ----------- ----------- -----------
Gross profit 1,882,114 463,123 (139,201) 2,206,036
Selling, general and
administrative
expenses 1,179,206 600,637 - 1,779,843
----------- ----------- ----------- -----------
Income (loss)
from operations 702,908 (137,514) (139,201) 426,193
Interest expense 65,533 7,177 68,216(b) 140,926
----------- ----------- ----------- -----------
Income (loss) before
income taxes 637,375 (144,691) (207,417) 285,267
Provision for (benefit
of) income taxes 243,112 (49,100) (82,967)(c) 111,045
----------- ----------- ----------- -----------
Net income (loss) $ 394,263 $ (95,591) $ (124,450) $ 174,222
Net income (loss) per
common and common
equivalent share $ 0.04 $ (0.01) $ (0.01) $ 0.02
Weighted average number
of common and common
equivalent shares
outstanding 11,196,429 11,196,429 11,196,429 11,196,429
(Continued)
F-31
<PAGE>
IN-HOUSE REHAB CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS, Continued
a) Adjustments to operating costs reflect increases in amortization expense,
which was calculated as follows:
Pro forma amortization expense -
covenant not to compete for the year
ended May 31, 1997 $ 185,601
Historical amortization expense -
covenant not to compete for the period
March 1, 1996 through May 31, 1996 (46,400)
---------
$ 139,201
(b) The adjustment to interest expense was calculated based upon the
acquisition debt of $1,010,601 at 9% for the period June 1, 1995 through
February 29, 1996.
(c) Pro forma income tax benefit was calculated at the statutory federal and
state tax rate of 40%.
F-32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized.
IN-HOUSE REHAB CORPORATION
By:/s/ David V. Hall
David V. Hall, President
Date: February 14, 1997
<PAGE>
ARTICLES OF INCORPORATION
OF
PERENNIAL DEVELOPMENT CORPORATION
KNOW ALL MEN BY THESE PRESENTS:
THAT I, the undersigned, C. HENRY ROATH, 1700 Writers' Center Five, 1873
South Bellaire Street, P.O. Box 5560 T.A., Denver, Colorado 80217-5560,
desiring to form a corporation under the laws of the State of Colorado, do
hereby make, execute and acknowledge this certificate in writing of my
intention to form a body corporate under said laws, and declare:
ARTICLE ONE
NAME
The corporate name of the corporation shall be PERENNIAL DEVELOPMENT
CORPORATION.
ARTICLE TWO
PURPOSE
The purpose for which this corporation is organized is the transaction
of all lawful business for which corporations may be incorporated pursuant to
the Colorado Corporation Code.
ARTICLE THREE
DURATION
This corporation shall have perpetual existence.
ARTICLE FOUR
CAPITAL STOCK
The amount of authorized capital stock of this corporation is 10,000,000
shares of common stock, each share having no par value, and all shares when
issued shall be fully paid and nonassessable, the private property of
shareholders, and shall not be liable for corporate debts.
ARTICLE FIVE
RIGHTS OF SHAREHOLDERS
The rights and privileges relating to the shares of capital stock named
in Article Four hereof shall be as follows:
5-1. No holder of any shares of any class of the corporation shall, as
such, have any preemptive right to purchase or to subscribe for any shares of
the capital stock or any other securities of the corporation which it may
issue or sell, whether out of the number of shares authorized by the Articles
of Incorporation of the corporation as originally filed, or by any amendment
thereof, or out of shares of the capital stock of the corporation acquired by
it after the issue thereof, nor shall any holder of any such shares of any
class, as such, have any right to purchase or subscribe for any obligation
which the corporation may issue or sell that shall be convertible into or
exchangeable for any shares of the capital stock of the corporation, or to
which shall be attached or appertain any warrant or warrants or any instrument
or instruments that shall confer upon the owner of such obligation, warrant or
instrument the right to subscribe for or to purchase from the corporation any
shares of any class of its capital stock.
5-2. Each share of capital stock shall be entitled to one vote, either
in person or by proxy, at all shareholders' meetings. Cumulative voting shall
not be allowed in the election of directors.
5-3. All outstanding shares of common stock shall share equally in
dividends and upon liquidation. Dividends are payable at the discretion of the
Board of Directors at such times and in such amounts as they deem advisable,
subject, however, to the provisions of the laws of the State of Colorado.
5-4 . The Board of Directors may cause any stock issued by the
corporation to be issued subject to such lawful restrictions qualifications,
limitations or special rights as they deem fit, which restrictions,
qualifications, limitations or special rights may be created by provisions in
the Bylaws of the corporation or in the minutes of any properly convened
meeting of the Board of Directors; provided, however, notice of such special
restrictions, qualifications, limitations or special rights must appear on the
certificate evidencing ownership of such stock.
ARTICLE SIX
DIRECTORS
The affairs of the corporation shall be governed by a Board of Directors
who shall be elected in accordance with the Bylaws of the Corporation. The
number of directors shall be not less than three (3) nor more than nine (9) as
fixed by or in the manner provided in the Bylaws; provided, however, that
there need be only as many directors as there are shareholders in the event
that the outstanding shares are held of record by fewer than three (3)
shareholders. The organization and conduct of the Board shall be in accordance
with the following:
6-1. The names and addresses of the members of the initial Board of
Directors, who shall hold office until the first annual meeting of the
shareholders of the corporation, or until their successors shall have been
elected and qualified are:
Albert Likes Blum
4155 East Jewell Avenue
Suite #900
Denver, Colorado 80222
Fred Bernard Blum
4155 East Jewell Avenue
Suite #900
Denver, Colorado 80222
Mark Jay Jackson
4155 East Jewell Avenue
Suite #900
Denver, Colorado 80222
Theodore Jackson
4155 East Jewell Avenue
Suite #900
Denver, Colorado 80222
6-2. Directors of the corporation need not be residents of Colorado nor
holders of shares of the corporation's capital stock.
6-3. Meetings of the Board of Directors, regular or special, may be held
within or without Colorado upon such notice as may be prescribed by the Bylaws
of the corporation. Attendance of a director at a meeting shall constitute a
waiver by him of notice of such meeting unless he attends only for the express
purpose of objecting to the transaction of any business thereat on the ground
that the meeting is not lawfully called or convened.
6-4. A majority of the number of directors at any time constituting the
Board of Directors shall constitute a quorum for the transaction of business,
and the act of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
6-5. By resolution adopted by a majority of the number of Pi rectors at
any time constituting the Board of Directors, the Board of Directors may
designate two or more directors to constitute an executive committee which
shall have and may exercise, to the extent permitted by law or in such
resolution, all of the authority of the Board of Directors in the management
of the corporation; provided, however, that such delegation of authority
thereto shall not operate to relieve the Board of Directors or any member
thereof of any responsibility imposed on it or him by law.
6-6. Any vacancy in the Board of Directors, however caused, may be
filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office.
ARTICLE SEVEN
PLACE OF BUSINESS
The principal office and the principal place of business of the
corporation initially shall be located in the City and County of Denver, State
of Colorado. The Board of Directors may, however, from time to time establish
such other offices, branches, subsidiaries or divisions in such other place or
places within or without the State of Colorado as it deems advisable. The
address of the corporation's initial registered office in Colorado for the
purposes of the Colorado Corporation Code, as amended, shall be:
1700 Writers' Center Five
1873 South Bellaire Street P.O. Box 5560 T.A.
Denver, Colorado 80217
The name of the corporation's initial registered agent at the address of
the aforesaid registered office for purposes of said Code shall be: C. Henry
Roath.
ARTICLE EIGHT
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary and a Treasurer, each of whom shall be elected by the Board of
Directors at such time and in such manner as may be prescribed by the Bylaws
of the corporation. Such other officers, assistant officers and agents as
deemed necessary may be elected or appointed by the Board of Directors or
chosen in such other manner as may be prescribed by the Bylaws. Any two or
more offices may be held by the same person, except the offices of President
and Secretary.
ARTICLE NINE
BYLAWS
The Board of Directors shall have the power to make and adopt Bylaws for
the government of the corporation not inconsistent with the laws of the State
of Colorado for the purpose of regulating and carrying on the business of the
corporation within the scope of its objects and purposes; and the Board of
Directors from time to time may change, alter or amend the same as may be
beneficial to the interests of the corporation except as otherwise
specifically provided therein.
ARTICLE TEN
MEETINGS OF SHAREHOLDERS
Meetings of shareholders of the corporation shall be held at such place
within or without the State of Colorado and at such times as may be prescribed
in the Bylaws of the corporation. Special meetings of the shareholders of the
corporation may be called by the President of the corporation, the Board of
Directors, or by the record holder or holders of at least 33% of all shares
entitled to vote at the meeting. At the meeting of the shareholders, except to
the extent otherwise provided by the Bylaws or by law, a quorum shall consist
of not less than one-half (l/2) of the shares entitled to vote at the meeting;
and, if a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote thereat shall be the act of
the shareholders unless the vote of a greater number or voting by classes is
required by law.
ARTICLE ELEVEN
SALE OF ASSETS
Whenever the Board of Directors at any meeting thereof, by a majority
vote of the whole Board, determines that it is in the best interests of the
corporation, the corporation may sell, lease, exchange, or convey all of its
property and assets, including its goodwill and its corporate franchises, upon
such terms and conditions and for such consideration as the Board of Directors
shall deem expedient; provided, however, that the sale or disposal of all or
substantially all of the property and assets of the corporation shall be
authorized or ratified by the affirmative vote of the holders of at least a
majority of the capital stock then issued and outstanding, such vote to be
taken at a meeting of shareholders duly called for that purpose as provided by
the statutes of the State of Colorado.
ARTICLE TWELVE
INTEREST OF DIRECTORS IN CONTRACTS
Any contract or other transaction between the corporation and one or
more of its directors, between the corporation and any firm of which one or
more of its directors are members or employees, or in which they are
interested, or between the corporation and any corporation or association of
which one or more of its directors are shareholders, members, directors,
officers or employees, or in which they are interested, shall be valid for all
purposes, notwithstanding the presence of such director or directors at the
meeting of the Board of Directors of the corporation which acts upon or in
reference to such contract or transaction, and notwithstanding his or their
participation in such action, if the facts of such interest shall be disclosed
or known to the Board of Directors, and the Board of Directors shall,
nevertheless, authorize, approve, and ratify such contract or transaction by a
vote of a majority of the Board of Directors present, such interested director
or directors to be counted in determining whether a quorum is present but not
to be counted in calculating the majority necessary to carry such vote. This
article shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
ARTICLE THIRTEEN
INDEMNIFICATION OF DIRECTORS
The corporation shall indemnify any person who was or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that he is or was a director, officer, employee, fiduciary, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another company'
partnership/joint venture, trust or other enterprise, against expenses
(including attorney fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the defense or
settlement of such action, suit or proceeding, to the extent and under the
circumstances permitted by the Corporation Code of the State of Colorado. The
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, fiduciary,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, fiduciary, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
expenses (including attorney fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit to the extent
and under the circumstances permitted by the Corporation Code of the State of
Colorado. Such indemnification (unless ordered by a court) shall be made as
authorized in a specific case upon a determination that indemnification of the
director, officer, employee, fiduciary, or agent is proper in the
circumstances because he has met the applicable standards of conduct set forth
in the Corporation Code of the State of Colorado. Such determination shall be
made (1) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (2)
if such quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion' or (3) by the stockholders.
The foregoing right of indemnification shall not be deemed exclusive of
any other right to which those seeking indemnification may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, and shall continue as to a person who has ceased to be a director,
officer, employee, fiduciary, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE FOURTEEN
AMENDMENT OF ARTICLES OF INCORPORATION
The corporation expressly reserves the right to amend these Articles of
Incorporation and to alter, change, or repeal any provision contained herein
in any manner now or hereafter permitted or provided by the corporation laws
of Colorado, and the rights of all shareholders are expressly made subject to
such power of amendment.
ARTICLE FIFTEEN
REDUCED VOTING REQUIREMENTS
When, with respect to any action to be taken by the shareholders of the
corporation, the Colorado Corporation Code requires the vote or concurrence of
two-thirds of the outstanding shares entitled to vote thereon, or of any
series or class, then such action shall be taken by the vote or concurrence of
a majority of such shares or series or class thereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 1st day of
May 1995.
/s/ C. Henry Roath
C. Henry Roath
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
I, M. Sue Lehigh, a notary public, hereby certify that on the 1st day of
May 1985, personally appeared before me C. HENRY ROATH, who, being by me first
duly sworn severally declared that he was the person who signed the foregoing
document as incorporator and that the statements therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 1st day of
May 1985.
My commission expires: 7-15-86
/s/ M. Sue Lehigh
Notary Public
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
PERENNIAL DEVELOPMENT CORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is PERENNIAL DEVELOPMENT
CORPORATION.
SECOND: The following amendment to the Articles of Incorporation was
adopted on September 19, 1986, as prescribed by the Colorado Corporation Code,
in the manner marked with an X below:
___ Such amendment was adopted by the board of directors where no
shares
have been issued.
_X_ Such amendment was adopted by a vote of the shareholders. The num-
ber of shares voted for the amendment was sufficient for approval.
The Articles of Incorporation are amended as follows:
1. Article Four shall be deleted in its entirety and the following
substituted therefor:
ARTICLE FOUR
CAPITAL STOCK
The amount of authorized capital stock of this Corporation is 20,000,000
shares of Common Stock, each share having no par value; 1,200,000 shares of
Subordinated Convertible Common Stock, each share having no par value; and
10,000,000 shares of Preferred Stock, par value $10.00 per share, and all
shares when issued shall be fully paid and nonassessable, the private property
of shareholders, and shall not be liable for corporate debts.
2. Article Five shall be deleted in its entirety and the following
substituted therefor:
ARTICLE FIVE
RIGHTS OF SHAREHOLDERS
The rights and privileges relating to the shares of capital stock named
in Article Four hereof shall be as follows:
5-1. No holder of any shares of any class of capital stock of the
Corporation shall, as such, have any preemptive right to purchase or to
subscribe for any shares of the capital stock or any other securities of the
Corporation which it may issue or sell, whether out of the number of shares
authorized by the Articles of Incorporation of the Corporation as originally
filed, or by any amendment thereof, or out of shares of the capital stock of
the Corporation acquired by it after the issue thereof, nor shall any holder
purchase or subscribe for any obligation which the Corporation may issue or
sell that shall be convertible into or exchangeable for any shares of the
capital stock of the Corporation, or to which shall be attached or appertain
any warrant or warrants or any instrument or instruments that shall confer
upon the owner of such obligation, warrant or instrument the right to
subscribe for or to purchase from the Corporation any shares of any class of
its capital stock.
5-2. The holders of shares of Subordinated Convertible Common Stock
shall have the right on a pro rata basis (as defined below) to convert one
share of such stock into one share of Common Stock for every $1.25 of annual
pretax net profit earned by the Corporation upon and subject to the following
terms and conditions:
5-2-1. Annual pretax net profit shall be determined on a non-
cumulative basis for each fiscal year of the Corporation; provided, however,
that for the fiscal year ending in 1987, pretax net profit shall be determined
commencing on the date of closing of the initial public offering, if any, by
the Corporation of its equity securities and shall end on the last day of such
fiscal year.
5-2-2. Annual pretax net profit shall be determined in accordance
with generally accepted accounting principles consistently applied based upon
the audited annual financial statements of the Corporation; provided, however,
that in the event audited financial statements are not obtained, or in the
event such financial statements are not available within 90 days following the
end of the fiscal year, then annual pretax net profit shall be determined
based upon unaudited financial statements for that fiscal year prepared by or
for the Corporation.
5-2-3. Notwithstanding anything contained herein to the contrary,
the holders of the Subordinated Convertible Common Stock shall have no right
to convert more than an aggregate of 240,000 such shares determined on a pro
rata basis (as defined below) during any period of twelve consecutive months,
except as otherwise specifically provided in this Article Five; provided,
however, that vested conversion rights shall carry over to subsequent periods.
5-2-4. Any shares of Subordinated Convertible Common Stock as to
which conversion rights shall not have vested as of the Corporation's fiscal
year ending in 1992 shall be cancelled and the holders thereof shall have no
further rights in connection therewith.
5-2-5. So long as any shares of Subordinated Convertible Common
Stock shall be outstanding and unconverted, (I) if the Corporation shall pay
any dividend or make any distribution upon the Common Stock, or (ii) if the
Corporation shall offer to the holders of Common Stock for subscription or
purchase by them any shares of stock of any class or any other rights, or
(iii) if any capital reorganization of the Corporation, reclassification of
the capital stock of the Corporation, consolidation or merger of the
Corporation with or into another corporation, sale, lease or transfer of all
or substantially all of the property and assets of the Corporation to another
corporation, or voluntary or involuntary dissolution, liquidation or winding
up of the Corporation shall be affected, or (iv) in the event any person,
including the Corporation, shall offer to purchase all or any of the
outstanding shares of Common Stock, then, in any such case, the Corporation
shall cause to be delivered to the holders of the outstanding shares of
Subordinated Convertible Common Stock at the earliest practicable time, but
not less than 10 days prior to the date specified in (x) or (y) below except
as to offers to purchase, as the case may be, a notice containing a brief
description of the proposed or pending action and stating the date on which
(x) a record is tob e taken for the purpose of such dividend, distribution or
rights, or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place or
such offer to purchase is to commence or has commenced and the date, if any is
to be fixed, on which the holders of Common Stock of record shall be entitled
to exchange or tender their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation, winding up or
offer to purchase. The holders of shares of Subordinated Convertible Common
Stock as to which conversion rights have vested pursuant to Section 5-2 above,
but which are precluded from being converted into Common Stock pursuant to
Subsection 5-2-3 above, shall have the right to convert such shares on or
before the date specified in (x) or (y) above.
Section 5-2-6. So long as any shares of Subordinated Convertible Common
Stock shall be outstanding and unconverted, (I) in case of any
reclassification, capital reorganization or other change in outstanding shares
of common Stock of the Corporation (including an issuance of Common Stock by
way of dividend or other distribution or a subdivision or a combination of
such Common Stock); or (ii) in case of any consolidation or merger of the
Corporation with or into another corporation (other than a merger with a
subsidiary in which merger the corporation is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or (iii) in case of any sale or
conveyance of the property of the Corporation as an entirety or substantially
as an entirety, the Corporation shall cause effective provision to be made, if
reasonably practicable, so that the holders of shares of Subordinated
Convertible Common Stock shall have the right therafter upon conversion to
acquire the kind and amount of shares and other securities and property
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance, as if the holder had converted
prior to such transaction. In the event it is reasonably impracticable to
make such provision, then the Corporation shall determine the aggregate value
of the transaction, net to the Corporation and/or its shareholders, and the
holders of the outstanding shares of Subordinated Convertible Common Stock
shall have the right to convert such shares into shares of Common Stock as and
to the extent provided herein as if such value were pretax net profit without
regard to the limitation set forth in Subsection 5-2-3 above, effective on or
before the record or other significant date for determination of holders of
Common Stock entitled to directly or indirectly participate in such
transaction.
5-2-7. The term "pro rata basis" as used herein shall mean, as to
any holder of record of shares of Subordinated Convertible Common Stock, the
number of such shares held of record by that holder divided by the total
number of outstanding shares of that class times the number of such shares as
to which conversion rights shall have vested as to any fiscal year of the
Corporation or times the number of such shares convertible during any period
of twelve consecutive months, as may be appropriate.
5-3. Each shares of capital stock, whether Common Stock or Subordinated
Convertible Common Stock, shall be entitled to one vote, either in person or
by proxy, at all shareholders' meetings and all shares shall be voted as a
single class. Cumulative voting shall not be allowed in the election of
directors.
5-4. All outstanding shares of Common Stock shall share equally in
dividends and upon liquidation. Outstanding shares of Subordinated
Convertible Common Stock shall have no rights to receive dividends or other
distributions, whether or not in liquidation, except as otherwise specifically
provided herein. Dividends are payable at the discretion of the Board of
Directors at such times and in such amounts as they deem advisable, subject,
however, to the provisions of the laws of the State of Colorado.
5-5. The Board of Directors of the Corporation shall have the authority
to divide shares of Preferred Stock into series and, within the limitations
provided by law, to fix and determine the relative rights and preferences of
the shares of any series.
5-6. The Board of Directors may cuase any stock issued by the
Corporation to be issued subject to such lawful restrictions, qualifications,
limitations or special rights as they deem fit, which restrictions,
qualifications, limitations or special rights may be created by provisions in
the Bylaws of the Corporation or in the minutes of any propertly convened
meeting of the Board of Directors, provided, however, notice of such special
restrictions, qualifications, limitations or special rights must appear on the
certificate evidencing ownership of such stock.
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in
the amendment shall be effected is as follows: None.
FOURTH: The manner in which such amendment affects a change in the
amount of stated capital, and the amount of stated capital as changed by such
amendment, are as follows: None.
PERENNIAL DEVELOPMENT CORPORATION
By: /s/ Albert L. Blum
Albert L. Blum, President
By: /s/ Mark J. Jackson
Mark J. Jackson, Secretary
ARTICLES OF AMENDMENT
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is PERENNIAL DEVELOPMENT CORPORATION.
SECOND: The following amendment to the Articles of incorporation was
adopted on December 17, 1987, as prescribed by the Colorado Corporation Code,
in the manner marked with an X below:
[ ] Such amendment was adopted by the board of directors where no shares
have been issued
[X] Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for approval.
See Exhibit A attached hereto and incorporated herein by this reference.
THIRD: The statement, if not set forth in each amendment, in which any
exchange, modification or cancellation of issued shares provided for in the
amendment shall be effected, is as follows: None
FOURTH: The manner in which such amendment affects a change in the
amount of state capital, and the amount of stated capital as changed by such
amendment are as follows: No change.
PERENNIAL DEVELOPMENT CORPORATION
By: /s/ Mark J. Jackson
Mark J. Jackson
EXHIBIT A
Amendment to Articles of Incorporation
The Articles of Incorporation of PERENNIAL DEVELOPMENT CORPORATION, a
Colorado corporation (the "Corporation"), shall be amended by the addition of
the following thereto:
ARTICLE FOURTEEN
LIMITATION OF DIRECTOR LIABILITY
AND INDEMNIFICATION
No director of the Corporation shall have liability to the Corporation or to
its stockholders or other security holders for monetary damages for breach of
fiduciary duty as a director; provided, however, that such provisions shall
not eliminate or limit the liability of a director to the Corporation or to
its shareholders or other security holders for monetary damages for: (i) any
breach of the director's duty of loyalty to the Corporation or to its
shareholders or other security holders; (ii) acts or omissions of the director
not in good faith or which involve intentional misconduct or a knowing
violation of the law by such director; (iii) acts by such director as
specified in Section 7-5-114 of the Colorado Corporation Code; or (iv) any
transaction from which such director derived an improper personal benefit, but
only to the extent of the reasonable fair value of any such improper benefit.
No officer or director shall be personally liable for any injury to person or
property acting out of a tort committed by an employee of the corporation
unless such officer or director was personally involved in the situation
giving rise to the litigation or unless such officer or director committed a
criminal offense. The protection afforded in the preceding sentence shall not
restrict other common law protections and rights that an officer or director
may have.
The word "director" shall include at least the following, unless limited by
Colorado law: an individual who is or was a director of the Corporation and an
individual who, while a director of a Corporation is or was serving at the
Corporation's request as a director, officer, partner, trustee, employee or
agent of any owner foreign or domestic corporation or of any partnership,
joint venture, trust, other enterprise or employee benefit plan. A director
shall be considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose duties on
or otherwise involve services by him to the plan or to participants in or
beneficiaries of the plan. To the extent allowed by Colorado law, the word
"director" shall also include officers, employees and agents of the
Corporation and the heirs and personal representatives of all directors.
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
PERENNIAL DEVELOPMENT CORPORATION
CHANGING ITS NAME TO
IN-HOUSE REHAB CORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is PERENNIAL DEVELOPMENT CORPORATION.
SECOND: The following amendment was adopted on October 10, 1996 by the
Board of Directors, and on November 25, 1996 by a vote of the Shareholders of
the Corporation, in the manner prescribed by the Colorado Business Corporation
Act. The number of shares voted for the amendments was sufficient for
approval.
ARTICLE I - NAME shall be amended to read as follows:
"ARTICLE I - NAME
The name of the Corporation is IN-HOUSE REHAB CORPORATION."
THIRD: The manner, if not set forth in such amendments, in which any
exchange, reclassification, or cancellation of issued shares provided for in
the amendments shall be effected, is as follows: Not applicable.
DATED: November 26, 1996.
PERENNIAL DEVELOPMENT CORPORATION
(Changing its name to
IN-HOUSE REHAB CORPORATION)
By/s/ David V. Hall
David V. Hall
President
BYLAWS
OF
PERENNIAL DEVELOPMENT CORPORATION
ARTICLE ONE
OFFICES
The principal office of the corporation in the State of Colorado shall be
located in the City and County of Denver, Colorado. The corporation may also
have offices at such other places within or without the State of Colorado as
the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE TWO
SHAREHOLDERS
Section 2.1. Place of Meetings. Meetings of shareholders shall be held at
he principal office of the corporation or at such other place within or
without
ache State of Colorado as the Board of Directors shall authorize.
Section 2-2. Annual Meeting. The annual meeting of the shareholders shall
be held on the second Tuesday of the fourth month following the close of the
fiscal year at 10:00 o'clock A. M. in each year if not a legal holiday; and if
a legal holiday, then on the next business clay foliating at the same hour,
when
the shareholders shall elect directors and transact such other business as may
properly come before the meeting.
Section 2-3. Special Meetings. Special meetings of the shareholders may
be
called by the Board of Directors or by the President, and shall be called by
the
President or the Secretary at the request, in writing, of a majority of the
Board or at the request, in writing by shareholders owning not less than 3 3%
of the voting shares issued and outstanding. Such request and the notice of
meeting issued pursuant thereto shall state the purpose or purposes of the
proposed meeting. Business transacted at a special meeting shall be confined
to the purposes stated in the notice.
Section 2-4. Fixed Record Date. For the purpose of determining the
shareholders qualified or entitled to notice of or vote at any meeting of
shareholders or any adjournment thereof, or to express consent to or dissent
from any proposal without a meeting, or for the purpose of determining
shareholders qualified or entitled to receive payment of any dividend or the
allotment of any rights, or for any other proper purpose, the Board of
Directors shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall be not more than fifty nor
less than ten days before the date of such meeting. If no record date is
fixed by the Board, the record date for any such purpose shall be ten days
before the date of such meeting or action. When such determination of
qualified or entitled shareholders has been made asprovided above, such
determination shall also apply to any adjourned meeting, except where
transfer of stock to a new holder has been entered on the transfer
books of the corporation after the original meeting was adjourned and at least
ten days before the date of such adjourned meeting.
Section 2-5. Notice of Meetings of Shareholders. Written entitled to vote
at any meeting of the shareholders. Such notice shall be delivered not less
than
ten nor more than 50 days before the date of the meeting. If action is
proposed
to be taken at a meeting that might increase the authorized shares, at least
thirty days' notice shall be given. The notice of each meeting shall state the
place, date and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called. The notice shall indicate
that it is being issued by or at the direction of the officer or persons
calling
the meeting. If mailed, such notice shall be deemed delivered when deposited
in
the United States mail, with postage prepaid, addressed to the shareholder at
his address as it appears on the record of shareholders, or if he shall have
filed with the Secretary a written request that notices to him be mailed to
some other address, then directed to him at such other address. Unless the
Board of Directors shall fix a new record date for an adjourned meeting,
notice of such adjourned meeting need not be given if the time and place to
which the meeting shall be adjourned were announced at the meeting at which
the adjournment is taken.
Section 2-6. Waivers. Notice of meeting need not be given to any
shareholder who signs, either in person or by proxy and whether before or
after
the meeting, a waiver of notice. The attendance, whether in person or by
proxy,
of any shareholder at a meeting without protesting the lack of notice of the
meeting prior to the conclusion of such meeting shall constitute a waiver of
notice by such shareholder.
Section 2-7. Quorum of Shareholders.
2-7-1. A majority of the outstanding shares of the corporation entitled
to
vote, represented in person or by proxy, shall constitute a quorum at a
meeting
of shareholders for the transaction of any business; provided, however, that
when a specified item of business is required to be voted on by a class or
classes, representatives of a majority of the shares of such class or
classes shall constitute a quorum for the transaction of such specified item
of business. Unless otherwise required by law the vote of a majority of the
shares present at the time of a vote, if a quorum is or has been present,
shall be the act of the shareholders.
2-7-2. If less than a majority of the outstanding shares entitled to vote
thereat are represented at a meeting, or for any valid business reason at a
meeting where such majority is present, a majority in interest of the share-
holders present may adjourn the meeting from time to time to a fixed date
without further notice as to the time and place of such adjourned meeting,
but each adjournment shall be for a period not in excess of 60 days. At any
such adjourned meeting at which a quorum shall be present or represented,
only such business may be transacted which might have been transacted at a
meeting as originally scheduled, unless all shares are represented and do
not object.
2-7-3. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholder and those remaining may
continue to transact business until adjournment, notwithstanding the
withdrawal
of enough shareholders to leave less than a quorum.
Section 2-8. Proxies. Every shareholder entitled to vote at a meeting of
the shareholders or to express consent or dissent without a meeting may
authorize another person or persons to act for him by proxy. Every proxy
must be signed by the shareholder or his attorney-in-fact and delivered to
the secretary of the meeting prior to or during the roll call, or be returned
to the corporation with the signed consent to action without a meeting. No
proxy shall be valid after the expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the shareholder executing it, except as
otherwise provided by law.
Section 2-9. Voting.
2-9-1. At all meetings of shareholders voting may be viva voce; however,
any qualified voter may demand a stock vote, whereupon such vote shall be
taken
by ballot and the secretary shall record the name of the shareholder voting,
the
number of shares voted, and, if such vote shall be by proxy, the name of the
proxy holder.
2-9-2. Each shareholder shall have one vote for each share issued and
outstanding which is registered in his name on the books of the corporation,
except as otherwise provided in the Articles of Incorporation and except where
the transfer books of the corporation shall have been closed or a date shall
have been fixed as a record date for the determination of shareholders
entitled to vote prior to his becoming a shareholder. A complete list of
shareholders entitled to vote at Such meeting of the shareholders or any
adjournment thereof, arranged in alphabetical order and setting forth the
number of voting shares held by each shareholder, shall be prepared by the
Secretary or the transfer agent of the corporation who shall have charge of
the stock ledger and stock transfer books of the corporation. Such list shall
be subject to inspection by any shareholder at the principal office of the
corporation during business hours for ten days prior to such meeting and
throughout the meeting or any adjournment thereof.
Section 2-10. Written Consent of Shareholders. Any action that may be
taken
by vote may be taken without a meeting on the written consent setting forth
the
action so taken, signed by the holders of all the outstanding shares entitled
to
vote thereon.
Section 2-11. Inspectors. The Board may, in advance of any meeting of
shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his
ability. The inspectors shall determine the number of shares outstanding and
the voting power of each, the number of shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result and do such acts as are
proper to conduct the election or vote with fairness to all shareholders. On
request of the chairman of the meeting or any shareholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as an inspector of an election of directors.
Inspectors need not be shareholders.
ARTICLE THREE
DIRECTORS
Section 3-1. Board of Directors. The business of the corporation shall be
managed by a Board of Directors, consisting of not less than three (3) nor
more
than nine (9) members (except that there need be only as many directors as
there
are shareholders in the event that the outstanding shares are held of record
by
fewer than three (3) shareholders), each of whom shall be at least 18 years of
age but who need not be shareholders nor residents of the State of Colorado.
The
number of directors of the corporation shall be fixed from time to time by
resolution of the Board of Directors.
Section 3-2. Election and Term of Directors. At each annual meeting of
shareholders, the shareholders shall elect directors. Each director shall hold
office until the next annual meeting and until his successor has been elected
and qualified, or until his death, resignation or removal.
Section 3-3. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors or
vacancies
occurring in the Board for any reason may be filled by a vote of a majority of
the directors then in office, although less than a quorum exists, unless
otherwise provided in the Articles of Incorporation. A director chosen to fill
a position resulting from an increase in the number of directors shall hold
office until the next annual meeting of shareholders and until his successor
shall have been elected and qualified, or until his death, resignation or
removal. A director elected to fill a vacancy caused by resignation, death or
removal shall be elected to hold office for the unexpired term of his
predecessor.
Section 3-4. Resignation and Removal. A director may resign at any time
by
giving written notice to the Board, the President, or the Secretary of the
corporation. Unless otherwise specified in the notice, the resignation shall
take effect upon receipt thereof by the Board or such officer, and the
cceptance of
the resignation shall not be necessary to make it effective. Any director may
be
removed at any time, with or without cause, as provided by law.
Section 3-5. Quorum of Directors. A majority of the entire Board or
Directors shall constitute a quorum for the transaction of business or of any
specified item of business.
Section 3-6. Action of the Board of Directors. Unless otherwise required
by law, the vote of a majority of the directors present at the time of the
vote,
if a quorum is present at such time, shall be the act of the Board of
Directors.
Each director present shall have one vote regardless of the number of shares,
if
any, which he may hold.
Section 3-7. Place and Time of Board Meetings. The Board of Directors may
hold its meetings at the office of the corporation or at such other places,
either within or without the State of Colorado, as it may from time to time
determine. If the meeting is held without the State of Colorado, notice must
be
given by certified mail not less than five days before the meeting, and said
notice shall contain the date, place and purpose of the meeting. Notice is
given
when deposited in the United States mail with postage prepaid.
Section 3-8. Regular Annual Meeting. A regular annual meeting of the
Board
of Directors shall be held immediately following the annual meeting of
shareholders at the place of such annual meeting of shareholders.
Section 3-9. Notice of Meetings of the Board, Adjournment.
3-9-1. Regular meetings of the Board may be held without notice at such
time and place as the Board shall from time to time determine. Special
meetings
of the Board shall be held upon notice to the directors and may be called by
the
President upon two days' notice to each director either personally or by mail,
telegraph, telephone, cable, or wireless, except as provided by Section 3-7 of
this Article. Special meetings shall be called by the President or by the
Secretary in a like manner at the written request of at least two directors.
Notice of a meeting need not be given to any director who submits a waiver of
notice, whether before or after the meeting, or who attends the meeting
without
protesting prior thereto or at its commencement, the lack of notice to him.
3-9-2. A majority of the directors present, whether or not a Quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given to all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to
the
other directors.
Section 3-10. Chairman. At all meetings of the Board of Directors the
Chairman of the Board, if one has been elected, shall preside. In the absence
of
a Chairman the President, or in his absence the next highest officer, shall
preside. In the event there be two or more persons of equal title, a chairman
chosen by the Board shall preside.
Section 3-11. Executive and Other Committees. The Board of Directors, by
resolution adopted by a majority of the entire Board, may designate from among
its members an executive committee and other committees, each consisting of
two
or more directors. Each such committee shall serve at the pleasure of the
Board.
Section 3-12. Compensation. No compensation shall be paid to directors,
as
such, for their services, but by resolution of the Board a fixed sum and
expenses for actual attendance at each regular or special meeting of the
Board may be authorized. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
Section 3-13. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any
corporate
matter is taken shall be presumed to have assented to the action taken unless
he
shall file his written dissent to such action with the person acting as the
Secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the corporation immediately
after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 3-14. Written Consent of Directors. Any action that may be taken
by vote may be taken without a meeting on written consent setting forth the
action so taken, signed by all the directors entitled to vote thereon.
ARTICLE FOUR
OFFICERS
Section 4-1. Offices Election and Term of Office.
4-1-1. The Board of Directors shall elect or appoint a President, a
Secretary and a Treasurer, and such other officers, including a Chairman of
the
Board, as the Board may determine who shall have such duties, powers and
functions as hereinafter provided.
4-1-2. All officers that are elected or appointed shall hold office at
the
pleasure of the Board.
Section 4-2. Removal, Resignation, Salary, Etc.
4-2-1. Any officer elected or appointed by the Board may be removed by
the
Board with or without cause.
4-2-2. In the event of the death, resignation or removal of an officer,
the
Board in its discretion may elect or appoint a successor to fill the unexpired
term.
4-2-3. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
4-2-4. The salaries of all officers shall be fixed by the Board from time
to time.
Section 4-3. Chairman of the Board. The Chairman of the Board, if any,
shall, if present, preside at each meeting of the Board of Directors and shall
be an ex officio member of all committees of the Board. He shall perform all
such duties as may from time to time be assigned to him by the Board of
Directors.
Section 4-4 President. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings
of the shareholders, and, in the absence of the Chairman of the Board, of
the Board of Directors. He may sign, with the Secretary or any other proper
officer of the corporation "hereunto authorized by the Board of Directors,
certificates for shares of the corporation, and any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized
to be executed, except in cases where the signing and execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to some
other officer or agent of the corporation, or shall be required by law to be
otherwise signed or executed. In general the President shall perform all
duties incident to the office and such other duties as may be prescribed by
the Board of Directors from time to time.
Section 4-5. Vice-President. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice-President shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The
Vice-President shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 4-6. Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the shareholders, record all votes and minutes of
all
proceedings in a book or books to be kept for that purpose. He shall keep in
safe custody the seal of the corporation and affix it to any instrument when
authorized, and he shall keep all the documents and records of the corporation
as required by law or otherwise in a proper and safe manner. When required he
shall prepare or cause to be prepared and available at each meeting of
shareholders entitled to vote thereat, a list of shareholders indicating the
number of shares of each respective class held by each. In general he shall
perform all duties incident to the office of Secretary and such other duties
as
may be prescribed from time to time by the President or the Board of
Directors.
Section 4-7. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in the corporate books. He shall deposit all money
and other valuables in the name and to the credit of the corporation in such
depositories as may be designated by the Board and disburse the funds of the
corporation as may be ordered or authorized by the Board and preserve proper
vouchers for such disbursements. He shall render to the President and Board at
the regular meetings of the Board, or whenever they require it, an account of
all his transactions as Treasurer and of the financial condition of the
corporation, and he shall render a full financial report at the annual
meeting of the shareholders if so requested. The Treasurer shall be
furnished, at his request, with such reports and statements as he may
require from the corporate officers and agents as to all financial
transactions of the corporation. In general he shall perform all duties as
are given to him by these Bylaws or as from time to time are assigned to him
by the Board of Directors or President.
Section 4-8. Assistant Officers. The Board of Directors may elect (or
delegate to the Chairman of the Board or to the President the right to
appoint)
such other officers and agents as may be necessary or desirable for the
business
of the corporation. Such other officers shall include one or more assistant
secretaries and treasurers who shall have the power and authority to act in
place of the officer to whom they are elected or appointed as an assistant
in the event of the officer's inability or unavailability to act in his
official capacity.
Section 4-9. Sureties and Bonds. In case the Board of Directors shall so
require, any officer or agent of the corporation shall execute to the
corporation a bond in such sum and with such surety or sureties as the Board
may direct. The Bond shall be conditioned upon the officer's or agent's
faithful performance of his duties to the corporation and including
responsibility for negligence and for the accounting for all property, funds
securities of the corporation which may come into his hands.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 5-1. Certificates. Each owner of stock of the corporation shall
be
entitled to have a certificate, in such form as shall be approved by the
Board,
certifying the number of shares of stock of the corporation owned by him. The
certificates representing shares of stock shall be signed in the name of the
corporation by the Chairman of the Board or the President and by the Secretary
or an Assistant Secretary and sealed with the seal of the corporation (which
seal may be a facsimile, engraved or printed); provided, however, that where
any such certificate is countersigned by a transfer agent or is registered by
a registrar (other than the corporation or one of its employees), the
signatures of the Chairman of the Board, the President, Secretary or
Assistant Secretary upon such certificates may be facsimiles, engraved or
printed. In case any officer who shall have signed such certificates shall
have ceased to be such officer before such certificates shall be issued,
they may nevertheless be issued by the corporation with the same effect as
if such officers were still in office at the date of their issue.
Section 5-2. Lost or Destroyed Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate to be lost or destroyed. When authorizing
such issue of a new certificate or certificates the Board may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and
give the corporation a bond in such sum and with such surety or sureties as
it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed.
Section 5-3. Transfer of Shares.
5-3-1. Transfers of shares of stock of the corporation shall be made on
the
stock records of the corporation only upon authorization by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by a duly executed stock transfer
onwer and the payment of all taxes thereon.
5-3-2. The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof and, accordingly, shall not be bound
to
recognize any equitable or other claim to or interest in such share on the
part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of Colorado.
Section 5-4. Restrictions of Stock. The Board of Directors may restrict
the
transfer of any stock issued by giving the corporation or any shareholder
"first
right of refusal to purchase" the stock, by making the stock redeemable or by
otherwise restricting the transfer of the stock under such terms and in such
manner as the directors may deem necessary and as are not inconsistent with
the
Articles of Incorporation or the laws of the State of Colorado. Any stock
whose
transfer is so restricted must carry a stamped legend on the face of the
certificate setting out the restriction and where such restriction may be
found
in the records of the corporation.
ARTICLE SIX
DIVIDENDS AND FINANCES
Section 6-1. Dividends. Dividends may be declared and paid out of any
funds
legally available therefor under the laws of Colorado, as may be deemed
advisable from time to time by the Board of Directors of the corporation.
Before declaring any dividends, the Board may set aside out of net profits or
earned or other surplus such sums as the Board may think proper as a reserve
fund to meet contingencies or for other purposes deemed proper and to the
best interests of the corporation.
Section 6-2. Monies. The monies, securities, and other valuable effects
of
the corporation shall be deposited in the name of the corporation in such
banks
or trust companies as the Board of Directors shall designate and shall be
drawn
out or removed only as may be authorized from time to time by the Board of
Directors.
ARTICLE SEVEN
CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the name
of
the corporation and the word "seal." The seal may be used by causing it to be
impressed directly on the instrument or writing to be sealed, or upon an
adhesive substance affixed thereto. The seal on the certificates for shares
or on any corporate obligation for the payment of money may be a facsimile,
engraved or printed.
ARTICLE EIGHT
EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or countersigned,
executed, verified or acknowledged by such officer or officers or other person
or persons as the Board of Directors may from time to time designate.
ARTICLE NINE
ORDER OF BUSINESS
At all meetings of shareholders or of the Board of Directors, the order
of
business, as far as practicable, shall be as follows:
1. Roll call and certifying proxies.
2. Proof of notice of meeting or waiver of notice.
3. Reading and approval of unapproved minutes.
4. Reports of officers and committees.
5. Election of officers or directors.
6. Unfinished business.
7. New business.
8. Adjournment.
ARTICLE TEN
REFERENCES TO ARTICLES OF INCORPORATION
Reference to the Articles of Incorporation in these Bylaws shall include
all amendments thereto or changes thereof unless specifically excepted.
ARTICLE ELEVEN
INDEMNIFICATION AND RELATED MATTERS
Section 11-1 Power to Indemnify -- Third Party Actions. The corporation
shall have power to indemnify any person who was or is a party or is
threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than
an action by or in the right of the corporation). This power to indemnify
shall
arise only by reason of the fact that the person is or was a do rector,
officer,
employee, fiduciary or agent or is or was serving at the request of the
corporation as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise . The
corporation shall have the power to indemnify against expenses (including
attorney fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if he had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not of itself create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, that he had reasonable cause to believe
that his conduct was unlawful.
Section 11-2. Power to Indemnify -- Actions Brought in the Right of the
Corporation. The corporation shall have power to indemnify any person who was
or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor-by reason of the fact that he is or was a director,
officer, employee, fiduciary or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee, fiduciary
or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The corporation shall have the power to indemnify against expenses
(including attorney fees) actually and reasonably incurred by him in
connection
with the defense or settlement of such action or suit if he acted in good
faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. No indemnification shall be made in respect of
any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action
or
suit was brought shall determine upon application that, despite the
adjudication
or liability but in view of all circumstances of the case, such person is
fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
Section 11-3. Right to Indemnification. To the extent that a director,
officer, employee or agent of the corporation has been successful on the
merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 11-1 and 11-2, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Section 11-4. Determination of Entitlement to Indemnification. Any
indemnification under Sections 11-1 and 11-2 (unless ordered by a court) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard or
conduct set forth in Sections 11-1 and 11-2. Such determination shall be made
(1) by the Board of Directors by a majority vote of a quorum consisting of
Directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the shareholders.
Section 11-5. Advancement of Expenses. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided in Section 11-4 upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to
repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized in this Article.
Section 11-6. Savings Clause. The indemnification provided by this
Article
shall not be deemed exclusive of any other rights to which those indemnified
may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs and legal representatives of such a person.
Section 11-7. Insurance. The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the
corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out
of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article.
Section 11-8. Disa11owed Deductions. With respect to any payment made by
the Corporation to any employee or any officer of the Corporation for
compensa-
tion, bonus, interest, rent, travel, entertainment or other expenses incurred
by
such employee or officer that is determined to be excessive, unreasonable or
otherwise unallowable, in whole or in part as a tax deductible expense by any
governmental agency, such employee shall have an unconditional obligation to
reimburse the Corporation to the full extent of such unallowable expense. In
lieu of payment by the officer, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
ARTICLE TWELVE
FISCAL YEAR
The fiscal year of the corporation shall be designated by the Board of
Directors.
ARTICLE THIRTEEN
BYLAW AMENDMENTS
The Bylaws may be amended, repealed or adopted by the majority vote of
the
Board of Directors at any regular or special meeting.
DATE ADOPTED: May 1, 1985.
<PAGE>
PERENNIAL DEVELOPMENT CORPORATION
1996 STOCK OPTION PLAN
This Stock Option Plan was adopted this 10th day of October 1996, by
Perennial Development Corporation, a Colorado corporation, upon the following
terms and conditions:
1. Definitions. Except as otherwise expressly provided in this Plan,
the following capitalized terms shall have the respective meanings hereafter
ascribed to them:
(a) "Board" shall mean the Board of Directors of the Corporation;
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended;
(c) "Consultant" shall mean a person who provides services to the
Corporation as an independent contractor;
(d) "Corporation" means Perennial Development Corporation and each
and all of any present and future subsidiaries;
(e) "Date of Grant" shall mean, for each participant in the Plan,
the date on which the Board approves the specific grant of stock options to
that
participant;
(f) "Employee" shall be an employee of the Corporation or any
subsidiary of the Corporation;
(g) "Grantee" shall mean the recipient of an Incentive Stock Option
under the Plan;
(h) "Incentive Stock Option" shall refer to a stock option which
qualifies under Section 422 of the Code.
(i) "Non-statutory Option" shall mean an option which is not an
Incentive Stock Option.
(j) "Shares" shall mean the Corporation's common stock, no par
value;
(k) "Shareholders" shall mean owners of record of any Shares; and
(l) "Tandem Stock Option" shall mean any arrangement whereby two
options, an Incentive Stock Option and a Non-statutory Option, are issued and
the exercise of one option affects the right to exercise the other.
2. Purpose. The purpose of this Stock Option Plan (the "Plan") is two-
fold. First, the Plan will further the interests of the Corporation and its
shareholders by providing incentives in the form of stock options to employees
who contribute materially to the success and profitability of the Corporation.
Such stock options will be granted to recognize and reward outstanding indiv-
idual performances and contributions and will give selected employees an
interest in
the Corporation parallel to that of the shareholders, thus enhancing their
proprietary interest in the Corporation's continued success and progress.
This
program also will enable the Corporation to attract and retain experienced
employees. Second, the Plan will provide the Corporation flexibility and the
means to reward directors and consultants who render valuable contributions to
the Corporation.
3. Administration. This Plan will be administered by the Board. The
Board has the exclusive power to select the participants in this Plan, fix the
awards to each participant, and make all other determinations necessary or
advisable under the Plan, to determine whether the performance of an eligible
employee warrants an award under this Plan, and to determine the amount and
duration of the award. The Board has full and exclusive power to construe and
interpret this Plan, to prescribe, amend and rescind rules and regulations
relating to this Plan, and to take all actions necessary or advisable for this
Plan's administration. The Board shall have full power and authority to
determine, and at the time such option is granted shall clearly set forth,
whether the option shall be an Incentive Stock Option or a Non-statutory
Option. However, the Board may not issue a Tandem Stock Option. Any such
determination made by the Board will be final and binding on all persons. A
member of the Board will not be liable for performing any act or making any
determination required by or pursuant to the Plan, if such act or determina-
tion is made in good faith.
4. Participants. Any employee, officer, director or consultant that
the
Board, in its sole discretion, designates is eligible to participate in this
Plan. However, only key employees of the Corporation shall be eligible to
receive grants of Incentive Stock Options. The Board's designation of a
person
as a participant in any year does not require the Board to designate that
person
to receive an award under this Plan in any other year or, if so designated, to
receive the same award as any other participant in any year. The Board may
consider such factors as it deems pertinent in selecting participants and in
determining the amount of their respective awards, including, but without
being
limited to: (a) the financial condition of the Corporation; (b) expected
profits
for the current or future years; (c) the contributions of a prospective
participant to the profitability and success of the Corporation; and (d) the
adequacy of the prospective participant's other compensation. The Board, in
its
discretion, may grant benefits to a participant under this Plan, even though
stock, stock options, stock appreciation rights or other benefits previously
were granted to him under this or another plan of the Corporation, whether or
not the previously granted benefits have been exercised, but the participant
may hold such options only on the terms and subject to the restrictions here-
after set forth. The Board may not issue a Tandem Stock Option under this
Plan or in conjunction with any other stock option or compensation plan to
any Participant. Subject to the foregoing limitation, a person who has
participated in another benefit plan of the Company may also participate in
this Plan.
5. Kinds of Benefits. Awards under this Plan, if any, will be granted
in options to acquire Shares as described below.
6. Options; Expiration; Limitations. Any Incentive Stock Option
granted
under this Plan shall automatically expire ten years after the Date of Grant
or
at such earlier time as may be described in Article 9 or directed by the Board
in the grant of the option. Notwithstanding the preceding sentence, no
Incentive Stock Option granted to a Shareholder who owns, as of the Date of
Grant, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Corporation shall, in any event, be
exercisable after the expiration of five years from the Date of Grant. For
the purpose of determining under any provision of this Plan whether a share-
holder owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Corporation, such Shareholder
shall be considered as owning the stock owned, directly or indirectly, by or
for his brothers and sisters (whether by the whole or half blood), spouse,
ancestors and lineal descendants, and stock owned, directly or indirectly, by
or for a corporation, partnership, estate or trust shall be considered as
being owned proportionately by or for its shareholders, partners or bene-
ficiaries.
Upon the exercise of an option, the Corporation shall deliver to the
participant certificates representing authorized but unissued Shares. The
cumulative total number of shares which may be subject to options issued and
outstanding pursuant to this Plan is limited to 1,000,000 shares. This amount
automatically will be adjusted in accordance with Article 21 of this Plan. If
an option is terminated, in whole or in part, for any reason other than its
exercise, the Board may reallocate the shares subject to that option (or to
the
part thereof so terminated) to one or more other options to be granted under
this
Plan.
7. Option Exercise Price. Each option shall state the option price,
which shall be not less than 100% of the fair market value of the Shares on
the
Date of Grant or the par value thereof whichever is greater. Notwithstanding
the preceding sentence, in the case of a grant of an Incentive Stock Option
to an employee who, as of the Date of Grant, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of the
Corporation or its Parent or Subsidiaries, the option price shall not be less
than 110% of the fair market value of the Shares on the Date of Grant or the
par value thereof, whichever is greater.
During such time as the Shares are not traded in any securities market,
the
fair market value per share shall be determined by a good faith effort of the
Board, using its best efforts and judgment. During such time as the Shares
are
traded in a securities market but not listed upon an established stock
exchange,
the fair market value per share shall be the mean between dealer "bid" and
"ask"
prices in the securities market in which it is traded on the Date of Grant, as
reported by the National Association of Securities Dealers, Inc. If the
Shares
are listed upon an established stock exchange or exchanges such fair market
value shall be deemed to be the highest closing price on such stock exchange
or
exchanges on the Date of Grant, or if no sale of any Shares shall have been
made
on any stock exchange on that day, on the next preceding day on which there
was
such a sale. Subject to the foregoing, the Board shall have full authority
and
discretion in fixing the option price and shall be fully protected in doing
so.
8. Maximum Option Exercise. The aggregate fair market value
(determined
as of the Date of Grant) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by a grantee during any calendar
year
(under all such plans of the Corporation and its parent or subsidiary, if any)
shall not exceed $100,000. For purposes of this Article 8, the value of stock
acquired through the exercise of Non-statutory Options shall not be included
in
the computation of the aggregate fair market value.
9. Exercise of Options.
(a) No stock option granted under this Plan may be exercised before
the Grantee's completion of such period of services as may be specified by the
Board on the Date of Grant. Furthermore, the timing of the exercise of any
option granted under this Plan may be subject to a vesting schedule based upon
years of service or an expiration schedule as may be specified by the Board on
the Date of Grant. Thereafter, or if no such period is specified subject to
the
provisions of subsections (c), (d), (e), (f) and (g) of this Article 9, the
Grantee may exercise the option in full or in part at any time until
expiration
of the option.
A Grantee cannot exercise an Incentive Stock Option granted under
this Plan unless, at the time of exercise, he has been continuously employed
by
the Corporation since the date the option was granted. The Board may decide
in
each case to what extent bona fide leaves of absence for illness, temporary
dis-
ability, government or military service, or other reasons will not be deemed
to
interrupt continuous employment.
(b) Unless an Option specifically provides to the contrary, all
options granted under this Plan shall immediately become exercisable in full
in
the event of the consummation of any of the following transactions:
(i) A merger or acquisition in which the Company is not the
surviving entity;
(ii) The sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) Any merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is issued to holders different from those who held the stock immediately
prior to such merger.
(c) Except as provided in subsections (d), (e) and (f) of this
Article 9, a Grantee cannot exercise an Incentive Stock Option after he ceases
to be an employee of the Corporation, unless the Board, in its sole
discretion,
grants the recipient an extension of time to exercise the Incentive Stock
Option
after cessation of employment. The extension of time of exercise that may be
granted by the Board under this subsection (c) shall not exceed three months
after the date on which the Grantee ceases to be an employee and in no case
shall extend beyond the stated expiration date of the option.
(d) If the employment of a Grantee is terminated by the Corporation
for a cause as defined in subsection (i) of this Article 9, all rights to any
stock option granted under this Plan shall terminate, including but not
limited
to the ability to exercise such stock options.
(e) If a Grantee ceases to be an employee as a result of
retirement, he may exercise the Incentive Stock Option within three months
after
the date on which he ceases to be an employee (but no later than the stated
expiration date of the option) to the extent that the Incentive Stock Option
was
exercisable when he ceased to be an employee. An employee shall be regarded
as
retired if he terminates employment after his sixty-fifth birthday.
(f) If a Grantee ceases to be an employee because of disability
(within the meaning of Section 105(d)(4) of the Code), or if a Grantee dies,
and
if at the time of the Grantee's disability or death he was entitled to
exercise
an Incentive Stock Option granted under this Plan, the Incentive Stock Option
can be exercised within 12 months after his death or termination of employ-
ment on account of disability (but no later than the stated expiration date
of the option), by the Grantee in the case of disability or, in case of
death, by his personal representative, estate or the person who acquired by
gift, bequest or inheritance his right to exercise the Incentive Stock
Option. Such options can be exercised only as to the number of shares for
which they could have been exercised at the time the Grantee died or became
disabled.
(g) With respect to Non-statutory Options granted to Board members,
the Board may provide on the Date of the Grant that such options will expire a
specified number of days after such Board member ceases to be a member of the
Board. In the absence of any such provision, the option will expire on the
stated expiration date of the option.
(h) Any stock option granted under the Plan will terminate, as a
whole or in part, to the extent that, in accordance with this Article 9, it no
longer can be exercised.
(i) For purposes of this Article 9, "cause" shall mean the
following:
(1) Fraud or criminal misconduct;
(2) Gross negligence;
(3) Willful or continuing disregard for the safety or
soundness of the Corporation;
(4) Willful or continuing violation of the published rules
of the Corporation.
10. Method of Exercise. Each option granted under this Plan will be
deemed to be exercised when the holder of it indicates his decision to do so
in
writing delivered to the Corporation and concurrently tenders to the
Corporation
full payment in cash or by certified check for the shares to be purchased
pursuant to the exercise of the option and complies with such other reasonable
requirements as the Board establishes pursuant to this Plan. No person, per-
sonal representative, estate or other entity will have the rights of a share-
holder with respect to shares subject to an option granted under this Plan
until a certificate or certificates for the shares have been delivered to the
person exercising the option.
Any option granted under this Plan may be exercised as to any lesser
number
of shares than the full amount for which such option has been granted. A
partial exercise of an option will not affect the Grantee's rights to
exercise the option from time to time in accordance with this Plan as to the
remaining shares subject to the option.
11. Taxes; Compliance with Law; Approval of Regulatory Bodies. The
Corporation, if necessary or desirable, may pay or withhold the amount of any
tax attributable to any amount payable or shares deliverable under this Plan
and the Corporation may defer making payment on delivery until it is indem-
nified to its satisfaction for that tax. Stock options are exercisable, and
shares can be delivered under this Plan, only in compliance with all
applicable federal and state laws and regulations, including, without
limitation, state and federal securities laws, and the rules of all stock
exchanges on which the Corporation's shares are listed at any time. Any
certificate issued pursuant to options granted under this Plan shall bear
such legends and statements as the Board deems advisable to assure compliance
with federal and state laws and regulations. No option may be exercised, and
shares may not be issued under this Plan, until the Corporation has obtained
the consent or approval of every regulatory body, federal or state, having
jurisdiction over such matters as the Board deems advisable.
Specifically, in the event that the Corporation deems it necessary or
desirable to file a registration statement with the Securities and Exchange
Commission or any State Securities Commission, no option granted under the
Plan
may be exercised, and shares may not be issued, until the Corporation has
obtained the consent or approval of such Commission.
In the case of the exercise of an option by a person or estate acquiring
by bequest or inheritance the right to exercise such option, the Board may
require reasonable evidence as to the ownership of the option and may require
such consents and releases of taxing authorities as the Board deems advisable.
12. Assignability. Each option granted under this Plan is not
transferable other than by will or the laws of descent and distribution. Each
option is exercisable during the life of the Grantee only by him.
13. Tenure. A participant's right, if any, to continue to serve the
Corporation as an officer, employee or otherwise, will not be enlarged or
otherwise affected by his designation as a participant under this Plan, and
such
designation will not in any way restrict the right of the Corporation to
terminate at any time the employment or affiliation of any participant for
cause
or otherwise.
14. Amendment and Termination of Plan. The Board may alter, amend or
terminate this Plan from time to time without approval of the shareholders.
However, without the approval of the shareholders, no amendment will be
effective that:
(a) materially increases the benefits accruing to participants
under the Plan;
(b) increases the cumulative number of shares that may be delivered
upon the exercise of options granted under the Plan or the aggregate fair
market
value of options which a participant may exercise in any calendar year;
(c) materially modifies the eligibility requirements for
participation in the Plan; or
(d) amends the requirements of paragraphs (a)-(c) of this Article
14.
Any amendment, whether with or without the approval of shareholders, that
alters the terms or provisions of an option granted before the amendment will
be effective only with the consent of the participant to whom the option was
granted or the holder currently entitled to exercise it, except for adjust-
ments expressly authorized by this Plan.
15. Expenses of Plan. The expenses of the Plan will be borne by the
Corporation.
16. Duration of Plan. Options may only be granted under this Plan
during
the ten years immediately following the earlier of the adoption of the Plan or
its approval by the Shareholders. Options granted during that ten year period
will remain valid thereafter in accordance with their terms and the provisions
of this Plan.
17. Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions including, without limitation,
restrictions
upon the exercise of the option, as the Board shall deem advisable. Any such
option agreements, which are intended to be "Incentive Stock Options" shall
contain such limitations and restrictions upon the exercise of the option as
shall be necessary in order that such option will be an "Incentive Stock
Option"
as defined in Section 422 of the Code.
18. Indemnification of the Board. In addition to such other rights of
indemnification as they may have as directors, the members of the Board shall
be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the
defense
of any action, suit or proceeding, or in connection with any appeal therein,
to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof (pro-
vided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such director is
liable for negligence or misconduct in the performance of his duties; pro-
vided that within 60 days after the institution of any such action, suit or
proceeding a director shall in writing offer the Corporation the opportunity,
at its own expense, to handle and defend the same.
19. Application of Funds. The proceeds received by the Corporation from
the sale of stock pursuant to options granted under this Plan will be used for
general corporate purposes.
20. No Obligation to Exercise Option. The granting of an option shall
impose no obligation upon the Grantee to exercise such option.
21. Adjustment Upon Change of Shares. If a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange of
shares, stock split, stock dividend, rights offering, or other event affecting
shares of the Corporation occurs, then the number and class of shares to which
options are authorized to be granted under this Plan, the number and class of
shares then subject to options previously granted under this Plan, and the
price
per share payable upon exercise of each option outstanding under this Plan
shall
be equitably adjusted by the Board to reflect such changes.
22. Number and Gender. Unless otherwise clearly indicated in this Plan,
words in the singular or plural shall include the plural and singular,
respectively, where they would so apply, and words in the masculine or neuter
gender shall include the feminine, masculine or neuter gender where
applicable.
23. Applicable Law. The validity, interpretation and enforcement of
this
Plan are governed in all respects by the laws of Colorado.
24. Effective Date of Plan. This Plan shall not take effect until
adopted by the Board. This Plan shall terminate if it is not approved by the
holders of a majority of the outstanding shares of the capital stock of the
Corporation, which approval must occur within the period beginning twelve
months
before and ending twelve months after the Plan is adopted by the Board.
PERENNIAL DEVELOPMENT CORPORATION
By/s/ David V. Hall
David V. Hall, President
I hereby certify that the foregoing Stock Option Plan was approved by the
Board of Directors of Perennial Development Corporation the 10th day of
October
1996.
/s/ Robert J. Babine
Robert J. Babine, Secretary
I hereby certify that the foregoing Stock Option Plan was approved by the
Shareholders of Perennial Development Corporation the 25th day of November,
1996.
_________________________________________
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered into as of this
date
by and between Perennial Development Corporation, a Colorado corporation
("Corporation"), and David V. Hall ("Employee").
WHEREAS, Corporation and Employee desire that the term of this Agreement begin
on February 1, 1996 ("Effective Date").
WHEREAS, Corporation desires to employ Employee as President, and Employee is
willing to accept such employment by Corporation, on the terms and subject to
the conditions set forth in this Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Duties. During the term of this Agreement, Employee agrees to
be
employed by and to serve Corporation as President, and Corporation agrees to
employ and retain Employee in such capacities. Employee shall devote a
substantial portion of his business time, energy, and skill to the affairs of
the Corporation as Employee shall report to the Corporation's Board of Direc-
tors, and at all times during the term of this Agreement shall have powers
and duties at least commensurate with his position as President, as such
duties are outlined in Appendix A hereto.
Section 2. Term of Employment.
2.1 Definitions. For the purposes of this Agreement the following terms
shall
have the following meanings:
2.1.1 "Termination For Cause" shall mean termination by Corporation of
Employee's employment by Corporation by reason of Employee's willful
dishonesty
towards, fraud upon, or deliberate injury or attempted injury to, Corporation
or
by reason of Employee's willful material breach of this Agreement which has
resulted in material injury to Corporation, or continuance of failure by the
Employee to perform his duties in compliance with this Agreement after written
notice to the Employee by the Board of Directors specifying such failure,
provided that such cause shall have been found by a majority vote of the
members of the Board of Directors of the Corporation other than Employee.
2.1.2 "Termination Other Than For Cause" shall mean termination by
Corporation of Employee's employment by Corporation (other than in a
Termination
for Cause) and shall include constructive termination of Employee's employment
by reason of material breach of this Agreement by Corporation, such
constructive
termination to be effective upon notice from Employee to Corporation of such
constructive termination.
2.1.3 Voluntary Termination" shall mean termination by Employee of
Employee's employment by Corporation other than (i) constrictive termination
as
described in subsection 2.1(b), (ii) "Termination Upon a Change in Control,"
and
(iii) termination by reason of Employee's death or disability as described in
Sections 2.5 and 2.6.
2.1.4 "Termination Upon a Change in Control" shall mean a termination by
Employee of Employee's employment with Corporation within 120 days following a
"Change in Control."
2.1.5 "Change in Control" shall mean (i) the time that Corporation first
determines that any person and all other persons who constitute a group
(within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 ("Ex-
change Act")) have acquired direct or indirect beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of twenty percent (20%) or
more of Corporation's outstanding securities, unless a majority of the "Con-
tinuing Directors" approves the acquisition not later than ten (10) business
days after Corporation makes that determination, or (ii) the first day on
which a majority of the members of the Corporation's Board of Directors are
not "Continuing Directors."
2.1.6 "Continuing Directors" shall mean, as of any date of
determination,
any member of the Board of Directors of Corporation who (i) was a member of
that
Board of Directors on [DATE], (ii) has been a member of that Board of
Directors
for the two years immediately preceding such date of determination, or (iii)
was
nominated for election or elected to the Board of Directors with the
affirmative
vote of the greater of (x) a majority of the Continuing Directors who were
members of the Board at the time of such nomination or election or (y) at
least
four Continuing Directors.
2.2 Initial Term. The term of employment of Employee by Corporation shall be
for a period of three (3) years beginning with Effective Date ("Initial
Term"),
unless terminated earlier pursuant to this Section. At any time prior to the
expiration of the Initial Term, Corporation and Employee may by mutual written
agreement extend Employee's employment under the terms of this Agreement for
such additional periods as they may agree.
2.3 Termination For Cause. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be
effected
by written notification to Employee. Upon Termination For Cause, Employee
shall
promptly be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension play or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Employee is a
participant to the full extent of Employee's rights under such plans,
accrued vacation pay and any appropriate business expenses incurred by
Employee in connection with his duties hereunder, all to the date of
termination, but Employee shall not be paid any other compensation or
reimbursement of any kind, including without limitation, severance
compensation.
2.4 Termination Other Than For Cause. Notwithstanding anything else in this
Agreement, Corporation may effect a Termination Other Than For Cause at any
time
upon giving written notice to Employee of such termination. Upon any
Termination Other Than For Cause, Employee shall promptly be paid all
accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension plan or profit sharing plan benefits which
will be paid in accordance with the applicable plan), any benefits under any
plans of the Corporation in which Employee is a participant to the full ex-
tent of Employee's rights under such plans (including accelerated vesting, if
any, of awards granted to Employee under the Corporation's stock option
plan), accrued vacation pay and any appropriate business expenses incurred by
Employee in connection with his duties hereunder, all to the date of ter-
mination, and all severance compensation provided in Section 4.2, but no
other compensation or reimbursement of any kind.
2.5 Termination by Reason of Disability. If, during the term of this
Agreement, Employee, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account
of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than twelve (12) consecutive months,
Corporation
shall have the right to terminate Employee's employment hereunder by written
notification to Employee and payment to Employee of all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which Employee is a participant to the full extent of Employee's rights under
such plans, accrued vacation pay and any appropriate business expenses
incurred
by Employee in connection with his duties hereunder, all to the date of
termination, with the exception of medical and dental benefits which shall
continue through the expiration of this Agreement, but Employee shall not be
paid any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
2.6 Death. In the event of Employee's death during the term of this
Agreement,
Employee's employment shall be deemed to have terminated as of the last day of
the month during which his death occurs and Corporation shall promptly pay to
his estate or such beneficiaries as Employee may from time to time designate
all
accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension plan or profit sharing plan benefits which
will
be paid in accordance with the applicable plan), any benefits under any plans
of
the Corporation in which Employee is a participant to the full extent of
Employee's rights under such plans, accrued vacation pay and any appropriate
business expenses incurred by Employee in connection with his duties
hereunder,
all to the date of termination. The Employee's estate shall not be paid any
other compensation, including without limitation, severance compensation.
2.7 Voluntary Termination. In the event of a Voluntary Termination,
Corporation shall promptly pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Employee is a
participant to the full extent of Employee's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Employee in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
2.8 Termination Upon a Change in Control. In the event of a Termination Upon
a Change in Control, Employee shall immediately be paid all accrued salary,
bonus compensation to the extent earned, vested deferred compensation (other
than pension plan or profit sharing plan benefits which will be paid in
accordance with the applicable plan), any benefits under any plans of the
Corporation in which Employee is a participant to the full extent of
Employee's rights under such plans (including accelerated vesting, if any,
of any awards granted to Employee under Corporation's Stock Option Plan),
accrued vacation pay and any appropriate business expenses incurred by
Employee in connection with his duties hereunder, all to the date of
termination, and all severance compensation provided in Section 4.1, but no
other compensation or reimbursement of any kind.
2.9 Notice of Termination. Corporation may effect a termination of this
Agreement pursuant to the provisions of this Section upon giving thirty (30)
days' written notice to Employee of such termination. Employee may effect a
termination of this Agreement pursuant to the provisions of this Section upon
giving thirty (30) days' written notice to Corporation of such termination.
Section 3. Salary, Benefits and Bonus Compensation.
3.1 Base Salary. As payment for the services to be rendered by Employee as
provided in Section 1 and subject to the terms and conditions of Section 2,
Corporation agrees to pay to Employee a "Base Salary" for the twelve (12)
calendar months beginning the Effective Date at the rate of $200,000.00 per
annum payable in twenty-six equal, bi-weekly installments of $7,692.31.
Employee's Base Salary shall be reviewed annually by the Compensation Commit-
tee of the Board of Directors ("Compensation Committee"), and the Base Salary
for each year (or portion thereof) beginning January 1, 1997 shall be deter-
mined by the Compensation Committee which shall authorize an increase in Em-
ployee's Base Salary for such year in an amount which, at a minimum, shall
be equal to the cumulative cost-of-living increment on the Base Salary as
report in the "Consumer Price Index, Seattle, Washington, All Items,"
published by the U.S. Department of Labor (using January 1, 1996 as the base
date for computation).
3.2 Bonuses. Employee shall be eligible to receive a discretionary bonus for
each year (or portion thereof) during the term of this Agreement and any
extensions thereof, with the actual amount of any such bonus to be determined
in
the sole discretion of the Board of Directors based upon its evaluation of
Employee's performance during such year. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 Additional Benefits. During the term of this Agreement, Employee shall
be
entitled to the following fringe benefits:
3.3.1 Employee Benefits. Employee shall be eligible to participate in
such of Corporation's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers of
the Corporation, including, without limitation, Corporation's Stock Option
Plan,
profit sharing plans, annual physical examinations, dental and medical plans,
personal catastrophe and disability insurance, financial planning, retirement
plans and supplementary executive retirement plans, if any. For purposes of
establishing the length of service under any benefit plans or programs of
Corporation, Employee's employment with the Corporation will be deemed to have
commenced on September 30, 1994.
3.3.2 Vacation. Employee shall be entitled to two (2) weeks of vacation
during each year during the term of this Agreement and any extensions thereof,
prorated for partial years.
3.3.3 Life Insurance. For the term of this Agreement and any extensions
thereof, Corporation shall at its expense procure and keep in effect term life
insurance on the life of Employee payable to the Estate of the Employee the
minimum aggregate amount of Two Million ($2,000,000.00) dollars.
3.3.4 Automobile Allowance. For the term of this agreement and any
extensions thereof the corporation shall provide officer with an automobile.
The maximum cost to the Corporation will be $10,000.00 per year.
3.3.5 Reimbursement for Expenses. During the term of this Agreement,
Corporation shall reimburse Employee for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by Employee in
connection with his duties under this Agreement.
Section 4. Severance Compensation.
4.1 Severance Compensation in the Event of a Termination Upon a Change in
Control. In the event Employee's employment is terminated in a Termination
Upon
a Change in Control, Employee shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), for the greater
of
the remaining portion of the Initial Term or twelve (12) months from the date
of
such termination provided, however, that if Employee is employed by a new
employer during such period, the severance compensation payable to Employee
during such period will be reduced by the amount of compensation that Employee
actually receives from the new employer. However, Employee is under no
obligation to mitigate the amount owed Employee pursuant to this Section by
seeking other employment or otherwise. Notwithstanding anything in this
Section
to the contrary, Employee may in Employee's sole discretion, by delivery of a
notice to Corporation within thirty (30) days following a Termination Upon a
Change in Control, elect to receive from Compensation a lump sum severance
payment by bank cashier's check equal to the present value of the flow of cash
payments that would otherwise be paid to Employee pursuant to this Section.
Employee shall also be entitled to an accelerated vesting of any awards
granted
to Employee under the Corporation's Stock Option Plan to the extent provided
in
the stock option agreement entered into at the time of grant. Employee shall
continue to accrue retirement benefits and shall continue to enjoy any
benefits
under any plans of the Corporation in which Employee is a participant to the
full extent of Employee's rights under such plans, including any perquisites
provided under this Agreement, though the remaining term of this Agreement;
provided, however, that the benefits under any such plans of the Corporation
in which Employee is a participant, including any such perquisites, shall
cease upon re-employment by a new employer.
4.1.1 Purchase of Shares Held by Employee and Insurance Coverage. In
the
event Employee's employment is terminated in a Termination Upon a Change in
Control, the Corporation will also be required, at the sole option of the
Employee, to redeem a minimum of fifty percent (50%) of the Corporation stock,
or any stock dividends thereof, owned by the Employee as of the Effective
Date,
that are owned by the employee at the date of severance. The price to be paid
will be the market determined value at the close of business at the date of
severance. If a public market has not been created, or is not in existence at
the time of severance, then the price to be paid shall be the most recent
share
price obtained in any private offering of the Corporation shares of common
stock. In the event Employee's employment is terminated in a Termination
Upon a Change in Control, the Corporation will also provide family medical
insurance consistent with coverages extended to other employees until the
Employee reaches the age of sixty five (65). The requirement that the Cor-
poration purchase family medical insurance shall be excused during any period
of subsequent employment where the new employer provides equal or better
coverage.
4.2 Severance Compensation in the Event of a Termination Other Than for
Cause.
In the event Employee's employment is terminated in a Termination Other Than
for
Cause, Employee shall be paid as severance compensation his Base Salary (at
the
rate payable at the time of such termination), for a period of the greater of
the remaining portion of the Initial Term or twelve (12) months from the
date of such termination, on the dates specified in Section 3.1; provided,
however, that if Employee is employed by a new employer during such period,
the severance compensation payable to Employee during such period will be
reduced by the amount of compensation that Employee is receiving from the
new employer, officer is under no obligation to mitigate the amount owed to
the officer pursuant to this Section by seeking employment or other Employee
shall be entitled to an
accelerated vesting of any awards granted to Employee under Corporation's
Stock
Option Plan to the extent provided in the stock option agreement entered into
at
the time of grant.
4.2.1 Purchase of Shares Held by Employee and Insurance Coverage. In the
event Employee's employment is terminated in a Termination Other Than for
Cause,
the Corporation will also be required, at the sole option of the Employee, to
redeem a minimum of fifty percent (50%) of the Corporation stock, or any stock
dividends thereof, owned by the Employee as of the Effective Date, that are
owned by the employee at the date of severance. The price to be paid will
be the market determined value at the close of business at the date of
severance. If a public market has not been created, or is not in existence
at the time of severance, then the price to be paid shall be the most recent
share price obtained in any private offering of the Corporation shares of
common stock. In the event Employee's employment is terminated in a Ter-
mination Other Than for Cause, the Corporation will also provide family
medical insurance consistent with coverages extended to other employees
until the Employee reaches the age of sixty five (65). The requirement that
the Corporation purchase family medical insurance shall be excused during any
period of subsequent employment where the new employer provides equal or
better coverage.
4.3 No Severance Compensation Upon Other Termination. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of Em-
ployee's disability pursuant to Section 2.6, Employee or his estate shall not
be paid any severance compensation.
Section 5. Outside Activities of Employee. Corporation acknowledges that
Employee has commitments and business activities not related to the
Corporation
and that certain of these commitments and business affairs involve activities
in
the long term care industry. There shall be no restriction on Employee's
ability to fulfill such commitments or engage in such business activities,
provided that during the term of Employee's employment under this Agreement
or for a period of six months after the termination of such employment (other
than a Termination Other Than For Cause or a Termination Upon Change in Con-
trol) Employee shall not divert away from the Corporation, for officers per-
sonal benefit, or for the benefit of an organization in which officer has a
material financial interest, any opportunity, arising during such period to
pursue such opportunities personally unless the Board of Directors of the
corporation have determined not to pursue such opportunity.
Section 6. Payment Obligations. Corporation's obligation to pay Employee
the compensation and to make the arrangements provided herein shall be uncon-
ditional, and Employee shall have no obligation whatsoever to mitigate dam-
ages hereunder. If litigation after a Change in Control shall be brought to
enforce or interpret any provision contained herein, Corporation, to the
extent permitted by applicable law and the Corporations' Articles of Incorpor-
ation and Bylaws, hereby indemnifies Employee for Employee's reasonable at-
torneys' fees and disbursements incurred in such litigation.
Section 7. Confidentiality. Employee agrees that all confidential and
proprietary information relating to the business of Corporation shall be kept
and treated as confidential both during and after the term of this Agreement,
except as may be permitted in writing by Corporation's Board of Directors or
as such information is within the public domain or comes within the public
domain without any breach of this Agreement.
Section 8. Withholdings. All compensation and benefits to Employee here-
under shall be reduced by all federal, state, local and other withholdings
and similar taxes and payments required by applicable law.
Section 9. Indemnification. In addition to any rights to indemnification
to
which Employee is entitled to under the Corporation's Articles of
Incorporation
and Bylaws, Corporation shall indemnify Employee at all times during and after
the term of this Agreement to the maximum extent permitted under Washington
Business Corporation Act or any successor provision thereof and any other
applicable state law, and shall pay Employee's expenses in defending any civil
or criminal action, suit, or proceeding in advance of the final disposition of
such action, suit or proceeding, to the maximum extent permitted under such
applicable state laws.
Section 10. Notices. Any notices permitted or required under this
Agreement
shall be deemed given upon the date of personal delivery or forty-eight (48)
hours after deposit in the United States mail, postage fully prepaid, return
receipt requested, addressed to the Corporation at:
9505 Williamsburg Plaza
Louisville, Ky. 40222
addressed to the Employee at:
1011 Alta Vista Drive
Louisville, Ky. 40205
or at any other address as any party may, from time to time, designate by
notice
given in compliance with this Section.
Section 11. Law Governing. This Agreement shall be governed by and con-
strued in accordance with the laws of the Commonwealth of Kentucky.
Section 12. Titles and Captions. All section titles or captions contained
in
this Agreement are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Agreement.
Section 13. Entire Agreement. This Agreement contains the entire under-
standing between and among the parties and supersedes any prior understand-
ings and agreements among them respecting the subject matter of this
Agreement.
Section 14. Agreement Binding. This Agreement shall be binding upon the
heirs, executors, administrators, successors and assigns of the parties
hereto.
Section 15. Attorney Fees. In the event an arbitration, suit or action is
brought by any party under this Agreement to enforce any of its terms, or in
any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
Section 16. Computation of Time. In computing any period of time pursuant
to
this Agreement, the day of the act, event or default from which the designated
period of time begins to run shall be included, unless it is a Saturday,
Sunday,
or a legal holiday, in which event the period shall begin to run on the next
day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
Section 17. Pronouns and Plurals. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or
plural as the identity of the person or persons may require.
Section 18. Arbitration. If at any time during the term of this Agreement
any dispute, difference, or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof, every such dispute,
difference, and disagreement shall be referred to a single arbiter agreed upon
by the parties, or if no single arbiter can be agreed upon, an arbiter or
arbiters shall be selected in accordance with the rules of the American
Arbitration Association and such dispute, difference, or disagreement shall be
settled by arbitration in accordance with the then prevailing commercial rules
of the American Arbitration Association, and judgment upon the award rendered
by
the arbiter may be entered in any court having jurisdiction thereof.
Section 19. Presumption. This Agreement or any section thereof shall not
be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
Section 20. Further Action. The parties hereto shall execute and deliver
all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
Section 21. Parties in Interest. Nothing herein shall be construed to be
to the benefit of any third party, nor is it intended that any provision
shall be for the benefit of any third party.
Section 22. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Section 23. Separate Counsel. The parties acknowledge that the Corpora-
tion has been represented in this transaction by the J. Bruce Miller Law
Group, that the Employee has not been represented in this transaction by the
Corporation's attorneys, and the Employee has been advised that it is impor-
tant for the Employee to seek separate legal advise and representation in
this matter.
Date: Perennial Development Corporation, Inc.,
a Colorado Corporation
By:/s/ Robert J. Babine
Authorized Director
/s/ David V. Hall
David V. Hall, Individually
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered into as of this
date
by and between In-House Rehab, Inc., a Kentucky corporation ("Corporation"),
and
Robert J. Babine ("Employee").
WHEREAS, Corporation and Employee desire that the term of this Agreement begin
on February 1, 1996 ("Effective Date").
WHEREAS, Corporation desires to employ Employee as Vice President & Chief
Financial Officer, and Employee is willing to accept such employment by
Corporation, on the terms and subject to the conditions set forth in this
Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Duties. During the term of this Agreement, Employee agrees to
be
employed by and to serve Corporation as Chief Financial Officer and Vice
President, and Corporation agrees to employ and retain Employee in such
capacities. Employee shall devote a substantial portion of his business time,
energy, and skill to the affairs of the Corporation as Employee shall report
to
the Corporation's President, and at all times during the term of this
Agreement
shall have powers and duties at least commensurate with his position as Vice
President and Chief Financial Officer, as such duties are outlined in Appendix
A hereto.
Section 2. Term of Employment.
2.1 Definitions. For the purposes of this Agreement the following terms
shall have the following meanings:
2.1.1 "Termination For Cause" shall mean termination by Corporation
of
Employee's employment by Corporation by reason of Employee's willful
dishonesty
towards, fraud upon, or deliberate injury or attempted injury to, Corporation
or
by reason of Employee's willful material breach of this Agreement which has
resulted in material injury to Corporation, or continuance of failure by the
Employee to perform his duties in compliance with this Agreement after written
notice to the Employee by the Board of Directors specifying such failure,
provided that such "cause" shall have been found by a majority vote of the
members of the Board of Directors of the Corporation other than Employee.
2.1.2 "Termination Other Than For Cause" shall mean termination by
Corporation of Employee's employment by Corporation (other than in a
Termination
for Cause) and shall include constructive termination of Employee's employment
by reason of material breach of this Agreement by Corporation, such
constructive
termination to be effective upon notice from Employee to Corporation of such
constructive termination.
2.1.3 Voluntary Termination" shall mean termination by Employee of
Employee's employment by Corporation other than (i) constrictive termination
as
described in subsection 2.1(b), (ii) "Termination Upon a Change in Control,"
and
(iii) termination by reason of Employee's death or disability as described in
Sections 2.5 and 2.6.
2.1.4 "Termination Upon a Change in Control" shall mean a
termination
by Employee of Employee's employment with Corporation within 120 days
following
a "Change in Control."
2.1.5 "Change in Control" shall mean (i) the time that Corporation
first determines that any person and all other persons who constitute a group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
("Exchange Act")) have acquired direct or indirect beneficial ownership
(within
the meaning of Rule 13d-3 under the Exchange Act) of twenty percent (20%) or
more of Corporation's outstanding securities, unless a majority of the "Con-
tinuing Directors" approves the acquisition not later than ten (10) business
days after Corporation makes that determination, or (ii) the first day on
which a majority of the members of the Corporation's Board of Directors are
not "Continuing Directors."
2.1.6 "Continuing Directors" shall mean, as of any date of
determina-
tion, any member of the Board of Directors of Corporation who (i) was a member
of that Board of Directors as of the date hereof, (ii) has been a member of
that
Board of Directors for the two years immediately preceding such date of
determination, or (iii) was nominated for election or elected to the Board of
Directors with the affirmative vote of the greater of a majority of the
Continuing Directors who were members of the Board at the time of such nomina-
tion or election or at least three Continuing Directors.
2.2 Initial Term. The term of employment of Employee by Corporation
shall
be for a period of three (3) years beginning with Effective Date ("Initial
Term"), unless terminated earlier pursuant to this Section. At any time prior
to the expiration of the Initial Term, Corporation and Employee may by mutual
written agreement extend Employee's employment under the terms of this
Agreement
for such additional periods as they may agree.
2.3 Termination For Cause. Termination For Cause may be effected by
Corporation at any time during the term of this Agreement and shall be
effected
by written notification to Employee. Upon Termination For Cause, Employee
shall
promptly be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension play or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any bene-
fits under any plans of the Corporation in which Employee is a participant to
the full extent of Employee's rights under such plans, accrued vacation pay
and any appropriate business expenses incurred by Employee in connection with
his duties hereunder, all to the date of termination, but Employee shall not
be paid any other compensation or reimbursement of any kind, including with-
out limitation, severance compensation.
2.4 Termination Other Than For Cause. Notwithstanding anything else in
this Agreement, Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to Employee of such termination. Upon
any Termination Other Than For Cause, Employee shall promptly be paid all
accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than pension plan or profit sharing plan benefits which
will be paid in accordance with the applicable plan), any benefits under any
plans of the Corporation in which Employee is a participant to the full ex-
tent of Employee's rights under such plans (including accelerated vesting, if
any, of awards granted to Employee under the Corporation's stock option
plan), accrued vacation pay and any appropriate business expenses incurred by
Employee in connection with his duties hereunder, all to the date of termina-
tion, and all severance compensation provided in Section 4.2, but no other
compensation or reimbursement of any kind.
2.5 Termination by Reason of Disability. If, during the term of this
Agreement, Employee, in the reasonable judgment of the Board of Directors of
Corporation, has failed to perform his duties under this Agreement on account
of
illness or physical or mental incapacity, and such illness or incapacity
continues for a period of more than twelve (12) consecutive months,
Corporation
shall have the right to terminate Employee's employment hereunder by written
notification to Employee and payment to Employee of all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which Employee is a participant to the full extent of Employee's rights under
such plans, accrued vacation pay and any appropriate business expenses
incurred
by Employee in connection with his duties hereunder, all to the date of
termination, with the exception of medical and dental benefits which shall
continue through the expiration of this Agreement, but Employee shall not be
paid any other compensation or reimbursement of any kind, including without
limitation, severance compensation.
2.6 Death. In the event of Employee's death during the term of this
Agreement, Employee's employment shall be deemed to have terminated as of the
last day of the month during which his death occurs and Corporation shall
promptly pay to his estate or such beneficiaries as Employee may from time to
time designate all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which Employee is a particip-
ant to the full extent of Employee's rights under such plans, accrued vaca-
tion pay and any appropriate business expenses incurred by Employee in con-
nection with his duties hereunder, all to the date of termination. The Em-
ployee's estate shall not be paid any other compensation, including without
limitation, severance compensation.
2.7 Voluntary Termination. In the event of a Voluntary Termination,
Corporation shall promptly pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than pension plan or profit
sharing plan benefits which will be paid in accordance with the applicable
plan), any benefits under any plans of the Corporation in which Employee is a
participant to the full extent of Employee's rights under such plans, accrued
vacation pay and any appropriate business expenses incurred by Employee in
connection with his duties hereunder, all to the date of termination, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
2.8 Termination Upon a Change in Control. In the event of a Termination
Upon a Change in Control, Employee shall immediately be paid all accrued
salary,
bonus compensation to the extent earned, vested deferred compensation (other
than pension plan or profit sharing plan benefits which will be paid in ac-
cordance with the applicable plan), any benefits under any plans of the Cor-
poration in which Employee is a participant to the full extent of Employee's
rights under such plans (including accelerated vesting, if any, of any awards
granted to Employee under Corporation's Stock Option Plan), accrued vacation
pay and any appropriate business expenses incurred by Employee in connection
with his duties hereunder, all to the date of termination, and all severance
compensation provided in Section 4.1, but no other compensation or reimburse-
ment of any kind.
2.9 Notice of Termination. Corporation may effect a termination of this
Agreement pursuant to the provisions of this Section upon giving thirty (30)
days' written notice to Employee of such termination. Employee may effect a
termination of this Agreement pursuant to the provisions of this Section upon
giving thirty (30) days' written notice to Corporation of such termination.
Section 3. Salary, Benefits and Bonus Compensation.
3.1 Base Salary. As payment for the services to be rendered by Employee
as
provided in Section 1 and subject to the terms and conditions of Section 2,
Corporation agrees to pay to Employee a "Base Salary" for the twelve (12)
calendar months beginning the Effective Date at the rate of $100,000.00 per
annum payable in twenty-six equal, bi-weekly installments of $3846.15. Em-
ployee's Base Salary shall be reviewed annually by the Compensation Commit-
tee of the Board of Directors ("Compensation Committee"), and the Base Salary
for each year (or portion thereof) beginning January 1, 1997 shall be deter-
mined by the Compensation Committee which shall authorize an increase in Em-
ployee's Base Salary for such year in an amount which, at a minimum, shall be
equal to the cumulative cost-of-living increment on the Base Salary as report
in the "Consumer Price Index, Seattle, Washington, All Items," published by
the U.S. Department of Labor (using January 1, 1996 as the base date for com-
putation).
3.2 Bonuses. Employee shall be eligible to receive a discretionary bonus for
each year (or portion thereof) during the term of this Agreement and any
extensions thereof, with the actual amount of any such bonus to be determined
in
the sole discretion of the Board of Directors based upon its evaluation of
Employee's performance during such year. All such bonuses shall be reviewed
annually by the Compensation Committee.
3.3 Additional Benefits. During the term of this Agreement, Employee
shall
be entitled to the following fringe benefits:
3.3.1 Employee Benefits. Employee shall be eligible to participate
in
such of Corporation's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers of
the Corporation, including, without limitation, Corporation's Stock Option
Plan,
profit sharing plans, annual physical examinations, dental and medical plans,
personal catastrophe and disability insurance, financial planning, retirement
plans and supplementary executive retirement plans, if any. For purposes of
establishing the length of service under any benefit plans or programs of
Corporation, Employee's employment with the Corporation will be deemed to have
commenced on September 30, 1994.
3.3.2 Vacation. Employee shall be entitled to two (2) weeks of
vacation during each year during the term of this Agreement and any extensions
thereof, prorated for partial years.
3.3.3 Life Insurance. For the term of this Agreement and any
extensions thereof, Corporation shall at its expense procure and keep in
effect
term life insurance on the life of Employee payable to the Estate of the
Employee the minimum aggregate amount of Five Hundred Thousand ($500,000.00)
dollars.
3.3.4 Automobile Allowance. For the term of this agreement and any
extensions thereof the corporation shall provide officer with an automobile.
The maximum cost to the Corporation will be $6,000.00 per year.
3.3.5 Reimbursement for Expenses. During the term of this
Agreement,
Corporation shall reimburse Employee for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by Employee in
connection with his duties under this Agreement.
Section 4. Severance Compensation.
4.1 Severance Compensation in the Event of a Termination Upon a Change in
Control. In the event Employee's employment is terminated in a Termination
Upon
a Change in Control, Employee shall be paid as severance compensation his Base
Salary (at the rate payable at the time of such termination), for the greater
of
the remaining portion of the Initial Term or twelve (12) months from the date
of
such termination provided, however, that if Employee is employed by a new
employer during such period, the severance compensation payable to Employee
during such period will be reduced by the amount of compensation that Employee
actually receives from the new employer. However, Employee is under no
obligation to mitigate the amount owed Employee pursuant to this Section by
seeking other employment or otherwise. Notwithstanding anything in this
Section
to the contrary, Employee may in Employee's sole discretion, by delivery of a
notice to Corporation within thirty (30) days following a Termination Upon a
Change in Control, elect to receive from Compensation a lump sum severance
payment by bank cashier's check equal to the present value of the flow of cash
payments that would otherwise be paid to Employee pursuant to this Section.
Employee shall also be entitled to an accelerated vesting of any awards
granted
to Employee under the Corporation's Stock Option Plan to the extent provided
in
the stock option agreement entered into at the time of grant. Employee shall
continue to accrue retirement benefits and shall continue to enjoy any
benefits
under any plans of the Corporation in which Employee is a participant to the
full extent of Employee's rights under such plans, including any perquisites
provided under this Agreement, though the remaining term of this Agreement;
provided, however, that the benefits under any such plans of the Corporation
in which Employee is a participant, including any such perquisites, shall
cease upon re-employment by a new employer.
4.1.1 Purchase of Shares Held by Employee and Insurance Coverage.
In
the event Employee's employment is terminated in a Termination Upon a Change
in
Control, the Corporation will also, be required to, at the sole option of the
Employee, redeem a minimum of fifty percent (50%) of the Corporation stock, or
any stock dividends thereof, owned by the Employee as of the Effective Date,
that are owned by the employee at the date of severance. The price to be
paid will be the market determined value at the close of business at the
date of severance. If a public market has not been created, or is not in
existence at the time of severance, then the price to be paid shall be the
most recent share price obtained in any private offering of the Corporation
shares of common stock. In the event Employee's employment is terminated in
a Termination Upon a Change in Control, the Corporation will also provide
family medical insurance consistent with coverages extended to other employ-
ees until the Employee reaches the age of sixty five (65). The requirement
that the Corporation purchase family medical insurance shall be excused
during any period of subsequent employment where the new employer provides
equal or better coverage.
4.2 Severance Compensation in the Event of a Termination Other Than for
Cause. In the event Employee's employment is terminated in a Termination
Other
Than for Cause, Employee shall be paid as severance compensation his Base
Salary
(at the rate payable at the time of such termination), for a period of the
greater of the remaining portion of the Initial Term or twelve (12) months
from
the date of such termination, on the dates specified in Section 3.1; provided,
however, that if Employee is employed by a new employer during such period,
the
severance compensation payable to Employee during such period will be reduced
by
the amount of compensation that Employee is receiving from the new employer,
officer is under no obligation to mitigate the amount owed to the officer
pursuant to this Section by seeking employment or other Employee shall be
entitled to an accelerated vesting of any awards granted to Employee under
Corporation's Stock Option Plan to the extent provided in the stock option
agreement entered into at the time of grant.
4.2.1 Purchase of Shares Held by Employee and Insurance Coverage. In
the event Employee's employment is terminated in a Termination Other Than for
Cause, the Corporation will also be required, at the sole option of the
Employ-
ee, to redeem a minimum of fifty percent (50%) of the Corporation stock, or
any stock dividends thereof, owned by the Employee as of the Effective Date,
that are owned by the employee at the date of severance. The price to be
paid will be the market determined value at the close of business at the
date of severance. If a public market has not been created, or is not in
existence at the time of severance, then the price to be paid shall be the
most recent share price obtained in any private offering of the Corporation
shares of common stock. In the event Employee's employment is terminated in
a Termination Other Than for Cause, the Corporation will also provide family
medical insurance consistent with coverages extended to other employees until
the Employee reaches the age of sixty five (65). The requirement that the
Corporation purchase family medical insurance shall be excused during any
period of subsequent employment where the new employer provides equal or
better coverage.
4.3 No Severance Compensation Upon Other Termination. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of
Employee's
disability pursuant to Section 2.6, Employee or his estate shall not be paid
any
severance compensation.
Section 5. Outside Activities of Employee. Corporation acknowledges that
Employee has commitments and business activities not related to the
Corporation
and that certain of these commitments and business affairs involve activities
in
the long term care industry. There shall be no restriction on Employee's
ability
to fulfill such commitments or engage in such business activities, provided
that
during the term of Employee's employment under this Agreement or for a period
of
six months after the termination of such employment (other than a Termination
Other Than For Cause or a Termination Upon Change in Control) Employee shall
not
divert away from the Corporation, for officers personal benefit, or for the
benefit of an organization in which officer has a material financial interest,
any opportunity, arising during such period to pursue such opportunities
personally unless the Board of Directors of the corporation have determined
not
to pursue such opportunity.
Section 6. Payment Obligations. Corporation's obligation to pay Employee
the
compensation and to make the arrangements provided herein shall be
unconditional,
and Employee shall have no obligation whatsoever to mitigate damages
hereunder.
If litigation after a Change in Control shall be brought to enforce or
interpret
any provision contained herein, Corporation, to the extent permitted by
applicable law and the Corporations' Articles of Incorporation and Bylaws,
hereby
indemnifies Employee for Employee's reasonable attorneys' fees and
disbursements
incurred in such litigation.
Section 7. Confidentiality. Employee agrees that all confidential and
proprietary information relating to the business of Corporation shall be kept
and
treated as confidential both during and after the term of this Agreement,
except
as may be permitted in writing by Corporation's Board of Directors or as such
information is within the public domain or comes within the public domain
without
any breach of this Agreement.
Section 8. Withholdings. All compensation and benefits to Employee
hereunder
shall be reduced by all federal, state, local and other withholdings and
similar
taxes and payments required by applicable law.
Section 9. Indemnification. In addition to any rights to indemnification
to
which Employee is entitled to under the Corporation's Articles of
Incorporation
and Bylaws, Corporation shall indemnify Employee at all times during and after
the term of this Agreement to the maximum extent permitted under Washington
Business Corporation Act or any successor provision thereof and any other
applicable state law, and shall pay Employee's expenses in defending any civil
or criminal action, suit, or proceeding in advance of the final disposition of
such action, suit or proceeding, to the maximum extent permitted under such
applicable state laws.
Section 10. Notices. Any notices permitted or required under this Agreement
shall be deemed given upon the date of personal delivery or forty-eight (48)
hours after deposit in the United States mail, postage fully prepaid, return
receipt requested, addressed to the Corporation at:
9505 Williamsburg Plaza
Louisville, Ky. 40222
addressed to the Employee at:
14201 Willow Grove Circle
Louisville, Ky. 40245
or at any other address as any party may, from time to time, designate by
notice
given in compliance with this Section.
Section 11. Law Governing. This Agreement shall be governed by and
construed
in accordance with the laws of the Commonwealth of Kentucky.
Section 12. Titles and Captions. All section titles or captions contained
in
this Agreement are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Agreement.
Section 13. Entire Agreement. This Agreement contains the entire
understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
Section 14. Agreement Binding. This Agreement shall be binding upon the
heirs,
executors, administrators, successors and assigns of the parties hereto.
Section 15. Attorney Fees. In the event an arbitration, suit or action is
brought by any party under this Agreement to enforce any of its terms, or in
any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
Section 16. Computation of Time. In computing any period of time pursuant
to
this Agreement, the day of the act, event or default from which the designated
period of time begins to run shall be included, unless it is a Saturday,
Sunday,
or a legal holiday, in which event the period shall begin to run on the next
day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
Section 17. Pronouns and Plurals. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or
plural
as the identity of the person or persons may require.
Section 18. Arbitration. If at any time during the term of this Agreement
any
dispute, difference, or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof, every such dispute,
difference, and disagreement shall be referred to a single arbiter agreed upon
by the parties, or if no single arbiter can be agreed upon, an arbiter or
arbiters shall be selected in accordance with the rules of the American
Arbitration Association and such dispute, difference, or disagreement shall be
settled by arbitration in accordance with the then prevailing commercial rules
of the American Arbitration Association, and judgment upon the award rendered
by
the arbiter may be entered in any court having jurisdiction thereof.
Section 19. Presumption. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
Section 20. Further Action. The parties hereto shall execute and deliver
all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
Section 21. Parties in Interest. Nothing herein shall be construed to be to
the benefit of any third party, nor is it intended that any provision shall be
for the benefit of any third party.
Section 22. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Section 23. Separate Counsel. The parties acknowledge that the Corporation
has
been represented in this transaction by the J. Bruce Miller Law Group, that
the
Employee has not been represented in this transaction by the Corporation's
attorneys, and the Employee has been advised that it is important for the
Employee to seek separate legal advise and representation in this matter.
Date: In-House Rehab, Inc.
a Kentucky Corporation
By:/s/ David Hall
David Hall, President
/s/ Robert J. Babine
Robert J. Babine, Individually
L E A S E
WATERFRONT PLAZA
THIS LEASE entered into on November 8, 1996, by and between
HOME SUPPLY COMPANY, a Kentucky Corporation
3720 South 7th Street Road
Louisville, Kentucky 40216
(hereinafter "LANDLORD")
and
PERENNIAL DEVELOPMENT CORPORATION and
IN HOUSE REHAB, INC., a Kentucky corporation
(its wholly owned subsidiary)
14th Floor, Center Tower Waterfront Plaza
325 W. Main Street
Louisville, Kentucky 40202
(hereinafter "TENANT")
WITNESSETH:
WHEREAS, the Tenant desires to lease from Landlord and the Landlord desires to
lease to Tenant the hereinafter described premises comprising a part of the
office building known as Waterfront Plaza Building, (the "Building"),325 West
Main Street, Louisville, Jefferson County, Kentucky, under the terms and
conditions hereinafter set forth.
1. GRANT, PREMISES AND TERM
1.1 Grant and Premises
Landlord leases to Tenant and Tenant leases from landlord upon the terms and
conditions set forth herein the described space to be known as 14th Floor,
Center
Tower (the "Premises"), Waterfront Plaza Building, 325 West Main Street,
Louisville, Kentucky consisting of 7,375 sq. ft.
1.2 Additional Areas
In addition to the Premises, Tenant shall have the non-exclusive use, during
the
term of this Lease, of the common facilities designated from time to time by
Landlord, subject to the Rules and Regulations attached as Exhibit "A" and to
such other rules and regulations as Landlord may from time to time require or
impose on all tenants, including the following common facilities: sidewalks;
driveways; lobby; elevators; mail room; parking facilities and any and all
finished or improved areas outside the Premises (present or future). Landlord
reserves the right to make changes or revisions in the site, including,
without
limitation, any designated parking spaces, sidewalks, driveways, parking
facilities, malls and finished or improved areas. Landlord further reserves
the
right to change the size, location, nature and use of common facilities so
long
as it does not disturb Tenant's space, or materially diminish the character or
quality of the lobby. No change shall reduce the number of elevators
available
to the Tenant's facility. Landlord may at any time close temporarily any
common
areas to make repairs or changes therein or to the effect construction,
repairs
or changes within the Premises to prevent the acquisition of public rights in
such areas and to discourage non-customer parking, and may do such other acts
in
and to the common areas as in its judgment may be desirable to improve the
convenience thereof.
1.3 Roof and Walls
Landlord shall have the exclusive right to use all or any part of the roof,
front, side and rear exterior walls of the Building for any purpose,
including,
but not limited to, erecting signs or other structures on or over all or any
part
of the same, erecting scaffolds and other aids to the construction and
installation of the same, and installing, maintaining, using, repairing and
replacing of pipes, ducts, conduits and wires leading through, to or from the
Building and serving other parts of the Premises in locations which do not
materially Interfere with Tenant's use of the Building. Tenant shall have no
right whatsoever in the exterior or exterior walls or the roof of the
Building.
1.4 Term
The term of this Lease ("Lease Term") shall be for a period of five (5) years,
beginning on February 1, 1997 and ending on January 31, 2002. If the Premises
is
not ready for occupancy by February 1, then the term of the Lease shall begin
the
first day of the month following the month in which possession is given to the
Tenant and run for the full term (five years) of the Lease from that date.
2. RENT
2.1 Base Rent
Tenant shall pay to Landlord without notice or demand and without set off or
deduction for any reason at Landlords office at 3720 South 7th Street Road,
Louisville, Kentucky 40216, or at such other location as Landlord shall direct
in writing to Tenant the base rent and any additional rent. The rent for the
premises is a total sum of FOUR HUNDRED TWENTY FOUR THOUSAND SIXTY TWO AND
50/100
($424,062.50) DOLLARS and is payable as follows:
(a) EIGHTY FOUR THOUSAND EIGHT HUNDRED TWELVE AND 50/100 ($84,812.50) DOLLARS
per
year, payable in monthly installments of SEVEN THOUSAND SIXTY SEVEN AND 71/100
($7,067.71) DOLLARS per month. The first month's rent shall be due and payable
on February 1, 1997.
2.2 Early/Late Possession
If Tenant shall take possession prior to February 1, 1997, Tenant shall pay
the
rent for that portion of the month which Tenant occupies the Premises before
the.
effective date. If Tenant takes possession before February 1, such shall not
lengthen the term of the Lease. If Tenant takes possession after February 1,
the
Lease shall run for a period of five (5) years beginning with the first day of
the month following the taking of possession.
2.3 Late Payment Charge
A late payment charge of ten (10%) percent of monthly rental shall be due and
payable with rent received after the tenth Clothe calendar day of the month.
3. USE AND OCCUPANCY
3.1 Use
The Premises are to be used solely for the purpose of maintaining an office
for
use in connection with Tenant's business including its use as a conference and
meeting center and for no other business or purpose without the prior written
consent of Landlord. Tenant shall not do or permit to be done in or about the
Premises anything which is illegal or unlawful; or which is of a hazardous or
dangerous nature, or which is noxious or offensive to other tenants in the
Premises or to Landlord, or which will increase the rates of insurance carried
by Landlord. Tenant shall not use any portion of the Premises for providing
of
any medical or rehabilitation services or related similar services and the
Premises shall be used solely as a business office. Tenant shall obtain all
permits, licenses, certificates or other authorization and any renewals,
extensions or continuances of the same required in connection with the lawful
and
proper use of the Premises except for a Certificate of Occupancy and shall pay
when due all taxes upon its merchandise, stock, fixtures and equipment in the
Premises. Neither a failure on the part of Tenant to procure such permit,
license, certificate or other authorization, nor the revocation of the same,
shall in any way affect the liability of Tenant for payment of rent herein
reserved or the performance or observance of any of the covenants or
conditions
herein contained on Tenant's part to be performed and observed. Tenant shall
(and
shall cause its employees to) observe the Rules and Regulations attached as
Exhibit "A" or such other rules and regulations applicable to the Premises as
may
be imposed by Landlord from time to time on a nondiscriminatory basis to all
Tenants and Tenant shall comply with all governmental laws; and ordinances and
all regulations applicable to the use and occupancy of the Premises, except
that
Tenant shall not be required to install or pay for any improvement to the
leased
Premises that is required of the Building as a whole. Without limiting the
generality of the foregoing, Tenant shall not display anything outside of the
Premises nor operate any loud speakers without the specific written consent of
Landlord.
3.2 Occupancy - Improvements to Premises and Tenant's Taxes
(a) The Landlord and Tenant have agreed upon the necessary finish work to be
made
to the Premises to make them useable in accordance with Tenant's preferences.
The
improvements that are to be made to the Premises are reflected off the
attached
Exhibit B, initialed by the parties and dated coincident with the execution of
this Lease. The Landlord shall provide a sprinkler system to the Premises as a
part of the improvements to be made. The Landlord and Tenant have also agreed
upon the extent to which the Landlord will install such improvements at its
sole
expense and those where Landlord will install improvements at Tenant's expense
and the amount that Tenant is to pay therefore. Such agreement is attached
hereto
as Exhibit C. Said amounts shall be due coincident with the commencement of
the
lease term and shall be due and payable. The failure to timely pay the same
shall
be a breach of the terms of this Lease. (See Exhibits B and C attached.)
(b) Tenant shall pay before delinquency any and all taxes and assessments and
licenses, sales, business, occupational or other taxes, fees or charges
levied,
assessed or impose upon its business operations, upon its trade fixtures,
merchandise and other personal property in, on or upon the Premises.
(c) In the event any taxes, fees or charges referred to in the preceding
subparagraph (b) shall be assessed, levied on or imposed upon or with the
business or property of Landlord, such assessment, fees or charges shall be
paid
by Tenant to Landlord promptly upon Landlord's request for such payment.
(d) The Landlord agrees to complete the common areas on the 14th floor in
accordance with its standard finish.
4. REPAIRS
(a) Landlord shall keep or cause to be kept in as good repair as same are in
when possession hereunder is given to Tenant (subject to certain completion
responsibilities set forth elsewhere in this lease); the foundations, the roof
and the structural soundness of the Building, the plumbing, heating and air
conditioning and all the improvements made to the Premises by the Landlord for
the purposes of the Tenant's utilization provided that Tenant shall be
responsible for any damage done to any of said improvement by its personnel or
invitees, employees and agents and Tenant shall be liable for damage to any of
the common areas caused by the negligence or deliberate acts of the Tenant,
its
employees, agents or invitees. The Landlord shall keep the Building and its
common areas of the Building in a good state of repair.
{b) The Landlord shall not be liable for the interior of the Premises or to
make
any repairs or to perform any maintenance unless such failure shall persist
for
an unreasonable time after written notice or the need for such repairs or
maintenance is given to the Landlord by Tenant. Landlord shall, as promptly as
circumstances permit, proceed and diligently proceed to repair any or correct
any
maintenance failure. Except as otherwise provided for herein there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference of Tenant's business arising from the making of repairs,
alterations, or improvements in or to any portion of the Building or the
Premises
therein. Landlord shall perform such repairs in a manner so as to create the
least amount of interference with Tenant's business.
5. SERVICE
(a) So long as Tenant is not in default hereunder Landlord agrees to supply,
at
its expense during the hours of 7:00 a.m. to 5:00 p.m. on all days during the
term hereof except Saturdays, Sundays and holidays, city water to establish
outlets for drinking, lavatory and toilet purposes, lighting, heat and air
conditioning in the common areas of Tenant's floor and adequate lighting for
entering and exiting the Premises. Holidays shall be defined as major holidays
recognized by a majority of businesses operating in Jefferson County as days
on
which they do not operate. These shall include New Years Eve, New Years Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Eve and
Christmas Day. Landlord shall have the right to establish other dates as
holidays
but any such addition of dates shall apply to all Tenants within the Building.
Landlord agrees to provide ordinary cleaning services for the Premises
including
all common areas and maintenance of the passenger elevators for Tenants during
all such days that the Building is open as provided for herein.
(b} Tenant shall be guaranteed during the term hereof five (5) parking spaces
in
the adjacent garage maintained by the Landlord at the current monthly charge
of
$40.00 per month per parking space, and five (5) additional parking spaces on
a
month to-month basis with a 30 day cancellation clause. Landlord shall have
the
right to adjust the rate for all parking from time to time provided such
adjustments apply to other tenants in the garage adjacent to the Premises.
(c) Heating and air conditioning in appropriate seasons during all such
business
days, excluding holidays, Saturdays and Sundays.
(d) Tenant shall reimburse Landlord for all electrical consumed on the
Premises
except that needed for heating and air conditioning. Tenant shall reimburse
Landlord at the rate of $.095 per kilowatt hour and such reimbursement shall
be
due within and as a part of the rent and the failure to pay the same shall be
a
default herein.
(e) Landlord shall provide replacement during the first lease year only bulbs
and ballasts in the lighting system. Thereafter, the same shall be replaced
at
the sole cost or expense of the Tenant.
(f) The Landlord shall be the judge (but shall always be required to provide
services of a character comparable to those provided during the initial term
of
the lease) as to the character or amount of such services and shall not be
liable
in damages or by way of abatement of rent for the stoppage, delay or
interruption
of any of the aforesaid services in whole or in part by the act or default by
the
Tenant or any other parties, repairs, renewals or improvements or by any
strike,
labor unrest, accident, casualty acts of God or any other cause beyond the
reasonable control of the Landlord including the inability to provide any
utility
or any other service.
5.1 Quiet Enjoyment
If and so long as Tenant pays the prescribed rent and performs and observes
all
of the terms, conditions, covenants and obligations of this Cease required to
be
performed or observed by it hereunder, Tenant shall at all times during the
term
hereof, have the peaceful and quiet enjoyment, possession, occupancy and use
of
the Premises without any interference from Landlord or any person or persons
claiming the Premises by, through or under Landlord, subject to any mortgages,
underlying leases or other matters of record to which this Lease is or may
become
subject.
6. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord, its agents and employees shall have the following rights,
exercisable
after reasonable notice and without liability to Tenant for damage or injury
to
property, person or business and without effecting an eviction, constructive
or
actual, or disturbance of Tenant's use or possession or giving rise to any
claim
for set-off or abatement of rent:
(a) To, after reasonable notice to Tenant, change the Building's name or
street
address; and to install, affix and maintain any and all signs on the exterior
and/or interior of the Building;
(b) To designate and/or approve all types of window shades, blinds, drapes,
awnings, window ventilators and other similar equipment, and to control all
internal lighting that would effect or deteriorate from either the comfort and
use by other tenants or which would detract from the overall exterior
appearance
of the Building;
{c) To grant to anyone or to reserve to Landlord the exclusive right to
designate, limit, restrict and/or control the business and any service in or
to
the Building and its tenants, provided such exclusive right shall not operate
to
exclude Tenant from the use expressly permitted herein;
(d) To show the Premises to prospective Tenants at reasonable hours during the
last six (6) months of the term and, if vacated during the Term, to prepare
the
Premises for re-occupancy;
(e) To retain at all times, and to use in permitted circumstances for entry,
keys
to all doors within and into the Premises;
(f) To decorate or to make repairs , alterations , additions or improvements,
whether structural or otherwise, in and about the Building or the Premises, or
any part thereof, and for such purposes to enter upon the Premises, and during
the continuance of any of said work, temporarily to close doors, entryways,
public space and corridors and to interrupt or suspend temporarily services
and
facilities, all without abatement of rent or affecting any of Tenant's
obligations hereunder, so long as the Premises are reasonably accessible and
usable;
(g) To have and retain a paramount title to the Premises free and clear of
any
act of Tenant purporting to burden or encumber it;
(h) To approve the weight, size and location of safes and other heavy
equipment
and articles in and about the Premises and the Building (so as not to exceed
the
legal live load), and to require all such items and furniture and similar
items
to be moved into and/or out of the Building or the Premises only at such times
and in such manner as Landlord shall direct in writing. Movements of Tenant's
property into, within, or out of the Building are entirely at the risk and
responsibility of Tenant, and Landlord reserves the right to require permits
before allowing any such property to be moved into or out of the Building.
(i) To prohibit the placing of vending or dispensing machines of any kind in
or
about the Premises without the prior written permission of Landlord which will
not be unreasonably withheld and provided said vending or dispensing machines
are
used for their employees only and do not otherwise create an inconvenience to
other tenants; and
(j) To close the Building after regular working hours and on Saturdays,
Sundays
and legal holidays, subject, however, to Tenant's and its business invitees'
rights to admittance, under such regulations as Landlord may prescribe from
time
to time, which may include by way of example but not of limitation, that
persons
entering or leaving the Building identify themselves and that said persons
established their right to enter or leave the Building.
(k) The Landlord may at any time restrict usage of any adjacent parking
facilities to the number of spaces which it As required to provide to the
Tenant
as set forth in Paragraph 5(b) hereof and otherwise limit parking by employees
and invitees of the Tenant, on Premises owned or controlled by the Landlord.
Landlord presently permits invitees and customers while conducting business
with
Tenant to utilize the parking facilities. Tenant reserves the right to impose
charges to said persons for the use of said parking facilities or otherwise
limit
usage.
Landlord, its agents and employees, may enter upon the Premises and may
exercise
any or all of the foregoing rights hereby reserved without being deemed guilty
of an eviction or disturbance of Tenant's use or possession and without being
liable in any manner to Tenant. Landlord agrees to give reasonable notice of
at
least two hours prior to inspection, except in the event of an emergency.
7. ALTERATIONS TO PREMISES, SIGNS
(a) Tenant shall not make any alterations, additions or improvements to the
Premises without first obtaining Landlord's prior written consent, which
consent
will not be unreasonably withheld. Further Tenant shall not place, direct,
maintain or paint any signs on the Premises except such signs as are in
accordance with plans which have been submitted to and approved in writing by
Landlord, which consent will not be unreasonably withheld. Landlord shall
provide
building standard signage on the lobby. Signage at Tenant's suite entrance
will
be provided by Tenant at its expense, subject to Landlord's approval. Landlord
may make any repairs, alterations or improvements which Landlord may deem
necessary for the preservation, safety or improvement of the Premises or the
Building, provided, however, that in so doing Landlord shall not unreasonably
interfere with Tenant's use and occupancy of the Premises. All alterations,
additions and improvements made by Tenant shall become the property of
Landlord
upon the making thereof and shall be surrendered to Landlord upon the
expiration
of this Lease. Any damage to the Premises in connection with the making of
alterations, additions and improvements by Tenant or in connection with the
placement, direction, maintenance painting or removal of any signs on the
Premises shall be paid by Tenant.
8. DAMAGE OR DESTRUCTION
(a) In the event the Premises are damaged or destroyed by fire, earthquake or
any other casualty to such an extent as to render the same untenantable in
whole
or in substantial part, Tenant shall give Landlord immediate notice of the
occurrence of any such casualty. Unless Landlord, within sixty (60) days after
receipt of such notice, notifies Tenant of its election to repair or to
restore
the Premises, this Lease shall terminate at the end of such sixty (60) day
period
and if Tenant shall not be in default under this Lease, then Tenant's
liability
for rent shall cease as of the day following the casualty and any rent paid by
Tenant in advance and not yet earned as of the date of termination shall be
refunded to Tenant. If Landlord elects to repair or restore the Premises, the
rent shall be abated during the period from the day following the casualty
until
completion of the repair or restoration in the same proportion as the
untenantable portion of the Premises bears to the former rentable area
thereof.
(b) In the event the Premises are damaged by fire, earthquake or any other
casualty to such an extent that the Premises shall be rendered untenantable in
part (but less than a substantial part), then Landlord shall promptly at its
own
expense repair and restore the Premises, provided, however, nothing herein
shall
obligate Landlord to repair or restore the Premises if the casualty occurs
within
twelve (12) months of the end of the Lease Term. The rent shall be abated
proportionately as to the portion of the Premises rendered untenantable from
the
day following the casualty until completion of the repair and restoration.
9. INDEMNITY AND TENANT INSURANCE
(a) Tenant shall indemnify and hold Landlord harmless from all loss, damage,
liability or expense resulting from any injury to or death of any person, or
any
loss of or damage to any property, caused by or resulting from any act or
omission of any officer, agent, employee, guest, invitee or visitor of Tenant
in
or about the Premises or the Building, but the foregoing provision shall not
be
construed to make Tenant responsible for injuries to third parties caused by
the
negligence of Landlord or any agent or employee of [andlord. Landlord shall
not
be liable for any injury to or the death of any person, or any loss of or
damage
to property, sustained by Tenant, or by any other person Is) whatsoever, which
may be caused by the Building or the Premises or any appurtenances thereto or
thereof being out of repair, or by the bursting or leakage of any water, gas
sewer or steam pipes, or by any act or negligence of any tenant or occupant of
the Building, or of any other person, or by any other cause of whatsoever
nature,
unless caused by the negligence of Landlord or its officers, agents or
employees.
(b) Tenant covenants and agrees that it will carry and maintain during the
Lease
Term, at Tenant's sole cost and expense, bodily injury liability insurance
within
limits of not less than one million ($1,000,000.00) dollars per person and one
million ($1,000,000.00) dollars per occurrence and property damage insurance
with
minimum 1 imits of not less than one million ($1,000,000.00) dollars insuring
against any and all liability of the insured with respect to the Premises
arising
out of all maintenance, use or occupancy thereof. Such bodily injury liability
insurance shall specifically insure the performance by Tenant of the indemnity
agreement as to liability for injury to or death of persons and loss of or
damage
to property contained in subparagraph (a) of this Lease, and shall name
Landlord
as additional insured.
(c) Certificates of such policies shall be delivered to Landlord within ten
(10)
days after delivery of possession of the Premises to Tenant and thereafter
within
thirty (30) days prior to the expiration of the term of each such policy.
Such
policies shall contain a provision that Landlord, although named as an
insured,
shall nevertheless be entitled to recovery thereunder for any loss occasioned
to
it, its servants, agents and employees by reason of the negligence of Tenant.
Renewal or additional policies shall be procured and maintained by Tenant in
like
manner and to like extent. All policies of insurance must contain a provision
that the insuring company will give to Landlord thirty (30) days notice in
writing in advance of any cancellation or lapse of the policies or of the
effective date of any reduction in the amounts of insurance.
{d) Tenant covenants and agrees that it will carry and maintain during the
Lease
Term, at Tenant's sole cost and expense, casualty insurance covering the
damage
by fire and the usual extended coverage clauses, including theft and vandalism
coverage insuring Tenant's fixtures and persona] property to the extent of the
full insurable value thereof. Certificates of such policies shall be delivered
to Landlord within ten (10) days after delivery of possession of the Premises
to
Tenant and thereafter within thirty (30) days prior to the expiration of the
term
of each such policy.
10. WAIVER OF SUBROGATION
Landlord and Tenant each releases and relieves the other and on behalf of its
insurers waives its entire right of recovery against the other for loss or
damage
arising out of or incident to the perils of fire, explosion or any other
perils
generally described in "extended coverage" insurance endorsements used in
Louisville, Kentucky, which occur in, on or about the Building and/or the
Premises, whether due to the negligence of such other party, its agents or
employees, or otherwise.
11. LIENS
Tenant will keep the Premises and/or the Building free and clear of all
mechanics' and materialmens' liens and other liens on account of work done for
or by Tenant or persons claiming under it. Should any such lien be filed
against
the Premises and/or the Building, Landlord may, without notice to Tenant,
elect
to obtain the release of such lien and any sums expended by Landlord shall be
immediately repaid to Landlord by Tenant together with interest at the rate of
eight (8%) percent per annum, unless Tenant shall within thirty (30) days
after
the filing thereof cause the same to be released.
12. ASSIGNMENT, SUBLETTING, MORTGAGING
Tenant shall not voluntarily, involuntarily or by operation of law assign,
transfer, mortgage or otherwise encumber all or any part thereof without first
obtaining in each and every instance Landlord prior written consent, which
consent shall not be unreasonably withheld, and any attempt to so assign,
transfer, mortgage, encumber or sublet without Landlord's written consent
shall
be null and void; and if any such assignment, transfer, mortgage or
encumbrance
is made with the written consent of the Landlord, Tenant shall nevertheless
remain liable to Landlord for payment of rent according to the terms here of
and
for due performance of all the terms, covenants and conditions of this Lease .
If Tenant is a corporation, then any transfer of this Lease by merger,
consolidation or liquidation or any change in the ownership of, or power to
vote
the majority of its outstanding voting stock, shall constitute an assignment
for
the purpose of this paragraph. If written consent is once given by Landlord
to
any such assignment or subletting, such consent shall not operate as a waiver
of
the necessity for obtaining Landlord's written consent to any subsequent
assignment or subletting. Landlord's consent to assignment or subletting
should
not be unreasonably withheld.
13. PRIORITY OF LEASE
This Lease shall be subordinate to any and all mortgages and other security
instruments now existing, or which may hereafter be made covering the Building
and/or the real property underlying the same or any portion or portions
thereof,
and for the full amount of all advances made thereunder (without regard to the
time or character of such advances) together with interest thereon and subject
to all the terms and provisions thereof and to any renewals, extension,
modifications and consolidations thereof; and Tenant covenants to make,
execute,
acknowledge and deliver upon request any and all documents or instruments
demanded by Landlord which are or may be necessary or proper for more fully
and
certainly assuring the subordination of this Lease to any such mortgages or
other
security instruments; provided, however, that any person or persons purchasing
or otherwise acquiring any interest at any sale and/or proceedings under such
mortgages or other security instruments shall continue this Lease in full
force
and effect in the same manner and with like effect as if such person or
persons
had been named Landlord herein, and in the event of such election, this Lease
shall continue in full force and effect as aforesaid and Tenant hereby attorns
and agrees to attorn to such person or persons. If required by any first
mortgagee, Tenant shall execute an agreement that this Lease will be superior
to
such first mortgage or if required by any first mortgagee, Tenant shall
execute
a separate subordination, attornment and nondisturbance agreement. Tenant
agrees
to promptly, within ten (10) days after request, execute and deliver any
document
provided for within this paragraph. So long as Tenant shall not be in default
under this Lease, its right of possession and enjoyment of the Premises shall
be
and remain undisturbed and unaffected and any subordination agreement executed
by Landlord shall contain language specifically so providing.
14. ESTOPPEL CERTIFICATE AND NON-RECORDING PROVISION
14.1 Tenant shall at any time and from time to time execute, acknowledge and
deliver to Landlord a statement in writing certifying:
(a) that this Lease is unmodified and in full force and effect (or if there
has
been any modification hereof that the same is in full force and effect as
modified and stating the nature of the modification or modifications).
{b) that to the best of its knowledge Landlord is not in default under this
Lease
(or if any such default exists the specific nature and extent thereof).
(c} the date to which rent and other charges have been paid in advance, if
any.
14.2 It is agreed between the parties that neither this Lease nor any
memorandum
thereof shall be recorded.
15. FIXTURES AND PERSONAL PROPERTY; SURRENDER
15.1 Fixtures
Upon the termination of this Lease, Tenant shall surrender to Landlord the
Premises (including, without limitation, all buildings, apparatus and
fixtures,
except trade fixtures and furniture, installed by Tenant, then upon the
Premises)
in good condition and repair, reasonable wear and tear and damage by casualty
not
caused by Tenant or its agents or employees excepted, and all alterations,
improvements, additions, machinery and equipment which may be made or
installed
from time to time by either party hereto, in, upon or about the Premises
(except
trade fixtures and furniture installed by Tenant) shall be the property of
Landlord and upon such termination, shall be surrendered to Landlord by Tenant
without any injury, damage or disturbance thereto or payment therefor.
15.2 Personal Property
Trade fixtures, furniture, partitions and other personal property installed or
placed in the Premises at the cost of the Tenant shall be the property of
Tenant
unless otherwise specified in this Lease and Tenant shall remove the same
prior
to the termination of this Lease e Tenant shall at its own cost and expense
completely repair any and all damage to the Premises resulting from or caused
by
such removal. If Tenant fails to remove all or any of such property, Landlord
may
at Landlord's option retain all or any of such property and title thereto
shall
thereupon vest in Landlord, or Landlord may remove from the Premises and
dispose
of in any manner all or any of such property, in which latter event Tenant
shall,
upon demand, pay to Landlord the actual expense of such removal and
disposition
and the cost of repair of any and all damage to the Premises resulting from or
caused by such removal.
16. INSOLVENCY, ETC.
In the event that Tenant becomes insolvent or files a voluntary petition in
bankruptcy or becomes involuntarily bankrupt, or if a receiver, assignee or
other
liquidating officer is appointed for the business of Tenant, then Landlord at
its
option may immediately cancel this Lease by notice to Tenant to that effect.
17. DEFAULT AND REMEDY
17.1 Default
If at any time Tenant shall fail to pay the sums due under this Lease for ten
(10) days after such payment is due or within three (3) business days after
notice of such default from Landlord to Tenant or fail to remedy any default
with
respect to any of the other provisions, covenants or conditions of this Lease
to
be kept or performed by Tenant within thirty (30) days after notice (or such
additional time as is reasonably required to cure such default), then Landlord
shall have all such rights and remedies as are provided by law in respect to
such
default, including, at Landlord's election, the right to terminate this Lease,
provided, however, that Tenant's obligation and liability to make good any
damages and deficiencies from any reletting shall survive such termination of
this Lease.
17.2 Remedy
Landlord shall in no event be in default in the performance of any of its
obligations in this Lease contained unless and until Landlord shall have
failed
to perform such obligation within thirty (30) days (or such additional time as
is reasonably required to correct any such default) after notice by Tenant to
Landlord properly specifying wherein Landlord has failed to perform any such
obligation.
18. NON-WAIVER OF DEFAULTS
No waiver of any default by Tenant hereunder shall be implied from any
omission
by Landlord to take any action on account of such default persists or is
repeated, and no express waiver shall affect any default other than the
default
specified in the express waiver, and that only for the time and to the extent
therein stated. The acceptance by Landlord of rent with knowledge of the
breach
of any of the covenants of this Lesae by Tenant shall not be deemed a waiver
of
any such breach. One or more waivers of any breach of any covenant, term or
condition of this Lease shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
Landlord to or of any act by Tenant requiring Landlord's consent or approval
shall not be deemed to waive or render unnecessary Landlord consent or
approval
to or of any subsequent similar acts by Tenant.
19. NON-PERFORMANCE BY TENANT
If Tenant shall default in the performance of any covenant on its part to be
performed by virtue of any provisions of this Lease, Landlord may, after any
notice and the expiration of any period with respect thereto as required
pursuant
to the applicable provisions of this Lease, perform the same for the account
of
Tenant. If Landlord, at any time, is compelled to pay or elects to pay any sum
of money or do any acts which would require the payment of any sum of money by
reason of the default of Tenant, or if Landlord is compelled to incur any
expense, including reasonable attorney's fees, in instituting, prosecuting, or
defending any action or proceeding instituted by reason of the default of
Tenant,
the sum or sums so paid by Landlord with interest at the rate of ten (10%)
percent per annum from the date paid until the date repaid by Tenant, plus
costs
and damages, shall be deemed to be additional rental hereunder and shall be
due
from Tenant to Landlord on the first day of the month following the incurring
of
such expenses. If Tenant is compelled to incur any expenses, including
reasonable
attorney's fees, in instituting, prosecuting or defending any action or
proceeding instituted by reason of the default of Landlord and if Tenant is
successful in such litigation, the sum or sums so paid by Tenant with interest
at the rate of ten (10%) percent per annum from the date paid until the date
repaid by Landlord, plus costs and damages, shall be due and payable from
Landlord to Tenant, pursuant to the provisions of this paragraph, shal1 in no
event be treated as an offset against the rent due due and payable under this
Lease.
20. HOLD OVER TENANCY
If, without the execution of a new lease or written extension and with the
consent of Landlord, Tenant shall hold over after the expiration of the Lease
Term of this Lease, Tenant shall be deemed to be occupying the Premises as a
tenant from month to month, which tenancy may be terminated as provided by
law.
During such tenancy, Tenant agrees to pay to Landlord the same rate of rental
as
set forth herein, unless a different rate is agreed upon, and to be bound by
all
of the terms, covenants and conditions as herein specified, as far as
applicable;
provided, however, that if Tenant fails to surrender the Premises upon the
termination of this Lease, in addition to ally other liabilities to Landlord
arising therefrom, Tenant shall indemnify and hold Landlord harmless from loss
or liability resulting from such failure, including any claims made by any
succeeding tenant founclet1 or such failure.
21. CONDEMNATION
If the whole or any part of the Premises shall be taken under the power of
eminent domains, then this Lease shall terminate as to the part taken on the
day
when Tenant is required to yield possession thereof, and Landlord, to the
extent
of the condemnation award, shall make such repairs and alterations as may be
necessary in order to restore the part not taken to useful condition. The
minimum
rental shall be reduced proportionately as to the part of the Premises taken,
the
reduction to be effective on the date that Tenant is required to yield
possession. If the amount of the Premises so taken is such as to impair
substantially the usefulness of the Premises for the purposes for which the
same
are hereby leased, then either party shall have the option to terminate this
Lease as fo the date when Tenant is required to yield possession. All
compensation awarded for such taking of the fee and the leasehold shall belong
to and be the property of Landlord; provided, however, that Landlord shall not
be entitled to any portion of the award made to Tenant for the cost of removal
Of stock and fixtures.
22. NOTICES
Whenever in this Lease it shall be required or permitted that notice,
approval,
advice, consent or demand be given or served by either party to this Lease to
or
on the other, such notice of demand shall not be deemed to have been duly
given
or served unless in writing and forwarded by certified or registered mail to
the
following addresses (or such other address as may be given by one party to the
other pursuant to this paragraph 22):
To Landlord:
Home Supply Company
Attention: President
3720 South 7th Street Road
Louisville, Kentucky 40216
To Tenant:
In House Rehab, Inc.
Attention: Robert J. Babine
14th Floor - Center Tower
Waterfront Plaza
325 West Main Street
Louisville, KY 40202
23. MISCELLANEOUS PROVISIONS
(a) The term "Landlord" as used in this Lease so far as covenants or
obligations
on the part of Landlord are concerned shall be limited to mean and include
only
the owner at the time in question of the Premises and in the event of any
transfer or transfers of the title to the Premises, Landlord herein named (and
in case of any subsequent transfer or conveyances, the then Landiord) shall be
automatically freed and relieved from an after the date of such transfer or
conveyance of all liabilities as respects the performance of any covenants or
obligation on the part of Landlord contained in this Lease thereafter to be
performed.
(b) The captions of the paragraphs in this Lease are for convenience only and
shall not be considered or referred to in resolving questions or
interpretations
or construction.
(c) The terms "Landlord" and "Tenant" wherever used herein shall be applicable
to one or more persons, as the case may be, and the singular shall include the
plural, and the neuter shall include the masculine and feminine, and if there
be
more than one, the obligations hereof shall be joint and several.
(d) Both the word "person" and the word "persons" wherever used in this Lease
shall include individuals, partnerships, firms, associations and corporations
or
any other form of business entity. In the event that two or more individuals,
corporations, partnerships or other business associations (or any combination
of
two or more thereof) shall sign this Lease agreement as Tenant, the 1iability
of
each such individual, corporation, partnership or other business association
to
pay rent and perform all other obligations hereunder shall be deemed to be
joint
and several. In like manner, in the event that Tenant named in this Lease
shall
be a partnershp or other business association the members of which are, by
virtue
of statute or general law, subject to personal liability, then in that event,
the
liability of each such member shall be deemed joint and several.
(e) The various rights, options, elections, powers and remedies contained in
this Lesae shall be construed as cumulative and no one of them shall be
exclusive
of any of the others, or of any other legal or equitable remedy which either
party might otherwise have in the event of breach of default in the terms
hereof,
and the exercise of one right or remedy by such party shall not impair its
right
or any other right or remedy until all obligations upon the other party have
been
fully performed.
(f) Time is of the essence with respect to the performance of each of the
covenants and agreements under this Lease.
(g) Each and all of the provisions of this Lease shall be binding upon and
inure
to the benefit of the parties hereto and, except as set forth in subparagraph
(a)
of this paragraph and as otherwise specifically provided elsewhere in this
Lease,
their respective heirs, executors, administrators, successors and assigns,
subject at all times, nevertheless, to all agreements and restrictions
contained
elsewhere in this Lease with respect to the assignment, transfer, encumbering
or
subletting of all or any part of Tenant's interest in this Lease.
(h) This Lease shall be interpreted in accordance with the law of the
Commonwealth of Kentucky.
(i) This Lease contains all covenants and agreements between Landlord and
Tenant
relating in any manner to the rental, use and occupancy of the Premises and
Tenant's licensed use of the Building and the other matters set forth in this
Lease. No prior agreement or understanding pertaining to the same shall be
valid
or of any force or effect, and the covenants and agreements of this Lease
cannot
be altered, changed, modified or added to except in writing signed by Landlord
and Tenant. No representation, inducement, understanding or anything of any
nature whatsoever made, stated or represented on Landlord's behalf, either
orally
or in writing (except this Lease) has induced Tenant to enter into this Lease.
(j) Any provision or provisions of this Lease which shall prove to be invalid,
void or illegal shall in no way affect, impair or invalidate any other
provision
hereof, and the remaining provisions hereof shall nevertheless remain in full
force and effect.
(k} Except with respect to those conditions, covenants and agreements of this
Lease which by their nature could only be applicable after the commencement
of,
during or throughout the term of this Lease, all of the other conditions,
covenants and agreements of this Lease shall be deemed to be effective as of
the
date of execution of this Lease.
(1) Tenant represents and warrants to Landlord that it has not engaged any
broker, finder or other person who would be entitled to any commission or fee
in
respect of the negotiation, execution or delivery of this lease, and shall
indemnify Landlord against loss, cost, liability or expense incurred by
Landlord
as a result of any claim asserted by any broker' finder or other person on the
basis of any arrangements of agreements made or alleged to have been made by
or
on behalf of Tenant.
{m) Clothing contained herein will be deemed or construed by the parties
hereto,
nor by any third party, as creating the relationship of principal and agent or
of partnership or of joint venture between the parties thereto, it being
understood and agreed that neither method or computation of rent, nor any
other
provision contained herein nor any acts of the parties herein, shall be deemed
to create any relationships between the parties hereto other than the
relationship of Landlord and Tenant.
(n) Tenant agrees to give to whatever mortgagee designated by Landlord from
time to time (and suchother mortgagee or mortgagees as Landlord may designate
in
writing to Tenant) written notice of each and every default under this Liease
by
Landlord and further agrees not to exercise any remedy under this Lease unless
such mortgagee fails to cure Landlord's default within thirty (30) days (or
such
longer period as may be reasonably necessary if such default cannot be cured
within thirty (30) days) after receipt of such notice.
(o) The submission of this Lease by Landlord to Tenant, whether in blank form
or
with one or more blanks completed and whether or not all exhibits referred to
herein are attached, for examination by Tenant shall not constitute a
reservation
of, or an option for, the Premises or any other space within the Building and
shall vest no rights in Tenant. This Lease and all exhibits incorporated
herein
shall become binding on Landlord only upon execution and delivery thereof by
Home
Supply Company, the Landlord. Until such execution and delivery, Tenant shall
have no rights under this Lease and the exhibits incorporated herein or in the
Premises or the Building.
(p) Landlord represents that to the best of its knowledge but without any
additional inquiry that there are no hazardous substances in or about the
Premises that pose a danger to health, life or safety.
IN WITNESS WHEREOF, Landlord and Tenant, have executed three originals hereof
on
the above date.
LANDLORD:
HOHE SUPPLY COMPANY
3720 South 7th Street Road
Louisville, Kentucky 40216
By: /s/ Samuel C. Moreley
Title: Building Manager
TENANT:
IN HOUSE REHAB, INC.
14th Floor - Center Tower
Waterf ront Plaza
325 W. Main Street
Louisville, Kentucky 40202
By: /s/ Robert J. Babine
Title: Chief Financial Officer
EXHIBIT "A"
TO LEASE FROM
HOME SUPPLY COMPANY
TO
IN HOUSE REHAB, INC.
NOVEMBER 8, 1996
WATERFRONT BUILDING - RULES AND REGULATIONS
GENERAL RULES
Lessee agrees that:
1. All deliveries or shipments of any kind to and from the Premises, including
loading and unloading of goods, shall be made to any location designated by
Landlord and only at times as designated by Landlord.
2. All garbage and refuse shall be stored in the type of containers specified
by
landlord for collection Tenant shall not collect on or about the Premises any
matters that would be contagious, hazardous or combustible without the prior
written consent of the Landlord. Any such soiled or dirty 1inen shall be
placed
in an approved metal container. Wet garbage shall be placed in planstic bags
or
approved containers.
3. No aerial for radios televisions, phonograph or other similar devices,
shall
be attached thereto (inside or outsicle the Premises) shall be installed
without
first obtaining in each instance the Landlord's prior written consent, and if
such consent be given, no such devise shall be used in a manner so as to be
heard
or seen outside of the Premises.
4. Tenant shall not deposit litter, trash or other debris in any of the common
areas of the Building or the common areas of its floor; and if it shall do so,
it shall be its obligation to remove same and keep said common areas neat,
clean,
free of rubbish and debris. Tenant shall not place any obstructions in any of
the
common areas or otherwise restrict the ability to enter and exit its Premises.
5. Tenant shall not use the commons areas in the Building for business or
promotional purposes.
6 Tenant and Tenant's employees shall park their cars only in those portions
of
the parking area, if any, designated for that purpose by Landlord, if the
Landlord provides designated areas for parking of Tenants' automobiles.
7. Plumbing, electrical and other facilities within or serving the Premises
shall
not be used for any purposes other than for which they were constructed, and
no
foreign substances of any kind sha11 be thrown therein.
<PAGE>
Rules and Regulations - Waterfront Plaza In House Rehab, Inc.
Page 2
8. Tenant shall not burn trash or garbage in or about the Premises or the
property.
9. Tenant shall not place, suffer or permit any displays, decorations or other
advertising material outside of its Premises, or on or upon any of the parking
or other common areas of the property without the written consent of the
Landlord.
10. Tenant shall keep the Premises at all times at a temperature sufficiently
high to prevent the freezing of water in pipes and fixtures.
11. Tenant shall not use, permit or suffer the use of any portion of the
Premises
as living, sleeping or lodging quarters.
12. Tenant agrees to install and keep serviced fire extinguishers and any or
other requirement that may be imposed by the fire department from time to time
on the Premises.
13. If Tenant's use shall result in any need for pest extermination such shall
be at Tenant's sole cost, at times designated by Landlord and using
contractors
approved by Landlord.
AMENDMENT TO RULES AND REGULATIONS
Landlord may at Landlord's option, amend or add new rules and regulations for
the
use and care of the Premises, the building of which the Premises forms a part
or
the common areas of the property. Such amendments shall be effective upon
Landlord delivering a copy thereof to the Tenant and will provide that all
such
Rules and Regulations and Amendments shall be uniform and shall be applied to
all
tenants of the Building.
LANDLORD: Home Supply Company
3720 South 7th Street Road
Louisville, Kentucky 40216
By: /s/ Samuel C. Moreley
Its: Building Manager
TENANT: In House Rehab, Inc.
14th Floor - Center Tower
Waterfront Plaza
325 W. Main St.
Louisville, Kentucky 40202
By: /s/ Robert J. Babine
Its: Chief Financial Officer
EXHIBIT B
to Lease Agreement dated November 8, 1996
by and between
HOME SUPPLY COMPANY and
IN HOUSE REHAB, INC.
To be agreed to by the parties prior to December 9, 1996. If the parties are
unable to agree on the specifics of this Exhibit B, the foregoing Lease
Agreement
will be of no force and effect.
LANDLORD: Home Supply Company
3720 South 7th Street Road
Louisville, Kentucky 40216
By: /s/ Samuel C. Moreley
Its: Building Manager
TENANT: In House Rehab, Inc.
14th Floor - Center Tower
Waterfront Plaza
325 W. Main St.
Louisville, Kentucky 40202
By: /s/ Robert J. Babine
Its: Chief Financial Officer
EXHIBIT C
to Lease Agreement dated November 8, 1996
by and between
HOME SUPPLY COMPANY and
IN HOUSE REHAB, INC.
To be agreed to by the parties prior to December 9, 1996. If the parties are
unable to agree on the specifics of this Exhibit C, the foregoing Lease
Agreement
will be of no force and effect.
LANDLORD: Home Supply Company
3720 South 7th Street Road
Louisville, Kentucky 40216
By: /s/ Samuel C. Moreley
Its: Building Manager
TENANT: In House Rehab, Inc.
14th Floor - Center Tower
Waterfront Plaza
325 W. Main St.
Louisville, Kentucky 40202
By: /s/ Robert J. Babine
Its: Chief Financial Officer
CONTRACT FOR THERAPY PROGRAM SERVICES
THIS AGREEMENT is made and entered into by and between IN-HOUSE REHAB, INC.,
as
independent contractor, a Kentucky corporation (hereinafter referred to as
"In-House"), and West Wood Retirement Community (hereinafter referred to as
"Owner/Operator").
WHEREAS, In-House is in the business of providing rehabilitative therapy
services in health care facilities in the United States; and
WHEREAS, Owner is the operator of a nursing care facility located at West Wood
Retirement Community, 1001 Mar Walt Drive, Fort Walton Beach, Florida 32548
(such
facility being referred to herein as the "Treatment Facility"); and
WHEREAS, In-House has agreed to provide therapists at the Treatment Facility,
and
Owner has agreed to contract and pay for such services at the Treatment
Facility,
all in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the promises and mutual covenants
contained
herein, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following term shall
have the meanings assigned below:
(a)"Agreement" means this Contract For Therapy Services.
(b) "Commencement Date" means that date established as the
beginning of the term of this Agreement pursuant to Paragraph 6 hereof:
(c) "Owner/Operator" means West Wood Retirement Community.
(d) "In-House" means In-House Rehab, Inc., a Kentucky corporation.
(e) "Therapy" means a comprehensive rehabilitation therapy program
consisting of the three disciplines of physical therapy, speech-language
pathology and occupational therapy.
(f) "Treatment Facility" means West Wood Retirement Community.
2. Nature of Commitment. In-House shall make qualified therapists and
non-therapist personnel available to Owner on an as-needed basis to provide
those
services listed on Schedule A attached hereto (the "Services") to Owner's
patients at the Treatment Facility.
3. Specific Commitments of In-House
(a) Services from Therapists
In-House shall provide Services as ordered by physicians to the
Owner's patients who request that Services be provided by In-House, through
qualified therapists under the terms and conditions of this Agreement and in
accordance with any and all applicable requirements of federal and state laws,
rules and regulations.
(b) Training and Patient Care Conferences
The therapists provided by In-House under this Agreement for
the rendering of services in the Treatment Facility shall comply with the
Owner's
patient care policies, shall participate in individual patient care planning
meetings for patients receiving therapy at the Treatment Facility and shall
participate in staff meetings and conferences for the purpose of discussing
policies and plans of treatment and general issues related to therapy patient
treatment matters. Therapists provided by In-House will also participate in
the
Treatment Facility's in-service educational training programs as reasonably
requested.
(c) Statement of Qualifications
In-House shall submit to Owner a copy of each therapist's
license who is to provide Services to Owner's patient on behalf of In-House.
Owner shall have the right to reasonably disapprove of any individual who is
to
render Services to Owner on behalf of In-House pursuant to this Agreement, and
In-House will have 30 days to replace that individual or resolve the problem
with
Owner.
(d) Record Maintenance
In-House therapists shall provide and maintain documentation
for the individual patient charts of treatment, progress, and evaluations in
accordance with requirements of the Treatment Facility and of third party
reimbursement sources.
(f) Invoices
In-House shall submit to the Owner on a monthly basis an
invoice for all Services rendered during the month. Additionally, In-House
shall
submit all other documentation necessary for an accurate and complete billing
by
the Owner to third party reimbursement sources. Such invoices shall include
among other items: (a) the name(s) of the In-House therapist(s) who provided
the
Service; (b) the name(s) of the patients to whom the Services were rendered;
and
(c) the fees applicable to each Service and each patient. The fees for the
Services provided by In-House are set forth on Schedules B, C, D and I
attached
hereto and made a part hereof.
4. Obligations of Owner
(a) Billing
Unless otherwise required by applicable federal and state laws,
rules or regulations, Owner shall be solely responsible for billing patients
and/or their respective governmental or other third party reimbursement
sources
for Services provided to the patients of Owner by In-House under this
Agreement.
Owner will be responsible for supplying clerical personnel/services needed to
complete third party billing support and to prepare invoices to appropriate
payors for Services provided.
(b) Space and Equipment
Owner shall be responsible for designating and setting aside
adequate work and storage areas for the provisions of In-House's therapy
services. These areas shall be located on the Treatment Facility's premises
and
shall be adequate for In-House's therapists to provide the Services required
under this Agreement. The maintenance of the designated area including
storage
space shall be the sole responsibility of Owner. The Owner shall also be
responsible for the provision and maintenance of standard physical therapy
equipment required within the designated area for the provision of a
coordinated,
comprehensive therapy rehabilitation program.
(c) Record Maintenance
Owner shall have primary responsibility for maintaining all
patient records. Owner shall make available to In-House for review and
inspection individual patient treatment records necessary for the proper
evaluation, screening, treatment of, and provision of Services to such
patients.
Owner shall be responsible for alerting In-House to any and all federal,
state,
and local regulations pertaining to the confidentiality of patient records.
In-House agrees to be bound by such regulations.
5. Compensation
(a) Payments
In-House shall submit to Owner on a monthly basis invoices for
all Services rendered during the month and at fees outlined in Schedules B, C,
D and I. Owner shall remit to In-House payment in full for each invoice
submitted by In-House within ninety (90) days of the submission date of such
invoices. In the event Owner shall fail to make payment in full of any
invoice
(other than amounts questioned or contested by the Owner is good faith) within
five (5) days of the date payment is due, the amount due pursuant to such
invoice (less and except any amounts questioned or contested in good faith)
will
be increased by a late payment fee of two percent (2.0%) of the amount due.
In
the event Owner shall question or contest in good faith any amount stated to
be
due under an invoice submitted by In-House, Owner and In-House agree to
proceed
diligently and in good faith to resolve any such question or contest, and
payment
shall be due and payable immediately upon such resolution. No notice of this
late charge is required of In-House (other than inclusion on In-House's
invoice)
and the late charge will be automatically assessed if payment is not received
by
In-House on or before the ninety-fifth (95th) day following submission date of
invoice. Late charges are not subject to provisions of paragraphs 5 (b) (c)
or
(d) of this Agreement.
Owner hereby expressly agrees that the fee rates included in
Schedules B, C, D, and I represent market rates for such Services and such
market
rates are consistent with Owners' investigation of market services and rates.
(b) Support for Payments by Reimbursement Sources
In-House, at its own time and expense, shall be responsible for
defending third party payor source denials or disallowances of reimbursement
for
units of therapy services rendered by In-House which are based upon improper
or
incomplete medical records documentation of the Services provided or
determination by a third party payor that the units of therapy services were
medically
unnecessary. In-House must provide the necessary clinical therapy
documentation
to show that the units were rendered. In the event Owner is denied units of
therapy charges due to the foregoing reasons, then In-House shall initiate
action
after facility notification and receiving permission to contact the
intermediary
to correct the cause for the denial as outlined in paragraphs 5(c) and 5(d) of
this Agreement.
6. Term. The term of this Agreement shall commence as of August 1,
1996
("Commencement Date"), and shall continue for an initial term of five (5)
years
thereafter, and shall be renewable for five (5) successive additional terms of
five (5) years each unless either party to this Agreement shall give to the
other
at least sixty (60) days notice (prior to the expiration of the existing term)
of its election not to renew this Agreement for an additional term, this
Agreement shall be deemed to be automatically renewed.
Notwithstanding the foregoing, either party shall have the right to
terminate this Agreement upon sixty (60) days written notice to the other
party,
with or without cause, in which event this contract shall terminate pursuant
to
such notice, but such termination shall not impair the rights of In-House to
enforce the payment of sums due hereunder in proceedings at law or in equity,
nor
the rights of either party to pursue remedies for subsequent claims.
7. Authority of Owner. Anything to the contrary herein contained
notwithstanding, ultimate authority and power to establish, approve or
disapprove any policy, program, rule, regulation, procedure, legal action,
repair
or addition, shall be vested in the Owner.
8. Default. Each of the following events or occurrences shall
constitute an Event of Default hereunder:
(a) The failure of the Owner to pay or reimburse to In-House all
sums required to be paid or reimbursed to In-House hereunder.
(b) Any representation or warranty made or contained in this
Agreement found to be untrue or misleading in any material respect.
(c) The nonperformance of, nonobservance of, breach of or failure
to execute the covenants, agreements, promises, warranties and conditions made
by or required of any party to this Agreement.
(d) The filing by or against any party to this Agreement of a
voluntary or involuntary petition in bankruptcy; or any party's adjudication
as
a bankrupt or insolvent; or the filing by any party of any petition or answer
seeking or acquiescing to any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future federal, state or other law or regulation relating to
bankruptcy, insolvency, receivership or other relief for debtors; or the
making
by any party, endorser or guarantor of any general assignment for the benefit
of
creditors; or the admission in writing by any party of its inability to pay
its
debts generally as they become due; or the commission by any party of any act
of
bankruptcy.
9. Remedies for Non-Financial Default. In the event either party to
this Agreement deems the other party to be in default under it obligations as
contained hereunder, other than a default described in paragraph 8(a) hereof,
then said party shall be required to provide notice of the alleged default to
the
other party, which notice shall contain detailed specifications of such
default.
Upon the receipt of such notice (which shall be deemed to have occurred on the
date the notice was mailed by postage pre-paid certified mail, return receipt
requested), the party being charged with the default shall have a period of
thirty (30) days in which to cure such default or to provide appropriate
assurances that the alleged default will be timely corrected. If such default
is not cured within such thirty (30) day period, then the party alleging the
default may terminate this Agreement, but such termination shall not be deemed
a waiver of such party's right to enforce the payment or sums due hereunder or
to seek other relief, either at law or in equity.
10. Remedies for Financial Default. In the event of a default by the
owner under paragraph 8(a) hereof, In-House shall be required to provide
notice
of the default to the Owner. Upon the receipt of such notice (which shall be
deemed to have occurred on the date the notice was mailed by postage pre-paid
certified mail, return receipt requested), the Owner shall have a period of
ten
(10) days in which to cure such default. If such default is not cured within
such ten (10) day period, then In-House may terminate this Agreement, but such
termination shall not be deemed a waiver of In-House's rights to enforce the
payment of sums due hereunder or to seek other relief, either at law or in
equity.
11. Insurance. In-House agrees, during the term of this Agreement, to
maintain the following insurance coverage:
(a) Commercial General Liability with limits of not less than
$1,000,000 per occurrence, $3,000,000 aggregate;
(b) Professional Malpractice Liability Insurance providing coverage
of all In-House personnel provided pursuant to the terms of this Agreement
with
limits of not less that $1,000,000 per occurrence and $3,000,000 aggregate;
(c) Worker's Compensation Insurance as regulated by the laws of the
State providing coverage in all In-House personnel provided pursuant to the
terms
of this Agreement; and
(d) Automobile Liability Insurance with limits of not less than
$1,000,000 combined single limit.
In-House shall also be named as an additional insured on the
Treatment Facility's Medical Malpractice, Commercial General Liability and
Automobile Liability Insurance policies.
12. Indemnification: Hold Harmless
(a) Owner shall indemnify and hold In-House harmless from and
against all claims, demands, costs, expenses, liabilities and losses
(including
reasonable attorneys' fees) which may result against In-House as a consequence
of any alleged malfeasance, neglect or medical malpractice caused or alleged
to
be caused by Owner, its employees, agents, or contractors.
(b) In-House shall indemnify and hold Owner harmless from and
against all claims, demands, costs, expenses, liabilities and losses
(including
reasonable attorneys' fees) which may result against Owner as a consequence of
any alleged malfeasance, neglect or medical malpractice or other act or
omission
caused or alleged to be caused by In-House, its employees, agents, or
contractors.
13. Independent Contracting Parties. This Agreement is an independent
contract between Owner and In-House. Neither party shall be construed in any
manner whatsoever to be an employee or agent of the other, nor shall this
Agreement be construed as contract of employment, agency or joint venture. It
is further expressly understood that all personnel provided by In-House in
support of the therapy services shall not in any manner be construed to be
employees of or contractors to the Owner, but shall be employees of or
contracts
to In-House, which shall be solely responsible for the wages, salaries,
benefits,
payroll taxes, insurance (including workers compensation and professional
liability insurance) and all other burdens of employment of such employees or
contractors.
14. Access to Records. Until the expiration of four (4) years after the
furnishing of Services pursuant to this Agreement, In-House agrees to make
available, upon request from the Secretary of Health and Human Services or the
U.S. Comptroller General or of any of their duly authorized representatives,
records of In-House that are necessary to verify the Services received by
Owner
under this Agreement. In-House will also adhere to any state requirements in
this regard.
In any subcontract between In-House and any related organizations or
individual which is valued at or results in payment for services of
$10,000.000
or more over a twelve (12) month period, In-House will include provisions that
require the related organization to make available, upon written request, to
the
Secretary of U.S. Department of Health and Human Services, the U.S.
Comptroller
General or any other duly authorized representatives, the subcontract and
books,
documents and records of the related organization that are necessary to verify
the nature and extent of costs in connection with services under the
subcontract.
15. Restrictive Covenant
(a) Owner Restrictive Covenant
(I) During the term of this Agreement and for a period of
twelve (12) months after the termination of this Agreement for any reason
whatsoever, Owner shall not, without the written consent of In-House, induce
or
attempt to influence or attempt to influence any employee or contractor of
In-House to terminate his relationship with In-House. Notwithstanding the
foregoing,
Owner shall not be prohibited from rehiring any employee or
independent contractor who is in the employment of Owner at the
commencement of the term of this Agreement, but whose
employment is transferred to In-House during the term hereof.
(ii) Owner acknowledges that the restrictions contained in
subparagraph (i) of this paragraph in view of the nature of the business in
which
In-House is engaged, are reasonable and necessary to protect the legitimate
interests of In-House, and that any violation thereof would result in
irreparable
injuries to In-House violation thereof would result in irreparable injuries to
In-House and Owner therefore acknowledges that, in the event of violation of
any
of these restrictions, In-House shall be entitled to obtain from any court
injunctive relief as well as damages and an equitable accounting of all
earnings,
profits, and other benefits arising from such a violation, which rights shall
be
cumulative and in addition to any other rights or remedies to which In-House
may
be entitled.
(b) In-House Restrictive Covenant
(I) During the term of this Agreement and for a period of
twelve (12) months after the termination of this Agreement for any reason
whatsoever, In-House shall not, without the written consent of Owner, (A)
employee or contract with (a) any individual who is currently on the payroll
of
the Owner at the time of termination, or (b) any entity in which any such
individual has an interest (as a principal, partner, director, officer, agent,
employee, consultant, contractor or otherwise); or (B) induce or attempt to
influence any employee of Owner to terminate his relationship with Owner.
Notwithstanding the foregoing, In-House shall not be prohibited from rehiring
any
employee or independent contractor who is in the employment of In-House at the
commencement of the term of this Agreement, but whose employment is
transferred
to Owner during the term hereof.
(ii) In-House acknowledges that the restrictions contained
in
subparagraph (i) of this paragraph, in view of the nature of the business in
which Owner is engaged, are reasonable and necessary to protect the legitimate
interests of Owner, and that any violation thereof would result in irreparable
injuries to the Owner, and In-House therefore acknowledges that, in the event
of
violation of any of these restrictions, Owner shall be entitled to obtain from
any court injunctive relief as well as damages and an equitable accounting of
all
earnings profits, and other benefits arising from such a violation, which
rights
shall be cumulative and in addition to any other rights or remedies to which
Owner may be entitled.
16. Miscellaneous
(a) Indulgences
Neither the failure nor any delay on the part of any party to
exercise any right, remedy, power, or privilege ("Right") under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any Right preclude any other or further exercise of the same or of any
occurrence
be construed as a waiver of such Right with respect to any other occurrence.
No
waiver shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
(b) Waiver of Provisions
None of the conditions or provisions of this Agreement shall
be held to have been waived by any act or knowledge of either party, its
agents
or employees, but only by an instrument in writing, signed by an officer of
such
party.
(c) Law Applicable
This Agreement and all questions relating to its validity,
terpretation, performance and enforcement, shall be governed by and construed
in
accordance with the laws of the state of Florida notwithstanding any
conflict-of-laws provisions to the contrary.
(d) Notices
All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made, and received when personally delivered
or
upon actual receipt of registered or certified mail, postage prepaid, return
receipt requested, address as set forth below:
(i) If to In-House:
In-House Rehab, Inc.
ATTN: Vice President/Operations
325 W. Main Street, Suite 1400 B
Louisville, KY 40202
(ii) If to Owner/Manager:
Capitol Care Management
ATTN: President
6000 Lake Forest Drive, Suite 225
Atlanta, Georgia 30328
Any such notice shall be deemed given as of the date of its
receipt at the address to which such notice is to be directed, regardless of
any
other date that may appear.
Any party may change the address to which communications or
copies are to be sent by giving notice of such change of address in conformity
with the provisions of this paragraph for the giving of notice.
(e) Entire Agreement
This Agreement and the Schedules A, B, C, D and I hereto
contain the entire understanding between the parties hereto with respect to
the
subject matter, and supersede all prior and contemporaneous agreements and
understandings, inducement or conditions, express or implied, oral or written.
Except as expressed herein, neither this Agreement nor the attached Schedules
A, B, C, D and I may be modified or amended other than by an agreement
delivered
in writing to the address shown in this Agreement, and subsequently signed by
the
authorized, official party to which such modification or amendment is
asserted.
(f) Number of Days
In computing the number of days for purposes of the Agreement,
all days shall be counted, including Saturdays, Sundays, and holidays;
provided,
however, that if the final day of any time period falls on a Saturday, Sunday,
or holiday, then the final day shall be deemed to be the next day which is not
a Saturday, Sunday, or holiday.
(g) Schedules
All Schedules, Exhibits, and Addenda attached hereto are hereby
incorporated by reference into, and made a part of, this Agreement.
(h) Variations of Pronouns
All pronouns and all variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity
of the person or persons or entity may require.
(I) Authorization for Agreement
The execution and performance of this Agreement by Owner and
In-House have been duly authorized by all necessary laws, resolutions, or
corporate action, and this Agreement constitutes the valid and enforceable
obligations of Owner and In-House in accordance with its terms.
(j) Attorney's Fees
In the event of litigation arising out of this Agreement, the
prevailing party shall be entitled to recover, in addition to the relief
granted,
all costs incurred, including reasonable attorney's fees.
(k) Enforceability
Should any provisions of this Agreement be unenforceable as
between the parties, such unenforceability shall not affect the
enforceability
of other provisions of this Agreement.
(m) Assignment
All terms, provisions and conditions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, personal representatives and permitted assigns.
Any party may assign this Agreement only upon the prior written consent of the
other party (which consent shall not be unreasonably withheld), provided that:
(I) such assignment is in writing, duly executed by the
assignor and assignee;
(ii) assignee accepts in writing the assignment and assumes
this Agreement and the due performance of all of the assignor's obligations
hereunder; and
(iii) a duly executed and acknowledged counterpart of such
Assignment and Assumption Agreement is delivered to the other party.
In the event of such assignment, and upon compliance with
the foregoing conditions, this Agreement shall be binding upon and inure to
the
benefit of such assignee, but the assignor shall not be released of its
obligations except by a release signed by the non-assigning party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement for
Services as outlined herein to be effective commencing August 1, 1996.
IN-HOUSE REHAB, INC.
By:_________________________________
Title:Vice President of Operations
Date:_______________________________
OWNER
By:_________________________________
Title:_______________________________
Date:_______________________________
<PAGE>
SCHEDULE A
SERVICES TO BE PROVIDED
In-House Rehab, Inc., agrees to furnish qualified personnel as required for
the
provision of the following Services:
Occupational Therapy Services
Speech-Language Pathology Services
Non-Therapist Personnel Services
<PAGE>
SCHEDULE B
FEE SCHEDULE - SPEECH-LANGUAGE PATHOLOGY
Owner agrees to pay for speech-language pathology performed for patients at
Treatment Facility and such fees shall be based on units of Service as set
forth
below:
Each unit of speech-language pathology at $24.00 per unit.
A unit of Service equals fifteen (15) minutes and represents the therapist's
time, including patient evaluations, patient therapy, preparation of and
planning
for treatment and preparation of reports, active participation in patient care
conferences related to specific rehabilitation patients and preparation of
reports but exclusive of travel and personal time for which no charge is made.
The schedule of fees set forth above may be changed by In-House at any time
upon
not less than thirty (30) days written notice to Owner. Notice of such
increases
will be submitted to Owner with an explanation for the increase, at least 30
days
prior to the scheduled effective date. Upon the Owner's written agreement to
the
increase, the increase will be implemented on the scheduled effective date.
<PAGE>
SCHEDULE C
FEE SCHEDULE - OCCUPATIONAL THERAPY
Owner agrees to pay for occupational therapy performed for patients at
Treatment
Facility and such fees shall be based on units of Service as set forth below:
Each unit of occupational therapy at $24.00 per unit.
A unit of Service equals fifteen (15) minutes and represents the therapist's
time, including patient evaluations, patient therapy, preparation of and
planning
for treatment and preparation of reports, active participation in patient care
conferences related to specific rehabilitation patients and preparation of
reports but exclusive of travel and personal time for which no charge is made.
The schedule of fees set forth above may be changed by In-House at any time
upon
not less than thirty (30) days written notice to Owner. Notice of such
increases
will be submitted to Owner with an explanation for the increase, at least 30
days
prior to the scheduled effective date. Upon the Owner's written agreement to
the
increase, the increase will be implemented on the scheduled effective date.
<PAGE>
SCHEDULE D
FEE SCHEDULE - PHYSICAL THERAPY
Per State Salary Equivalency Guidelines
<PAGE>
SCHEDULE I
COMPENSATION FOR STAFF MANAGEMENT
a) Nursing Center will remit to In-House a sum of $625 (Six hundred
twenty-five) per therapist, with a minimum of $1250 (One thousand two hundred
fifty) per month. This amount may be adjusted if the quantity of equipment,
therapists or other services provided should subsequently change.
b) A one time charge of $2500 will be payable in advance. This payment
is intended to defray cost of In-House conversion.<PAGE>
<PAGE>
<PAGE>
ADDITIONAL CONTRACTS FOR THERAPY PROGRAM SERVICES
The Registrant has additional contracts for Therapy Program Services with
affiliates substantially identical to the foregoing. The material details of
such agreements which differ are as follows:
COMMENCE- SCHEDULE
MENT B AND C
DATE OF PER SCHEDULE D
NAME OF FACILITY LOCATION AGREEMENT UNIT RATE RATES
Altamaha Conva- Jesup, GA 9/1/96 $28.00 None
lescent Center
Arrowhead Nursing Jonesboro, GA 4/1/95 $24.00 None
Center
The Atrium Jacksonville, 7/1/96 $24.00 None
Nursing Home FL
Browns Nursing Statesboro, GA 9/1/96 $28.00 Salary
Home Equiva-
lency
Brunswick Nursing Brunswick, GA 4/1/95 $24.00 None
Center
Cedartown Health Cedartown, GA 1/1/96 $24.00 None
Care Center
Dearfield Nursing Columbus, GA 8/1/95 $24.00 None
Facility
Floyd Health Care Rome, GA 2/1/96 $24.00 None
Center
Friendship Health Cleveland, GA 5/1/96 $28.00 Salary
Care Center Equiva-
lency
Gardendale Nurs- Gardendale, AL 2/15/96 $24.00 None
ing Center
Gateway Health Cleveland, GA 5/1/96 $24.00 Salary
Care Center Equiva-
lency
Gold City Health Dahlonega, GA 5/1/96 $28.00 Salary
Care Center Equiva-
lency
Griffin Health Griffin, GA 4/1/95 $24.00 None
Care Center
Lake Forrest Jacksonville, 4/1/95 $24.00 None
Health Care Center TN
Magnolia Manor Green Cove 4/1/95 $24.00 None
Nursing Center Springs, FL
Marietta Nursing Marietta, GA 7/15/95 $24.00 None
Center
Midway Health Midway, GA 4/1/95
Care Center
Mountain View Clayton, GA 2/15/95 $24.00 None
Health Care Center
Palmyra Inter- Palmyra, TN 1/1/96 Salary Salary
mediate Care Equiva- Equiva-
Center lency lency
Parkway Health & Memphis, TN 1/1/96 $24.00 None
Rehab
Peachbelt Health Warner Robbins, 3/1/95 $24.00 None
Care Center GA
River Park Health Nashville, TN 10/1/95 $24.00 None
Care
Roberta Nursing Roberta, GA 3/1/95 $24.00 None
Home
Rome Health Rome, GA 4/1/95 $24.00 None
Care Center
Sea Breeze Health Mobile, AL 4/1/96 $24.00 None
Health Care Center
Southside Nursing Jacksonville, 1/1/97 $24.00 None
Center FL
Springdale Conva- Atlanta, GA 4/1/95 $24.00 None
lescent Center of
Atlanta
Springdale Conva- Cartersville, 4/1/95 $24.00 None
lescent Center of GA
Bartow County
Sun Mountain Rome, GA 4/1/95 $24.00 None
Health Care Center
Tattnall Nurse Reidsville, 9/1/96 $28.00 Salary
Care Center GA Equiva-
lency
Twelve Oaks Riverdale, 4/1/95 $24.00 None
Health Care GA
Twin View Health Twin City, GA 9/1/96 $28.00 Salary
Care Center Equiva-
lency
West View Health Port Wentworth, 4/1/95 $24.00 None
Care Center GA
LOAN AGREEMENT
Revolving Credit Loan
This is a Loan Agreement (the "Agreement") as of October 29, 1996 among:
GREAT FINANCIAL BANK, FSB
One Financial Square
Louisville, KY 40202 (the "Lender")
and
IN-HOUSE REHAB, INC.
9505 Williamsburg Plaza
Louisville, KY 40222 (individually or collectively the "Borrower")
and
PERENNIAL DEVELOPMENT CORPORATION
9505 Williamsburg Plaza (individually or collectively, the Guarantor")
Louisville, KY 40222
Recitals:
A. This Agreement provides for a revolving credit loan in the principal
amount up to $2.500.000.00 (the "Loan") pursuant to which the Borrower may
obtain
disbursements of the Loan from the Lender upon the terms and conditions
contained
herein, which Loan shall be evidenced by a promissory note of like amount and
of
even date herewith, made by the Borrower and payable to the order of the
Lender
(including any extension, renewal, modification or novation thereof, the
"Note").
B. The Borrower and the Guarantor, if any, desire to enter into this
Agreement in order to induce the Lender to extend e Loan as more fully set
form
in this Agreement, and on the terms and conditions set forth in this
Agreement.
SECTION 1 DEFINITIONS
As used in this Agreement,
"Affiliate" of the Borrower means: (a) any legal entity which, directly
or
indirectly, is in control of, is controlled by or is under common control
with,
the Borrower, or (b) any director or officer of the Borrower or of any legal
entity described in clause (a) above. For purposes of this definition, control
of a legal entity shall mean the power, direct or indirect, to vote 10% or
more
of the securities having ordinary voting power for the election of directors
of
such legal entity or to direct the management or policies of such legal
entity,
whether through the ownership of voting securities, by contract or otherwise.
"Borrower" shall have the meaning set form in the preamble to this
Agreement.
"Borrowing Base Agreement" shall mean that certain Borrowing Base
Agreement
of even date herewith executed by the Borrower and identified as a "Borrowing
Base Agreement," which Borrowing Base Agreement restricts the aggregate amount
of any advances made under the Note.
"Borrowing Base Certificate" shall mean the certificate(s) submitted by
the
Borrower from time to time which are used to calculate the amount available
for
advances under the Note as determined by the Borrowing Base Agreement, and
which
shall be certified as true and correct by a duly authorized officer of the
Borrower.
"Closing Date" means, the effective date of execution and delivery of
this
Agreement and the other Loan Documents.
"Compliance Certificate" shall have the meaning set forth in Section 6.04
of this Agreement.
"CPA Firm" shall mean such firm of certified public accountants which
regularly performs accounting services for Borrower, provided that such firm
is
satisfactory to the Lender in its sole discretion.
"Direct Financial Statement" shall mean a financial statement, balance
sheet and income statement, which is prepared internally by the Borrower or
the
Guarantor, and which is signed and certified as true and correct by (i) if the
Borrower or Guarantor is an individual, by the Borrower or the Guarantor; (ii)
if the Borrower or Guarantor is a partnership, by a general partner of the
partnership; or (iii) if the Borrower or Guarantor is a corporation, by the
President or the President's designee.
"Event of Default" shall mean any one of the occurrences which are Events
of Default under Section 8 of this Agreement.
"GAAP" shall mean '"generally accepted accounting principles,"
consistently
applied.
"Guarantor" shall have the meaning set forth in the preamble to this
Agreement.
"Guaranty" shall mean the Guaranty of even date executed and delivered by
the Guarantor in favor of the Lender, whereby e Guarantor guarantees the Loan.
"Indebtedness" shall mean all obligations, contingent or otherwise,
which,
in accordance with generally accepted accounting principles, should be
classified
on the obligor's balance sheet as liabilities, and includes (a) liabilities
(whether or not they should be so classified upon such balance sheet) secured
by
any mortgage, pledge, security interest, lien, charge or other encumbrance
existing on property owned or acquired subject thereto, whether or not the
liability secured shall have been assumed or the owner or acquirer of the
property otherwise has corporate liability therefor, (b) all obligations with
respect to any undertaking to pay or be responsible for the obligations of any
other party, or to purchase an obligation owned by any other party, or to
purchase assets to enable any other party to discharge one or more of its
obligations, whether or not reflected on the balance sheet or in a footnote,
and
(c) obligations with respect to leases which, m accordance with generally
accepted accounting principles, should be capitalized on the balance sheet;
provided, however, Hat Indebtedness shall not include trade obligations
incurred
in the ordinary course of business.
"Lender" shall have the meaning set forth in the preamble to this
Agreement.
"Loan Documents" shall mean, collectively, this Agreement and all
agreements, documents or instruments which are either (i) referred to in this
Agreement, or (ii) executed by Borrower and/or the Guarantor in connection
with
the Loan or which relate to this Agreement or the Loan, including, without
limitation, the Note, the Security Instruments, and any other document to be
executed by the Borrower and/or the Guarantor which relates to this Agreement.
"Loan" shall have He meaning given in the Recitals to this Agreement.
"Note" shall have the meaning given in the Recitals to this Agreement.
"Person" shall mean any person, firm, trust, corporation or business
organization.
"Security Instruments" shall mean any and all documents, agreements and
instruments executed in connection with this Agreement which in any way relate
to any collateral security for the indebtedness evidenced by the Note, or any
other indebtedness or obligation of the Borrower to the Lender whether or not
arising out of or in connection with this Agreement or any of the other Loan
Documents.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect in the state of Kentucky.
"Unmatured Default" shall mean the happening of any occurrence which
would,
together with the giving of any required notices or the passage of any
required
period of time, constitute an Event of Default.
SECTION 2 THE LOAN
The Lender hereby establishes the Loan in favor of the Borrower as
follows:
2.01 Amount. The Loan shall be in the principal amount of up to TWO
MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00). The Loan shall be
repaid
as provided in Section 3 of this Agreement.
2.02 Term of the Loan. The Loan shall become effective as of the date
hereof and shall continue until terminated in accordance with the terms of
this
Agreement. The Note shall mature and be due and payable in full on October 2,
1997.
2.03 Termination of Loan Other Than by Maturity. The Lender shall have
the
right, at its sole option and discretion, to terminate the Loan upon the
occurrence of (i) any Event of Default, or (ii) any Unmatured Default. The
termination of the Loan shall not in any way release Borrower from its
obligations incurred under this Agreement prior to termination, nor shall it
terminate this Agreement. The provisions of this Agreement and the security
interest created to secure the Loan shall continue in full force and effect
until
all amounts, including interest, penalties and other charges owed by Borrower
to
Lender have been paid in full.
2.04 Disbursement of Loan. Subject to the terms and conditions of this
Agreement, so long as the Loan remains in effect and is not terminated, the
Lender may grant Borrower such disbursements under the Loan as Borrower may
request from time to time in accordance with the provisions of this Agreement.
At no time shall the aggregate unpaid principal balance of the Loan which is
outstanding at any one time exceed the lesser of (i) $2.500.000.00; or (ii)
the
amount permitted by the terms of the Borrowing Base Agreement.
The Borrower shall submit to the Lender at least monthly, by the
(20th) of each month, a Borrowing Base Certificate, prepared as of the last
business day of the immediately preceding month. In addition, the Borrower
shall
submit an updated Borrowing Base Certificate with each request for an advance
under the Loan.
2.05 Interest. The Loan shall bear interest at an annual rate as set
forth
in the Note, from the date of the Note until the entire principal balance of
the
Loan has been paid.
2.06 Purpose of the Loan. Borrower shall use the proceeds of the Loan for
the following purpose or purposes: working capital requirements of the
Borrower.
2.07 Procedures and Conditions. Each disbursement under the Loan obtained
by the Borrower shall be subject to the following teens and conditions:
(a) Whenever Borrower desires to obtain a disbursement (a
"Disbursement"), it shall deliver to the Lender either a written or telephonic
request for
Disbursement prior to the date on which it wishes to have the funds made
available, specifying the amount of the Disbursement requested, the date on
which
the Borrower desires the funds to be made available, and the purpose for which
the Disbursement is requested.
(b) Borrower shall not be entitled to obtain any Disbursement if
any Event of Default or Unmatured Default exists at the time of the making of
the
request for Disbursement, or would exist upon the making of the Disbursement
requested, even if the Lender does not elect to terminate the Loan as a result
of such event of Default or Unmatured Default.
(c) If Borrower requests any Disbursement which, if made, would
cause the aggregate principal amount of all Disbursements then outstanding to
exceed the maximum amount permitted under Section 2.04 of this Agreement, then
the Lender may disburse only that part of the requested Disbursement which
would
cause the aggregate principal amount of the Loan then outstanding to equal the
maximum amount permitted under Section 2.04 of this Agreement.
(d) All Disbursements shall be made in strict compliance with the
terms and provisions of this Agreement, unless the Lender elects in its sole
discretion to waive any of those terms and conditions. The waiver of any terms
and conditions with respect to any one Disbursement shall not constitute a
waiver
of the same or any other terms or conditions with respect to any other
Disbursement.
(e) Each request by Borrower for a Disbursement hereunder shall
constitute the remaking of the representations and warranties by Borrower
contained in Section 7 of this Agreement.
(f) Subject to the terms and conditions of As Agreement and the
Note, amounts borrowed and repaid may be repaid and reborrowed from time to
time.
2.08 Notation of Disbursements and Payments. Disbursements of, and
payments of principal with respect to, the Loan shall be evidenced by the
Lender's notations made in the Lender's electronic data processing equipment,
showing the date and amount of each Disbursement or each payment of principal.
The principal amount outstanding under the Note from time to time shall also
be
recorded by the Lender on that electronic data processing equipment. The
aggregate amount of any Disbursements of the Loan made and recorded in the
Lender's electronic data processing equipment, less all of the payments of
principal made by the Borrower on the Loan and recorded in the Lender's
electronic data processing equipment, shall be prima facie evidence of the
outstanding principal balance due under the Note.
SECTION 3 PAYMENT OF THE LOAN
3.01 Note Interest Payments. Commencing December 2, 1996, and continuing
on the same day of each calendar month occurring thereafter until the Note
matures, Borrower shall pay to the Lender installments of all accrued but
unpaid
interest on the principal amount of the Loan.
3.02 Availability Fee. If checked here [], the Borrower shall pay to the
Lender an availability fee (the "Availability Fee") in respect of each
calendar
quarter during the term of the Loan in an amount equal to (i) the product of
(A)
__%, and (B) the positive difference, if any, between (1) $____, and (2) the
average daily unpaid principal balance of the Loan during such calendar
quarter,
multiplied by (ii) a fraction, the numerator of which is the actual number of
days elapsed in such calendar quarter, and the denominator of which is
________.
Each Availability Fee shall be due and payable to the Lender quarterly in
arrears
within fifteen (15) days after the Borrower has received an invoice for the
Availability Fee from the Lender.
3.03 Maturity Date of Note. The Note shall mature on October 2, 1997, at
which time the entire outstanding principal balance of, and all accrued but
unpaid interest on, the Note shall be due and payable in full.
SECTION 4 SECURITY FOR THE LOAN
4.01 Secure Interest Pursuant to Security Instruments. The Loan shall be
secured by the security interest(s) created pursuant to the Security
Instruments.
4.02 Right of Offset. The Loan shall be secured by the right of offset
provided in Section 9.01 of this Agreement.
4.03 Exercise of Rights. The failure or delay of the Lender to exercise
any rights or enforce any security interest shall not release any Person or
property win respect to which the Lender has any rights or any security
interests, or in any way limit or diminish the Lenders rights with respect to
any
such property or Person.
SECTION 5 CONDITIONS PRECEDENT
5.01 Conditions Precedent to the First Disbursement Under the Loan. The
Lender's obligation to make the first Disbursement under the Loan shall be
conditioned upon the fulfillment of all the following conditions prior to the
making of the first Disbursement:
(a) Resolutions. Borrower shall have furnished the Lender with a
certified copy of the resolution of its board of directors or its partners, as
appropriate, (1) authorizing the execution of this Agreement, the Note, the
Security Instruments and any other documents, instruments and agreements
referred
to herein which are required to be executed and delivered by Borrower, and (2)
authorizing consummation of the transactions contemplated by this Agreement
(b) Executed Agreements. Borrower shall have duly executed or
caused to have been duly executed each of the following documents, and shall
have
delivered to the Lender the following: (1) this Agreement; (2) the Note; (3)
the
Security Instruments; (4) the Guaranty (if applicable); and (5) such financing
statements or other documents for filing with public officials with respect to
any of e Security Instruments as the Lender may reasonably request.
(c) Representation and Warranties. Each and every representation
and warranty made by or on behalf of Borrower relating to the Loan Documents
or
the transactions contemplated thereby shall be true, complete and correct.
(d) No Defaults. There shall exist no Event of Default or Unmatured
Default which has not been cured to the Lender's satisfaction.
(e) Recordings and Filing. All financing statements or other
instruments as the Lender may request have been executed and delivered by
Borrower and filed or recorded in such public offices as the Lender may
request
to perfect the security interests which secure the Loan.
(f) Proof of Insurance. The Borrower shall have furnished the
Lender with evidence of insurance demonstrating the Borrower's compliance with
the requirements of Section 6.01 of this Agreement.
5.02 Conditions Precedent to Subsequent Disbursements Under the Loan. The
Lender's obligation to make Disbursements after the initial Disbursement shall
be conditioned upon the fulfillment of the conditions set out ire paragraphs
(c)
and (d) of Section 5.01 of this Agreement.
SECTION 6 GENERAL COVENANTS OF BORROWER
During the term of this Agreement, Borrower shall comply with all of the
following provisions:
6.01 Insurance. Borrower shall maintain insurance as follows:
(a) Liability Insurance. Borrower at its own cost and expense,
shall procure, maintain and carry in full force and effect general liability,
public liability, workers' compensation liability and property damage
insurance
with respect to its actions and operations to such extent, in such amounts and
with such deductibles as are commonly carried by prudent businesses similarly
situated. Without limiting the foregoing, such insurance shall insure against
any
liability for loss, injury, damage or claims caused by or arising out of or in
connection with the operation of the Borrower's business, including injury to
or
death of the Borrower's employees, agents or any other persons, and damage to
or
destruction of public or private property.
(b) Physical Damage Insurance. The Borrower at its own cost and
expense, shall insure all of its insurable properties to such extent, against
such hazards, in the amount of coverage, and with such deductibles as are
commonly carried by prudent businesses similarly situated.
(c) General Insurance Requirements.
(1) All insurance which the Borrower is required to maintain
shall be satisfactory to the Lender in form, amount and insurer. At or before
the
funding of the Loan, the Borrower shall provide the Lender with evidence of
its
due compliance with the requirements of this section.
(2) Thirty days prior to the expiration date of any policy
of insurance maintained pursuant to this Agreement, the Borrower shall provide
the Lender with a certificate of insurance evidencing the acquisition of a new
policy, or an extension or renewal of an existing policy, evidencing the
Borrowers due compliance with this section.
(3) If the Borrower fails to acquire any policy of insurance
required to be maintained pursuant to this section, or fails to renew or
replace
any such policy at least thirty days prior to the expiration thereof, or fails
to keep any such policy in full force and effect, the Lender shall have the
option (but not the obligation) to pay the premiums on any such policy of
insurance or to take out new insurance in amount, type, coverage and terms
satisfactory to the Lender. Any amounts paid therefor by the Lender shall be
immediately due and payable to the Lender by the Borrower upon demand. No
exercise by the Lender of such option shall in any way affect the provisions
of
this Agreement, including the provision that failure by the Borrower to
maintain
the prescribed insurance shall constitute an Event of Default.
6.02 Taxes and Over Payment Obligations.
(a) The Borrower shall pay and discharge, or cause to be paid and
discharged, each before it becomes in arrears, all taxes, assessments,
governmental charges, levies, and claims for labor, materials or supplies
which
if unpaid might become a lien or charge upon any of its property, and all of
its
other debts, obligations and liabilities.
(b) The Borrower may refrain from paying any amount it would be
required to pay pursuant to subparagraph (a) of this section if the validity
or
amount thereof is being contested in good faith by appropriate proceedings
timely
instituted which shall operate to prevent the collection or enforcement of the
obligation contested, provided that the Borrower shall have set aside on its
books appropriate reserves with respect Hereto.
6.03 Financial Statements and Reports.
(a) Direct Financial Statements. As soon as available, and in any
event within twenty (20) days of the end of each fiscal [X] MONTH n QUARTER
(check one), Borrower shall furnish to the Lender a Direct Financial Statement
for the immediately preceding period (monk or quarter, as checked above).
(b) Annual Statements. As soon as available, and in any event
within one hundred twenty (120) days after the end of each fiscal year, the
Borrower shall furnish to the Lender.
If checked here [X], an [X] AUDITED [] COMPILED [] REVIEWED (check one)
balance
sheet, income statement, and statement of cash flows, with consolidating
schedules, for such fiscal year, for the Borrower, prepared by the CPA Firm,
which shall be accompanied by a tax return for the current year, or if the tax
return is not yet prepared for the current year, for the immediately preceding
year; or
If checked here [], a Direct Financial Statement for such fiscal year, which
shall be accompanied by a tax return for the current year, or if the tax
return
is not yet prepared for the current year, for the immediately preceding year.
(c) Guarantor's Annual Statements. The Guarantor, if any, shall
furnish to the Lender, during the term of this Agreement not later than 120
days
after the end of each fiscal year
If checked here [], a Direct Financial Statement for such year, together with
a
tax return for the current year, or if the current year tax return is not yet
prepared, for the immediately preceding year;
or
If checked here [X], an [X] AUDITED [] COMPILED [] REVIEWED (check one)
balance
sheet, income statement, and statement of cash flows, with consolidating
schedules, for such fiscal year, for the Guarantor, prepared by a CPA Firm
acceptable to the Lender which shall be accompanied by a tax return for the
current year, or if the tax return is not yet prepared for the current year,
for
the immediately preceding year.
6.04 Financial Records: Reporting. Borrower shall maintain a standard,
modern system of accounting in which full, true and correct entries shall be
made
of all dealings or transactions in relation to its business and affairs in
accordance with GAAP.
Together with the delivery of the financial statements referred to in section
6.03 above, the Borrower shall submit to the Lender a certificate in the form
of
Exhibit A attached hereto arid made a part hereof (the "Compliance
Certificate")
(i) stating that the Borrower has reviewed the relevant terns of this Loan
Agreement and have no knowledge of any event or condition which constitutes an
Event of Default hereunder, or if any condition or event existed or exists,
specifying the nature and period of existence thereof and what action the
Borrower has taken or is taking or proposes to take with respect thereto, and
(ii) demonstrating in reasonable detail compliance at the end of such
accounting
period with the financial covenants set form in Section 6.11 hereof.
In addition, the Borrower shall provide the following to the Lender:
If checked here [X], no less frequently than monthly, the Borrower shall
provide
to the Lender a listing and ageing of the Borrowers accounts receivable and
accounts payable.
If checked here [], no less frequently than monthly, the Borrower shall
provide
to the Lender an inventory schedule in form and substance satisfactory to the
Lender, including, without limitation, a detailed listing of inventory, work
in
process, raw materials, and returned goods and supplies.
If checked here [], the Borrower shall provide, on a continuing basis, copies
of
any and all leases to which the Borrower is a party.
If checked here [], the Borrower shall provide, no less frequently than
monthly,
rent rolls for any and all properties of the Borrower which are leased, which
rent rolls shall detail, at a minimum, the tenant, the amount of rent, the
frequency of rent, the term of each lease, and whether each tenant is current.
If checked here [], _________
6.05 Properties. Borrower shall maintain its fixed in good condition,
subject only to normal wear and tear, and make all necessary and proper
repairs,
renewals and replacements. Borrower shall comply with all leases and other
material agreements in order to prevent loss or forfeiture, unless compliance
is
being contested in good faith by appropriate proceedings timely instituted
which
shall operate to prevent enforcement of the loss or forfeiture. The Lender
shall
have the right to inspect Borrower's fixed assets at all reasonable times, and
Dom time to time.
6.06 Corporate Existence and Good Standing. If the Borrower is a
corporation, the Borrower is duly organized, validly existing and in good
standing under the laws of the state of the Borrower's incorporation, and is
qualified to do business in all states ire which it conducts business; and the
Borrower shall preserve its corporate existence in good standing.
6.07 Notice Requirements.
(a) Default. The Borrower, if the Borrower is an individual; a
general partner of the Borrower, if the Borrower is a partnership; or an
authorized officer of the Borrower, if the Borrower is a corporation; or the
Borrower's designee, shall notify the Lender in writing within 30 days after
the
Borrower, or any of its officers or directors, has notice of any Event of
Default
or Unmatured Default or has notice that any representation or warranty made in
this Agreement, or in any related document or instrument, for any reason was
not
true and complete and not misleading in any material respect when made. Such
notice shall specify the nature of such Event of Default or Unmatured Default
and
Me action the Borrower has taken or will take to correct it.
(b) Other Information. From time to time, upon request by the
Lender, the Borrower shall furnish to the Lender, such information regarding
the
Borrower's business, assets and condition, financial or otherwise, as the
Lender
may reasonably request. The Lender shall have the right during reasonable
business hours to examine all of the Borrower's business and financial books
and
records and to make notes and abstracts therefrom, and to make an independent
examination of the Borrower's books and records for the purpose of verifying
the
accuracy of reports delivered by the Borrower and ascertaining compliance with
this Agreement.
6.08 Note and Security Instruments. The Borrower shall pay the Note in
accordance with its terms. The Borrower shall also comply with the provisions
of
the Security Instruments and the other Loan Documents.
6.09 Compliance with Law. The Borrower shall comply in all material
respects with (a) all valid and applicable statutes, rules and regulations of
the
United States of America, of the States thereof and their counties,
municipalities and other subdivisions and of any other jurisdiction applicable
to the
Borrower and/or any collateral for the Loan; (b) the orders, judgments and
decrees of all courts or administrative agencies with jurisdiction over the
Borrower or its business; and (c) the provisions of licenses issued to the
Borrower, pursuant to the terms thereof, except where compliance therewith
shall
be currently contested in good faith by appropriate proceedings, timely
instituted, which shall operate to stay any order with respect to such
noncompliance.
6.10 Liens. If checked here [X], except for (i) liens existing on the
date
of this Agreement, and (ii) security interests granted by the Borrower to the
Lender contemporaneously with the execution of this Agreement, and except for
liens permitted in this Agreement, the Borrower shall not (a) create or incur
or
suffer to be created or incurred or to exist any encumbrance, mortgage,
pledge,
lien, charge, restriction or other security interest of any kind upon any of
their property or assets of any character, whether owned or held on the date
of
this Agreement or acquired thereafter, or upon the income or profits
therefrom,
or (b) transfer any such property or assets or the income or profits therefrom
for the purpose of subjecting the same to payment of indebtedness or
performance
of any other obligation except payments made in accordance with Section 6.02
of
this Agreement or payments made to the Lender in accordance with the terms and
provisions of this Agreement, or (c) acquire, or agree to have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement, or (d) sell,
assign,
pledge or otherwise transfer any accounts, contract rights, general
intangibles
or chattel paper, with or without recourse. The Borrower may incur or create,
or
suffer to be incurred or created or to exist, the following liens without
violating the provisions of this Section 6.10:
(a) Statutory liens to secure claims for labor, material or
supplies to the extent that payment thereof shall not at the time be required
to
be made in accordance with Section 6.02 of this Agreement.
(b) Deposits or pledges made in connection with, or to secure
payment of workers compensation, unemployment insurance, old age pensions or
other social security, or in connection with contests, to the extent that
payment
thereof shall not at that time be required to be made in accordance with
Section
6.02 of this Agreement.
(c) Statutory liens for taxes or assessments or governmental
charges or levies if payment shall not at the tone be required to be made in
accordance with Section 6.02 of this Agreement.
(d) Purchase money liens or security interests with respect to
property acquired by the Borrower; provided, such purchases or acquisitions
(i)
shall not exceed $50.000.00 in the aggregate in any one fiscal year without
the
Lender's prior written consent, and (ii) are not made to replace property
encumbered by any Security Instrument.
(e) Statutory liens to secure payment of rent or lease payments
with respect to leases of real property to the extent that such payments shall
not at the time be required to be made in accordance with Section 6.02 of this
Agreement.
6.11 Financial Covenants. The Borrower shall comply at all times with the
following financial covenants, which financial covenants shall be determined
according to GAAP, unless otherwise defined herein:
(a) Debt to Worth Ratio. The ratio of the Borrower's total
liabilities to the Borrowers tangible net worth shall not exceed 2.50 :1.0.
(b) Net Worth. The Borrower shall at all times maintain a tangible
net worth of at least $1 500,000.00.
(c) Current Ratio. The ratio of the Borrowers' current assets to
the Borrowers current liabilities, shall not, at any time, be less than 1.25
:1.0.
(d) Coverage of Interest Expense. The ratio of the Borrower's
Earnings Before Interest Expense and Taxes ("EBIT") to interest expense shall
not, at any time, be less than 2.5 :1.0.
(e) Other Financial Covenant. The Borrower shall also comply with
the following financial covenant:
6.12 Indebtedness. If checked here [X], the Borrower shall not incur any
indebtedness whatsoever, or guarantee or become a co-maker or an accommodation
maker on any note or other evidence of Indebtedness or contact of any kind
with
another financial institution regulated by a state or federal regulator in
excess
of $50,000.00 in the aggregate.
6.13 Mergers, Sales, Transfers and Other Dispositions of Assets. Without
the Lender's prior written consent, which shall not be unreasonably withheld,
Borrower shall not:
(a) Be a party to any consolidation, reorganization (including
without limitation Rose types referred to in Section 368 of the United States
Internal Revenue Code of 1986, as amended), stock-swap or merger;
(b) Sell or otherwise transfer any material part of its assets;
(c) Purchase all or a substantial part of the assets of any
corporation or other business enterprise;
(d) Effect any change in capital structure;
(e) Sell, assign, or otherwise dispose of, with or without
recourse, general intangibles, except the endorsement of negotiable
instruments
of collection in the ordinary course of business; or
(f) Liquidate or dissolve or take any action with a view toward
liquidation or dissolution.
6.14 Verification of Financial Information. Lender may at any time, and
from time to time, require that any determinations of financial information
provided by the Borrower to the Lender be verified by the CPA Firm.
6.15 Transactions with Borrowers Affiliates. The Borrower shall not enter
into, or be a party to, any transaction with any of the Borrower's Affiliates
or
other stockholders, except in the ordinary course of business and pursuant to
the
reasonable requirements of the Borrower's business and upon fair and
reasonable
terms which are fully disclosed to the Lender and which are no less favorable
to
the Borrower than the Borrower would obtain in a comparable arm's length
transaction with a legal entity not an Affiliate of the Borrower.
SECTION 7 REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan,
the
Borrower represents and warrants to the Lender all of the representations and
warranties set forth as follows:
7.01 Governmental Franchises and the Like. The Borrower has all required
governmental permits, certificates, consents and franchises necessary to, or
useful in, the business now being conducted by it, and to own, lease and
operate
its businesses and property now owned, leased and operated. All such
governmental
permits, certificates, consents and franchises are valid and in effect, and
the
Borrower is not in violation of any of them. None of those governmental
permits,
certificates, consents or franchises contain any term, provision, condition or
limitation more burdensome than that which is generally applicable to persons
engaged in the same or similar businesses as the Borrower.
7.02 Financial Statements. The most recent financial statements of the
Borrower delivered to the Lender fairly and accurately present the Borrower's
assets, liabilities and financial condition as of the dates thereof, and there
are no omissions from the same or other facts or circumstances not reflected
therein which are or may be material. There has been no material adverse
change
in the Borrower's assets, liabilities or financial condition since the date of
said financial statements. Except for trade payables and accounts payable
arising
in the ordinary course of the Borrower's business since the dates reflected in
said financial statements, the Borrower has no Indebtedness other than as
shown
or reflected on said financial statements, and has no litigation pending which
would materially and adversely affect its business operations or the property
described in the Security Instruments other than as shown or reflected on said
financial statements.
7.03 No Defaults. No Unmatured Default or Event of Default exists on the
date of this Agreement, nor will any such Unmatured Default or Event of
Default
begin to exist immediately after the execution and delivery hereof
7.04 Authority. The Borrower has the full right, power and authority to
enter into and perform this Loan Agreement, the Note, the Security Instruments
and the other Loan Documents, and to grant to the Lender a security interest
in
and to any collateral described in the Security Instruments. This Loan
Agreement,
the Note, the Security Instruments and the other Loan Documents have been duly
entered into and delivered by the Borrower and constitute the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms.
7.05 Taxes. The Borrower has filed all federal, state and local tax
returns and other reports which the Borrower is required by law to file, and
the
Borrower has paid all taxes and other similar charges that are due and
payable.
7.06 Registered Office. The registered office of the Borrower is located
in Jefferson County, Kentucky.
SECTION 8 EVENTS OF DEFAULT
A default under any of the Loan Documents, including without limitation,
Borrower's breach of any of the terms of this Agreement or any of the Security
Instruments, shall constitute an Event of Default under this Agreement. In
addition, each of the following shall constitute an Event of Default:
8.01 Failure to Pay. If the Borrower shall fail to pay in full on its
due
date any installment of principal or interest on the Note.
8.02 Other Defaults. If the Borrower shall fail to observe, perform or
comply with any term, obligation, covenant, agreement, condition or other
provision contained or referred to in this Agreement or any of the Security
Instruments, and such failure shall not have been fully corrected with 15 days
after the Lender has given written notice thereof to the Borrower.
8.03 Representations and Warranties. If any representation or warranty or
other statement of fact contained herein or in the Security Instruments or in
any
writing, certificate, report or statement at any time furnished the Lender by
or
on behalf of the Borrower pursuant to or in connection with this Agreement or
the
Loan shall be false or misleading in any material respect or which shall omit
a
material fact, whether or not made with knowledge.
8.04 Judgments. If a final judgment or judgments for the payment of money
in excess of the sum of Fifty Thousand Dollars ($50,000) in the aggregate, or
with respect to property with a value in excess of such amount, shall be
rendered
against the Borrower and such judgment or judgments shall remain unsatisfied
for
a period of 30 consecutive days after the entry thereof and within that 30 day
period shall not have been (a) stayed pending appeal, and not discharged
within
10 days after the expiration of such stay, or (b) discharged.
8.05 Sale of Collateral. If Borrower shall sell any property subject to
any of the Security Instruments, other then inventory sold in the ordinary
course
of business, without the prior written consent of the Lender.
8.06 Other Obligations to the Lender. If the Borrower shall fail to
observe, perform or comply with the terms, obligations, covenants, agreements,
conditions or other provisions of any agreement, document or instrument other
than this Agreement and the related documents which the Borrower has entered
into
with the Lender.
8.07 Termination of Existence. If Borrower takes any action that is
intended to result in termination of Borrower's existence.
8.08 Solvency.
(a) If the Borrower shall (i) admit in writing its inability to pay
its debts generally as they become due, (ii) become insolvent in that the
Borrower's total assets are less than all of its liabilities, or the Borrower
is
unable to pay its debts generally as they become due, (iii) make a general
assignment for the benefit of creditors, or (iv) file a petition, or admit (by
answer, default or otherwise) the material allegations of any petition filed
against it, in bankruptcy under the federal bankruptcy laws (as in effect on
the
date of this Agreement or as they may be amended from time to time), or under
any
other law for the relief of debtors, or for the discharge, arrangement or
compromise of its debts.
(b) If a petition shall have been filed against the Borrower in
proceedings under the federal bankruptcy laws (as in effect on the date of
this
Agreement, or as they may be amended from tone to time), or under any other
laws
for the relief of debtors, or for the discharge, arrangements or compromise of
its debts, or an order shall be entered by any court of competent jurisdiction
appointing a receiver, trustee or liquidator of all or part of the Borrower's
assets, and such petition or order is not dismissed or stayed within 90
consecutive days after entry Hereof.
SECTION 9 REMEDIES UPON DEFAULT
Notwithstanding anything to the contrary, if any Event of Default occurs,
the Lender, in its sole discretion, and without notice to the Borrower, may
(a)
terminate any obligation of the Lender, if any, to make further advances under
the Note, and (b) declare the entire unpaid balance of the Note and the Loan
evidenced thereby, and all other obligations of the Borrower under this
Agreement
to be immediately due and payable in full. En addition, upon the occurrence of
an Event of Default, and at any time thereafter, unless all Events of Default
have been remedied to the full satisfaction of the Lender, the Lender shall
have
all of the following rights and remedies and it may exercise one or more of
them
singly or in conjunction with others:
9.01 Right to Offset. The Lender has the right to apply all of the
Borrower's deposit balances and other sums and indebtedness which the Lender
holds for the Borrower's credit or account, against the Borrower's obligations
to the Lender arising under this Agreement or as evidenced by the Note. In
addition, the Borrower hereby authorizes the Lender to debit any account of
the
Borrower for the purpose of paying any installment of any obligation which is
not
paid by its due date; provided, however, that should the Lender choose not to
debit any account of the Borrower for any overdue payment, whether or not the
Lender has so debited any account in the past, such action or failure to act
shall not be construed to be a waiver of the Lender's right to declare the
Borrower in default. Borrower hereby grants a security interest in such
deposit
balances, other sums and indebtedness of the Lender to secure all of the
Borrower's obligations under this Agreement and the Note. Such offsets by the
Lender may occur without notice to or demand upon the Borrower or any over.
The
Borrower hereby waives all such notices and demands.
9.02 Enforcement of Rights. Lender has the right to protect and enforce
its rights by a suit in equity, an action at law or any other appropriate
proceeding either for specific performance of any covenant or condition
contained
in this Agreement or under any of the Security Instruments or any of the other
Loan Documents or in aid of the exercise of any power granted in this
Agreement,
any of the Securest Instruments or arty Loan Document.
9.03 Rights under Security Instruments. Lender shall also have all rights
and remedies granted under the Security Instruments intending to secure the
Note
or any other indebtedness or obligation of the Borrower under this Agreement.
9.04 Cumulative Remedies. All of the rights and remedies of the Lender
upon the occurrence of an Event of Default shall be cumulative to the greatest
extent permitted by law, may be exercised successively or concurrently, from
time
to time, and shall be in addition to all of those rights and remedies afforded
to the Lender at law, or in equity, or in bankruptcy. Notwithstanding the
foregoing, the Lender shall be entitled to recover from the cumulative
exercise
of all remedies an amount no greater than the sum of (a) the outstanding
principal amount of the Loan; (b) all accrued but unpaid interest with respect
to the principal amount of the Loan; (c) any other amounts that the Borrower
is
required by this Agreement and/or the Loan Documents to pay to the Lender (for
example, and without limitation, the reimbursement of reasonable expenses and
the
Lender's reasonable attorney's fees, court costs, and other legal fees, and
late
charges); and (d) any costs, expenses or damages which the Lender is otherwise
permitted to recover by the terms of this Agreement. Any exercise of any right
or remedy shall not be deemed to be an election of that right or remedy to the
exclusion of any over right or remedy.
SECTION 10 FEES AND EXPENSES
The Borrower shall pay to the Lender upon demand all out-of-pocket
expenses
incurred by the Lender in connection with the transactions contemplated under
this Agreement, including, but not limited to, any and all costs and fees
incurred in connection with the recording or filing of any documents or
instruments in any public office. Further, if any Event of Default shall occur
under this Agreement, or any default or Event of Default shall occur under any
of the Loan Documents, Borrower shall pay to the Lender, to the extent
allowable
by applicable law, such amounts as shall be sufficient to reimburse the Lender
fully for all of its costs and expenses incurred in enforcing its rights and
remedies under this Agreement, the other Loan Documents and any related
documents, including without limitation, the Lender's reasonable attorneys'
fees
and court costs. Such amounts shall be deemed to be included m the obligations
secured by the Security Instruments.
SECTION 11 - CROSS DEFAULT WITH OTHER OBLIGATIONS TO THE LENDER
The Borrower and the Guarantor hereby covenant and agree that an Event of
Default under this Agreement shall be deemed to be an Event of Default under
any
other Indebtedness of the Borrower to the Lender. In addition, as provided
herein, should the Borrower fail to comply with any term, provision or
condition
of any other indebtedness of the Borrower to the Lender, such event shall be
an
Event of Default under this Agreement.
SECTION 12 - MISCELLANEOUS PROVISIONS
12.01 Term of Agreement. The term of this Agreement shall commence as
of
the date hereof, and continue until the Borrower shall have paid or performed
all
of its obligations hereunder.
12.02 No Waivers. Failure or delay by the Borrower or the Lender (as
the
case may be) in exercising any right shall not be deemed to be or operate as a
waiver of that right, nor shall any right be exclusive of any other right
referred to in this Agreement, or in any other related document, or available
at
law or in equity, by statute or otherwise. Any single or partial exercise of
any
right shall not preclude the further exercise of that right. Every right of
the
Borrower and the Lender shall continue in full force and effect until such
right
is specifically waived in a writing signed by the party waiving such right.
12.03 Course of Dealing. No course of dealing between the Borrower
and the
Lender shall operate as a waiver of any of e Borrowers or Lenders rights under
this Agreement or under the other Loan Documents.
12.04 Severability. If any park term or provision of this Agreement
is held
by any court to be unenforceable or prohibited by any law applicable to this
Agreement, the rights and obligations of the parties shall be construed and
enforced with that part, term or provision limited so as to make it
enforceable
to the greatest extent allowed by law, or, if it is totally unenforceable, as
if
this Agreement did not contain Hat particular part, terra or provision.
12.05 Time of the Essence. Time shall be of the essence in the
performance
of all of the Borrower's obligations under this Agreement and the other Loan
Documents.
12.06 Benefit and Binding Effect. This Agreement shall inure to the
benefit
of the Lender, its successors and assigns, and all benefits and obligations of
the Borrower shall inure to the benefit of and bind its successors and, if and
to the extent assignment is otherwise permitted by this Agreement, its
assigns.
12.07 Further Assurances. The Borrower shall sign such financing
statements
or other documents or instruments as the Lender may reasonably request from
time
to time to more fully create, perfect, continue, maintain or terminate the
rights
and security interests intended to be granted or created pursuant to this
Agreement or the other Loan Documents.
12.08 Incorporation by Reference. All schedules, annexes or other
attachments to this Agreement are incorporated into this Agreement as if set
out
in full at the first place in this Agreement that reference is made thereto.
12.09 Entire Agreement: No Oral Modifications. This Agreement, the
schedules and annexes hereto, and the documents and instruments referred to
herein constitute the entire agreement of the parties with respect to the
subject
matter hereof. No change, modification, addition or termination of this
Agreement, or any other of the Loan Documents shall be enforceable unless in
writing and signed by the party against whom enforcement is sought. This
Agreement shall be in addition to such other, if any, loan agreement(s) which
the
Borrower may have entered into with the Lender, and nothing contained in any
such
other loan agreement(s) shall be construed to limit the provisions of this
Agreement, nor shall anything contained in this Agreement be construed to
limit
the provisions of any such other agreement(s).
12.10 Headings.
(a) The headings used in this Agreement are included for ease of
reference only and shall not be considered in the interpretation or
construction
of this Agreement.
(b) Unless the particular context requires otherwise, any reference
in this Agreement (i) to a section, paragraph or other grammatical subdivision
shall be deemed to be a reference to a section, paragraph or other grammatical
subdivision of this Agreement, and (ii) to an Annex or a Schedule shall be
deemed
to be a reference to an Annex or a Schedule attached to this Agreement.
12.11 Governing Law. This Agreement and the related documents and
instruments shall be governed by and construed in accordance with the laws
(including, without limitation, the conflicts of laws rules) of the state of
Kentucky.
12.12 No Assignments. The Borrower may not assign its rights under
this
Agreement to any other party. Any attempted assignment without Lender's
written
consent shall be a default under this Agreement and shall be null and void.
12.13 Notices.
(a) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least
five (5) business days before the time of sale, disposition or other event or
thing giving rise to the requirement of notice.
(b) All notices or communications under this Agreement shall be in
writing and shall be hand delivered or mailed to the parties' addresses listed
at the beginning of this Agreement, and any notice so addressed and mailed by
registered or certified mail, return receipt requested, shall be deemed to
have
been given when mailed.
(c) The Borrower, the Lender or the Guarantor may at any time, and
from time to time, change the address to which notice shall be mailed by
written
notice setting forth the changed address.
12.14 Survival of Covenants. All covenants, agreements, warranties
and
representations made by the Borrower herein shall survive the making of the
Loan
and the execution and delivery of this Agreement, the Note and any and all
Loan
Documents.
IN WITNESS WHEREOF, the Borrower and the Lender have signed this
Agreement
as of the date set forth in the preamble hereto, but actually on He dates set
forth below.
THE BORROWER:
Name: IN-HOUSE REHAB, INC.
By: /s/ R. J. Babine
Title: Chief Financial Officer, Director
Date: 10/29/96
THE GUARANTOR:
Name: PERENNIAL DEVELOPMENT CORPORATION
By: /s/ R. J. Babine
Title: Chief Financial Officer, Director
Date: 10/29/96
THE LENDER:
GREAT FINANCIAL BANK, FSB
By: /s/ K. J. Bund
Title: First Vice President
Date: 10/29/96
<PAGE>
SECURITY AGREEMENT
Account Number
This is a Security Agreement dated October 29, 1996 between IN-HOUSE
REHAB, INC. ("Debtor") of 9505 Williamsburg Plaza, Louisville, KY 40222,
and GREAT FINANCIAL BANK, FSB ("Secured Party"), One Financial Square,
Louisville, Kentucky 40202.
1. Grant of Security Interest. Debtor hereby grants to Secured
Party a security interest in all of Debtor's right, title and interest in
and to the following described property, in any and all additions and
accessions thereto and replacements thereof and in the proceeds, both cash
and non-cash, of any sale or other disposition of that property, all of
which are collectively referred to as the "Collateral".
(a) All inventory of the Debtor, now owned or hereafter acquired; (b)
all Accounts, accounts receivable and Chattel Paper of the Debtor, now
existing or hereafter arising, including but not limited to all rights to
payment for services rendered, whether or not earned by performance; (c)
all Equipment and Machinery (including but not limited to Mobile Goods) of
the Debtor and all replacements thereof and accessions thereto, whether or
not the same are or may become Fixtures; (d) all negotiable Documents of
Title; (e) all GeneralIntangibles of the Debtor; (f) all Goods,
Instruments, Documents, policies and certificates of insurance, proceeds
of insurance, securities, tax refunds, letters of credit and credit
devises, Deposit Accounts, cash and other property owned by the Debtor or
in which Debtor has an interest whether or not now or hereafter in the
possession of the Secured Party of a Bailee or regardless of whether the
Secured Party may now or hereafter control possession by documents of
title or otherwise; and (g) all other personal property and Goods of the
Debtor, regardless of how classified, including but not limited to all
office supplies, furniture, office, store and trade fixtures and leasehold
improvements, patents, trademarks and copyrights.
As used herein, the terms "Inventory," "Accounts," "Chattel Paper,"
"Mobile Goods," "Fixtures," "Documents," "Equipment," "General
Intangibles," "Instruments," "Goods," "Deposit Accounts," and "Bailee"
shall have the meaning given to them in Kentucky Revised Statutes Chapter
355.
2. Obligations Secured. The security interest created herein
secures payment and performance of all liabilities and obligations of the
Debtor to the Secured Party of every kind and character, now existing or
hereafter incurred, whether direct or indirect, absolute or contingent,
joint or several, however owned, held or acquired by the Secured Party.
IT BEING THE EXPRESS INTENTION OF THE DEBTOR BY THE EXECUTION AND DELIVERY
OF THIS SECURITY AGREEMENT TO SECURE ALL LIABILITIES AND OBLIGATIONS OF
THE DEBTOR TO, AND ALL FINANCIAL ACCOMMODATIONS BY, THE SECURED PARTY, TO
OR FOR THE BENEFIT OF THE DEBTOR, INCLUDING BUT NOT LIMITED TO LOANS,
LINES OF CREDIT, HONORED OVERDRAFTS, GUARANTIES OF THE OBLIGATIONS OF
THIRD PARTIES AND DISCOUNTS. Without limiting the generality of the
foregoing, the security interest created hereby secures payment and
performance of:
If Checked Here [X] all indebtedness of the debtor evidenced by the
promissory note in the principal amount of $2,500,000.00, dated October
29, 1996, all obligations contained therein, and any amendments,
replacements, and substitutions therefor or extensions thereof;
If Checked Here [ ] arising out of that certain letter of credit agreement
dated -----------, 19---, between the Debtor and the Secured Party;
If Checked Here [ ] arising out of that certain Guaranty Agreement dated
- ----------, 19---, guarantying certain Guarantied Obligations, as therein
defined, of ------------------------------- to Secured Party;
3. Representations and Warranties. To induce Secured Party to
enter into this Security Agreement, Debtor represents, warrants and
covenants as follows:
(a) If Debtor is a corporation, then it is duly organized and
validly existing under the laws of the state of its incorporation, and it
has full power and authority to enter into this Security Agreement; and
the execution, delivery
and performance of this Security Agreement have been duly authorized.
(b) If Debtor is a partnership, then it has full power and authority
to enter into this Security Agreement; and the execution, delivery and
performance of this Security Agreement have been duly authorized by all of
the partners of this partnership.
(c) If Debtor is an individual, then he has full power and authority
to enter into this Security Agreement.
(d) This Security Agreement has been duly entered into and delivered
and constitutes a legal, valid and binding obligation of Debtor
enforceable in accordance with its terms.
(e) Debtor has good and marketable title to the Collateral, and the
Collateral is not subject to any lien, charge, encumbrance, claim or
security interest, or any pending or threatened legal proceeding, except
the following:
(f) The Collateral will be kept at the following location:
If no address is here given, then the Collateral will be kept at the
address first above given for Debtor. Debtor will not permit the
Collateral to be kept or stored at any location other than that shown
without the prior written consent of Secured Party.
(g) If Debtor is a corporation, its registered office, as set forth
in its most recent filing with the Kentucky Secretary of State which
officially designates its current registered office is 3200 Providian
Tower, Louisville, KY 40202 ; if Debtor is an individual, general
partnership, limited partnership, cooperative association, business trust,
credit union or other organization (as defined in KRS 355.1-201) its
principal place of business and residence is
- ----------------------------------------------. The Debtor's chief
executive office is located at 9505 Williamsburg Plaza, Louisville, KY
40222 . Debtor will immediately notify Secured Party in writing of any
change in the location of Debtor's registered office, principal place of
business, residence or chief executive office.
(h) All financial statements, certificates or other information
concerning Debtor's financial condition, or concerning the Collateral, has
been in all respects accurate, true and correct.
(i) The Collateral is intended for use primarily for (check one) [X]
Business Use or [ ] Consumer Use, and (check one) [ ] is or [X] is not
being acquired with the proceeds of one of the obligations secured by this
Security Agreement. If the Collateral is being acquired with the proceeds
of one of the obligations secured in this Security Agreement, Secured
Party may disburse directly to the seller of the Collateral.
(j) During the past five (5) years, Debtor has conducted business
under no trade name or assumed business name other than its real name and
the following:
4. Insurance. Debtor, at its own expense, shall insure the
Collateral against fire, theft and casualty damage in the amount not less
than the outstanding balance of the obligation secured by this Security
Agreement. Such insurance shall be satisfactory to Secured Party as to
form and amount. Debtor has the right to choose the agent and insurer
from which such insurance is obtained, except that Secured Party may, for
reasonable cause, refuse to accept an insurer offered by Debtor. Such
insurance shall name Secured Party as an insured to the extent of its
interest, and shall afford to Secured Party such additional protection to
insure against such additional risks or hazards as Secured Party may
request from time to time. Such insurance shall provide that the
insurance provided thereunder cannot be cancelled without 14 days prior
written notice to Secured Party. Debtor shall provide Secured Party with
evidence satisfactory to it of Debtor's due compliance with this
paragraph. Debtor hereby assigns to Secured Party all sums which become
payable under any insurance covering the Collateral including without
limitation, returned or unearned premiums and dividends, and appoints
Secured Party as attorney for Debtor in obtaining, adjusting, settling,
compromising and cancelling such insurance and endorsing any drafts drawn
to Debtor pursuant to such insurance.
5. Receivables - Special Provisions
(a) If any event of default hereunder occurs, the Secured Party
shall have, in addition to the rights set forth elsewhere in this Security
Agreement, the right to notify debtors obligated on any or all Accounts,
accounts receivable or Chattel Paper of the Debtor ("Receivables") to make
payments directly to the Secured Party, and to apply the whole or any part
of such payments against the obligations secured by this Security
Agreement, the order and method of such application being in the sole
discretion of the Secured Party. Until the Secured Party notifies debtors
to make payments directly to the Secured Party, Debtor shall continue to
collect payments of the Receivables. If any event of default has occurred
and is continuing, Debtor shall not use the proceeds from payments on any
of the Receivable to satisfy any indebtedness to any person other than the
Secured Party. If Debtor collects payments on any of the Receivables
after an event of default has occurred and while it is continuing, or if Debtor
receives any payments after notice has been given to make payments directly to
Secured Party, Debtor shall hold the proceeds received from that collection in
trust for the Secured Party and shall turn over such proceeds to the Secured
Party immediately in the identical form received. In the event of such pay-
ment, the Secured Party shall credit the proceeds as payment of the obligations
secured by this Security Agreement first to interest, then to principal. Any
credit given to Debtor for proceeds in form other than cash shall be con-
ditional upon final payment of the items, and if any item is not paid the
amount of any credit given for it shall be charged to Debtor whether or not
the item is returned, and such amount shall be a part of the obligations
secured by this Security Agreement.
(b) Debtor shall have no power to, and shall not, waive, compromise
or discount any Receivables without the prior written consent of the Secured
Party.
(c) If the Secured Party deems itself insecure and upon notification
to Debtor, the Debtor shall immediately deliver to the Secured Party any
Receivables evidenced by a promissory note, trade acceptance, Chattel Paper
or other instrument, appropriately endorsed to the Secured Party's order.
Debtor authorizes the Secured Party to endorse same on Debtor's behalf. Debtor
hereby waives presentment, demand, notice of dishonor, protest and notice of
protest and all other notices with respect thereto.
(d) The Debtor hereby irrevocably constitutes the Secured Party as
Debtor's agent and attorney-in-fact to (a) proceed against debtors
obligated on Receivables in Debtor's name or in the Secured Party's name, and
(b) sign and endorse all checks, drafts and other instruments in payment of
Receivables, and (c) perform all such other acts with respect to Receivables
as the Secured Party may in its discretion deem necessary to effectuate the
security intended to be granted in this Security Agreement.
THE ADDITIONAL PROVISIONS PRINTED ON ANY ADDITIONAL PAGE SHALL FORM
A PART OF THIS AGREEMENT AND ARE HEREBY INCORPORATED BY REFERENCE.
6. Obligations Regarding Collateral. Debtor shall keep and
maintain the Collateral in good condition and repair and under adequate
condition of storage to prevent its deterioration or depreciation in value.
Debtor shall keep the Collateral free and clear of liens and shall declare
and pay all assessments, charges or taxes. If Debtor fails to pay such
assessments, charges or taxes Secured Party may, but is not obligated to,
pay them, and such payment shall be deemed conclusive evidence of the
legality or validity of such assessments, charges or taxes. If Debtor fails
to provide insurance pursuant to paragraph 4 of this Security Agreement,
Secured Party may, but is not obligated to, pay for insurance. Debtor shall
promptly reimburse Secured Party for any payments made pursuant to this
paragraph, and until reimbursement, such payments shall be a part of the
obligations secured by this Security Agreement.
7. Use and Inspection of Collateral. Debtor shall not use the
Collateral or the proceeds of any loans secured by the Collateral in
violation of any federal or state statute, or local ordinance, and Secured Party
shall have the right to inspect the Collateral at the premises of Debtor or
wherever the Collateral may be located.
8. Default. At the option of Secured Party and without necessity
for demand or notice, the happening of any of the following events shall
constitute an event of default hereunder:
(a) Failure of Debtor to pay when due any obligation secured by this
Security Agreement, or any installment on any such obligation;
(b) Failure of Debtor to keep or perform any of the terms or
provisions of this Security Agreement, or of any note or other evidence of any
obligations secured by this Security Agreement;
(c) Any warranty, representation or statement made herein or
otherwise furnished to Secured Party by or on behalf of Debtor proves to be
false in any material respect;
(d) Loss, theft, damage, destruction or encumbrance of the
Collateral,
or any part thereof, or the making of a levy, seizure or attachment
thereof or
thereon;
(e) The sale or other disposition of the Collateral or any interest
therein without the prior written consent of Secured Party;
(f) The Collateral should become the subject matter of litigation
which
might, in the opinion of Secured Party, result in substantial impairment
or loss
of the security intended to be provided by this Security Agreement;
(g) Any of the following by or to Debtor or to any guarantor or
endorser
of any obligation secured by this Security Agreement: Death (if an
individual);
unless steps are taken within 60 days thereafter to reasonably satisfy the
Secured Party that the Note will be paid and when due, any failure in
business;
any general assignment for the benefit of creditors; the filing of any
petition
for relief under the provisions of the Bankruptcy Act, or for relief under
any
insolvency law, either voluntarily or involuntarily; dissolution,
termination of
existence, or appointment of a receiver of any part of the property of
Debtor;
(h) Secured Party should deem itself insecure, or Secured Party in
good
faith believes that the prospect for payment of any obligation secured by
this
Security Agreement, or any installment on any such obligation has been
impaired;
(i) If Debtor is a corporation, any event should occur (including
without
limitation, transfer, sale or other disposition of shares of Debtor by the
shareholders on the date of this Security Agreement, or the issuance by
Debtor
of shares of Debtor to persons not shareholders of Debtor on the date of
this
Security Agreement) which would cause fifty percent or more of the then
outstanding shares of Debtor to be owned by persons other than one of the
shareholders of Debtor on the date of this Security Agreement, without
Debtor
having first received the prior written consent of Secured Party;
(j) Debtor or any guarantor or endorser of any obligation secured by
this
Security Agreement should default in any obligation to or agreement with
any
person or entity by which Debtor or such guarantor or endorser or any of
their
properties are bound;
(k) Debtor or any officer, director, agent, tenant or employee of
the
Debtor is charged, indicted, or convicted of any criminal offense by the
federal
or any state government which, in the sole and reasonable exercise of the
Secured
Party's discretion, shall place any of the Collateral at risk of
forfeiture to
the federal or any state government.
9. Remedies. Upon any event of default under this Security
Agreement,
Secured Party may at its option declare any and all obligations secured by
this
Security Agreement immediately due and payable; and, in addition to
exercising
all other rights or remedies proceed to exercise with respect to the
Collateral
all rights, options and remedies of a secured party upon default as
provided for
under the Uniform Commercial Code. The rights of Secured Party upon
default
shall include, without limitation, the following:
(a) The right to the immediate possession of the Collateral without
requirement of notice or demand, or of legal process. In exercising this
right,
Secured Party may enter into the premises of Debtor, without requirement
of any
legal process and Secured Party may pursue the Collateral wherever it may
be
found. After retaking possession, Secured Party shall be entitled to sell
the
Collateral at public or private sale, in accordance with the requirements
of the
Uniform Commercial Code, or other law regulating such sale.
(b) The right to recover the reasonable expenses of preparing the
Collateral for sale, and for selling the Collateral, and other like
expenses,
together with court costs and reasonable attorney fees incurred in
realizing upon
the Collateral or enforcing any provision of this Security Agreement.
(c) The right to require Debtor to assemble the Collateral and make
it
available to Secured Party at a place to be designated by Secured Party
which is
reasonable and convenient to both parties.
(d) The right to require Debtor to store the Collateral, at its own
costs
and risk, on behalf of Secured Party after Secured Party has retaken
possession
of Collateral. Such storage shall be in such manner as to prevent any
deterioration of the Collateral, and shall be for a reasonable time
pending the
sale or other disposition of the Collateral.
(e) The right to proceed by appropriate legal process to enforce any
provisions of this Security Agreement or in aid of the execution of any
power of
sale, or for foreclosure of the security interest of Secured Party, or for
the
sale of the Collateral under the judgment or decree of any court.
10. Remedies Cumulative. The rights and remedies of Secured Party
in
this Security Agreement shall be deemed to be cumulative, and any exercise
of any
rights or remedies by Secured Party shall not be deemed to be an election
of that
right or remedy, to the exclusion of any other right or remedy.
11. No Waivers. Any forbearance, failure or delay by Secured Party
in
the exercise of any right, power or remedy hereunder shall not be deemed
to be
a waiver of any such right, power or remedy and any single or partial
exercise
of any right, power or remedy, shall not preclude the further exercise
thereof.
Every right, power and remedy of Secured Party shall continue in full
force and
effect until such right, power or remedy is specifically waived by an
instrument
in writing executed by Secured Party.
12. Notice. Any requirement of the Uniform Commercial Code of
reasonable
notice, whether to Debtor or to any other party, shall be met if such
notice is
mailed, postage prepaid, to Debtor, or as the case may be, to such other
party
to whom notice is required, at the address shown for each of them
respectively
on the records of Secured Party at least five days before the time of
sale,
disposition or other event or thing giving rise to the requirement of
notice.
13. Severability. Any provision of this Security Agreement
prohibited
by any law applicable to this Security Agreement shall be ineffective to
the
extent of such prohibition without invalidating or affecting in any manner
the
remaining provisions of this Security Agreement. If any part, term or
provision
of this Security Agreement is held by any court to be illegal, or in
conflict
with any law applicable to this Security Agreement, the rights and
obligations
of the parties shall be construed and enforced as if this Security
Agreement did
not contain that particular part, term or provision.
14. Headings. The headings in this Security Agreement have been
included
for ease of reference only, and shall not be considered in the
construction or
interpretation of this Security Agreement.
15. Benefit. This Security Agreement shall inure to the benefit of
Secured Party and its successors and assigns, and all obligations of
Debtor shall
bind its heirs, executors or administrators, and its successors and
assigns. If
these is more than one Debtor, their obligations hereunder shall be joint
and
several.
16. Filing of Copies. A carbon copy, photocopy or other
reproduction of
(a) this Security Agreement, or (b) any financing statement covering all
or part
of the Collateral, is sufficient as a financing statement.
17. This agreement shall be governed by the laws of the Commonwealth
of
Kentucky to the extent allowed by the Uniform Commercial Code.
IN WITNESS WHEREOF, Debtor and Secured Party have signed this
Security
Agreement on 10-29, 1996.
Debtor: IN-HOUSE REHAB, INC.
By: /s/ Robert J. Babine
Robert J. Babine, Treasurer and Chief Financial Officer
GREAT FINANCIAL BANK, FSB
By: /s/ Kenneth J. Bewick
Kenneth J. Bewick, First Vice President
----------------------------------
Account key (for internal use only)
<PAGE>
PROMISSORY NOTE
Revolving Credit Loan
$2,500,000.00 October 29, 1996
Louisville, Kentucky
For value received the undersigned Maker(s), (individually or
collectively, the "Maker"), promises to pay to the order of Great
Financial Bank,
FSB (the "Lender"), at its home office in Louisville, Kentucky, the
principal sum
of TWO MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS, together with
interest
on the principal of this note from time to time outstanding at an annual
rate set
forth below.
1. INTEREST RATE. The principal balance of this note outstanding at any
time
shall bear interest as is checked below from the date of this note first
set
forth above until paid in full at a rate equal to the following:
1.1 [ ] Fixed Rate: % per annum.
1.1 [ X ] Variable Rate: A variable rate per annum which is equal
to
the sum of the "Prime Rate" charged by the Lender, from time to time in
effect,
plus 1/4 of 1 percentage points, provided, however, if checked here [
], the
annual interest rate shall not be less than % nor shall it exceed
%.
As used in this note, "Prime Rate" means the annual rate set by the Lender
from
time to time to establish the annual interest rate applicable to
extensions of
credit by the Lender which bear interest related to the Lender's Prime
Rate. The
Prime Rate is not necessarily the Lender's best or lowest rate of
interest. The
Lender's Prime Rate shall be posted at all times in the offices of the
Commercial
Lending Division at the Lender's home office in Louisville, Kentucky. The
interest rate of this note shall be adjusted from time to time on the same
day
on which the Prime Rate is changed by the Lender. As of the date of this
note
the Prime Rate is 8.25% and the annual interest rate of this note is
8.50%.
1.2 Interest Accrual. All interest on this note shall be computed
on the
basis of the actual number of days elapsed over an assumed year of 360
days, or
if checked here [ ], over a year of 365 days, or
if checked here [ ], over an assumed year of 360 days with 30
day
months.
2. REPAYMENT TERMS. This note is a revolving credit note under which
advances
may be made by the Bank from time to time under the terms and conditions
set
forth in this note. Amounts once borrowed and repaid may be reborrowed in
accordance with the terms and conditions set forth in this note.
All accrued interest shall be paid, until this note has been paid in
full,
beginning on December 2, 1996 and continuing on the same successive day
every:
[ X ] month; [ ] three (3) months; [ ] other (insert frequency):
. The
outstanding balance of principal, accrued interest, charges and fees shall
be due
and payable in full on October 2, 1997 (the "Maturity Date").
If checked here [ X ], advances made under this note are subject to
the
terms of a Borrowing Base Agreement dated October 29, 1996, which governs
conditions and circumstances under which advances may be made under this
note.
If checked here [ ], the Borrower shall be required to maintain a
zero
balance outstanding under this note for a period of days during
the term
of this note.
Time shall be of the essence in making all payments of principal
and/or
interest due under this note.
3. LATE CHARGE. If the Maker fails to pay any installment of principal
and/or
interest due hereunder within fifteen (15) days after the payment first
became
due and payable, the Maker shall pay the Lender a "late charge" equal to
the
greater of (i) five percent (5%) of each such overdue payment, or (ii)
$25.00
each. If not sooner paid, all late charges shall be payable on the
Maturity
Date.
4. UNPAID INTEREST; DEFAULT RATE. At the discretion of the Lender,
interest
not paid within 14 days of its due date will be added to the outstanding
principal balance of this note and will bear interest at the rate
indicated on
the front of this note. Notwithstanding any other provision in this note
to the
contrary, upon maturity, whether by acceleration or otherwise, at the
discretion
of the Lender, the principal balance of this note shall bear interest
thereafter
until paid in full at 3 percentage points in excess of the interest rate
of this
note. Acceleration of maturity occurs if the Lender exercises its option
to deem
this note immediately due and payable.
5. APPLICATION OF PAYMENTS. Payments shall be applied first to accrued
but
unpaid interest, then to the principal balance outstanding, and then to
any late
fee or charge outstanding under this note.
6. COLLATERAL SECURITY. To secure payment of this note, any renewals or
extensions thereof, and all other existing and future indebtedness (direct
or
contingent) of the Maker to the Lender, the Lender has been given the
property
described below, or the property described in any instruments described
below,
or a lien on such property, and any additions to or substitutions for the
same,
as well as all property which now or hereafter is listed under any
separate
security agreement, instrument or document as directly or indirectly
securing
this note, and also all money and other property held by the Lender on
deposit,
in safekeeping or otherwise for the account of or to the credit of the
Maker:
All Business Assets of IN-HOUSE REHAB, INC., as evidenced in the Security
Agreement dated as of October 29, 1996
7. DEFAULT; REMEDIES. In the event (i) the Maker fails to make any
payment
when due under this note or under any other notes or obligations of the
Maker to
the Lender, or (ii) the Maker or any endorser or guarantor of this note
shall be
adjudged a bankrupt, or file a petition in bankruptcy, or have a petition
filed
against them, or (iii) the Maker or any endorser or guarantor of this note
shall,
in the sole opinion of the Lender, experience a material adverse change in
its,
his or her financial condition, or (iv) a writ or order of attachment or
garnishment shall be issued or made against any property of the Maker or
any
endorser or guarantor of this note, or (v) of dissolution, termination of
existence, or material change in the ownership of the Maker of any
endorser or
guarantor of this note, or (vi) the Maker or any endorser or guarantor of
this
note fails to provide financial statements or other financial information
on a
timely basis when reasonably requested by the Lender, or (vii) the Bank in
good
faith deems itself insecure with respect to repayment of this note, or in
good
faith believes that the prospect of payment is impaired, or (viii) of the
death
of any Maker or any endorser or guarantor of this note, or (ix) the Maker
or any
endorser or Guarantor of this Note shall default under or breach this
Note, any
other note, loan agreement, warranty or other agreement with Lender, then
in any
such case, (a) the Lender may terminate any obligation of the Lender to
make
further advances under this note, and (b) the entire unpaid principal
balance of
and all accrued interest on this note and/or all liabilities of the Maker
to the
Lender shall be considered to be in default and, at the Lender's option,
forthwith become due and payable without demand or notice, and the Lender
may
sell at public or private sale any or all of the property securing this
note, or
substitutes therefor or additions thereto, and if such sale be public, the
Lender
may purchase such property or any part thereof. The proceeds of any sale
made
hereunder, after deducting any expense incident to said sale, together
with the
cost of handling said property, may be applied by the Lender, as it shall
deem
proper, to any one or more or all of the liabilities of the Maker to the
Lender,
whether such liabilities are due or not, and the balance of said proceeds,
if
any, shall be returned to the Maker.
If any Maker is a corporation, partnership, limited partnership,
limited
liability company or any other type of business entity, the happening of
any of
the following events without the Lender's prior written consent shall
render this
note in default and, at the option of the Lender, immediately due and
payable
without demand or notice: (1) a merger or consolidation of the Maker or
any
subsidiary of the Maker with or into any corporation or other legal
entity, or
a merger or consolidation of one or more other such entities with or into
the
Maker; (2) the sale, lease, transfer or other disposition of all or any
substantial part of the assets of the Maker, whether now owned or
hereafter
acquired; (3) an acquisition by the Maker of all or substantially all of
the
assets or outstanding capital stock of any other business entity; or (4)
any one
or more transfers, sales or other dispositions of shares of any class of
stock
of the Maker by shareholders on the date of this note, or the issuance by
Maker
on one or more occasions of shares of any class of stock of the Maker to
persons
not shareholders of the Maker on the date of this note, which in the
aggregate
would cause 50% or more of the then outstanding shares of such class of
stock to
be owned by persons other than one of the shareholders of the Maker on the
date
of this note.
Failure of the holder of this note to exercise any of its rights and
remedies shall not constitute a waiver of any provision of this note, or
of any
security agreement, instrument or document (including without limitation
any
guaranty) securing Maker's obligations under this note, or of any such
holder's
rights and remedies, nor shall it prevent the holder from exercising any
rights
or remedies with respect to the subsequent happening of the same or
similar
occurrences. All remedies of the holder hereof shall be cumulative to the
greatest extent permitted by law.
8. SEVERABILITY. If at any time any provision of this note shall be
determined to be illegal, invalid or unenforceable, the rights and
obligations
of the parties shall be construed and enforced with that provision limited
so as
to make it enforceable to the greatest extent allowed by law or, if it is
totally
unenforceable, as if this note did not contain that particular provision.
9. GOVERNING LAW. This note has been delivered in, and shall be
governed by
and construed in accordance with the laws of the Commonwealth of Kentucky.
10. ATTORNEYS FEES; COSTS OF COLLECTIONS. If there is any default under
this
note, and this note is placed in the hands of an attorney who is not a
salaried
employee of the Lender for collection, or is collected through any court,
including any bankruptcy court, the Maker promises to pay to the holder
hereof
such court costs and reasonable attorney's fees as are incurred by the
holder.
11. MISCELLANEOUS. The Borrower agrees that payments received on this
note by
check, draft or other non-cash item shall not be deemed to be made until
the
Lender has received final payment of the check, draft or non-cash item
from the
financial institution that it is drawn upon.
All parties to this instrument, whether makers, sureties, guarantors,
endorsers, accommodation parties or otherwise, shall be jointly and
severally
bound, and jointly and severally waive presentment, demand, notice of
dishonor,
protest, notice of protest, notice of nonpayment or nonacceptance and any
other
notice and all due diligence or promptness that may otherwise be required
by law.
The holder of this instrument may, from time to time and in one or more
instances, with or without notice to any party, and without affecting the
obligations of any maker, surety, guarantor, endorser, accommodation party
or any
other party to this note (1) renew this note or extend the time for
payment of
principal or interest from time to time, (2) release or discharge any one
or more
parties liable on this note, (3) suspend the right to enforce this note
with
respect to any persons, (4) change, exchange, or release any property in
which
the Lender has any interest securing this note, (5) justifiably or
otherwise,
impair any collateral securing this note or suspend or release the right
to
enforce against any such collateral, and (6) at any time it deems it
necessary
or proper, call for and accept, as additional security, the signature or
signatures of additional parties, or a security interest in property of
any kind,
or both.
If checked here [ ], this note is a renewal of that certain
promissory note
dated in the principal amount of $
.
If checked here [ X ], this note is issued pursuant to the terms of
a
certain letter or loan agreement dated as of October 29, 1996 to which
both the
Maker and the Lender (with the possible addition of other parties) are
parties
(the "Agreement"), and this note is subject to the terms and conditions of
said
Agreement.
This note was executed as of and is effective as of the date set
forth above, but was actually executed on the date(s) set forth below.
IF MORE THAN ONE PERSON SHALL SIGN THIS NOTE, THE OBLIGATION OF ALL
SUCH PERSONS SHALL BE JOINT AND SEVERAL AND ANY REFERENCE IN THIS NOTE TO THE
"MAKER" SHALL REFER TO EACH ONE SEPARATELY AS WELL AS TO ALL.
IN-HOUSE REHAB, INC.
by: /s/ Robert J. Babine
Robert J. Babine,
Treasurer and Chief Financial Officer
Date: 10-29-96
Reviewed:
(officer initials)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
We have reviewed the disclosures appearing in Item 3 of the Registration
Statement on Form 10SB of In-House Rehab Corporation (formerly named
Perennial Development Corporation). We agree with the statements concerning our
firm in such Form 10SB.
/s/ Cordovano and Company, P.C.
Cordovano and Company, P.C.
Denver, Colorado
February 6, 1997
SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
Name of Subsidiary State of Incorporation or Organization
- ------------------ --------------------------------------
In-House Rehab, Inc. Kentucky
Regal Health Care, Inc. Florida
RT Group, Inc. Indiana
Daily Rehabilitation Institute, Inc. Florida
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and statement of operations found on pages F-1 and F-2 of the
Company's Form 10SB, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,941,238
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,947,702
<PP&E> 113,511
<DEPRECIATION> 22,467
<TOTAL-ASSETS> 5,166,534
<CURRENT-LIABILITIES> 2,428,301
<BONDS> 0
0
0
<COMMON> 1,886,584
<OTHER-SE> 908,059
<TOTAL-LIABILITY-AND-EQUITY> 5,166,534
<SALES> 7,030,551
<TOTAL-REVENUES> 7,030,551
<CGS> 4,965,143
<TOTAL-COSTS> 5,987,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,995
<INCOME-PRETAX> 999,580
<INCOME-TAX> 394,000
<INCOME-CONTINUING> 605,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 605,580
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and statement of operations found on pages F-8 and F-9 of the
Company's Form 10SB, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,364,005
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,334,122
<PP&E> 77,389
<DEPRECIATION> 13,867
<TOTAL-ASSETS> 3,570,152
<CURRENT-LIABILITIES> 1,621,873
<BONDS> 0
0
0
<COMMON> 1,700,585
<OTHER-SE> 302,479
<TOTAL-LIABILITY-AND-EQUITY> 3,570,152
<SALES> 6,623,410
<TOTAL-REVENUES> 6,623,410
<CGS> 4,741,296
<TOTAL-COSTS> 5,920,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,533
<INCOME-PRETAX> 637,375
<INCOME-TAX> 243,112
<INCOME-CONTINUING> 637,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394,263
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
